China’s Growth Target Uncertain as Economists Lower Forecasts

China’s economic growth target of approximately 5% for this year is teetering on the edge, as indicated by the latest Bloomberg survey. The ongoing property crisis adds a layer of risk to achieving this target.

According to a recent Bloomberg survey of 78 economists, the Chinese economy is expected to expand by 5% in 2023, marking a slight downgrade of 10 basis points from a previous poll. Analysts attribute this adjustment to the significant challenges posed by the property sector, which continues to cast a shadow on the nation’s economic prospects.

Despite recent government interventions to bolster the property market, analysts at Poseidon Partner, a Hong Kong-based investment firm, believe that the real estate sector will remain under substantial pressure, particularly for those who have accumulated debt in the past.

Bloomberg Economics’ research aligns with this uncertainty, suggesting that the “around 5%” growth goal is still attainable but far from guaranteed. They estimate an 18% probability of falling short of this target. Economists Chang Shu and Andrej Sokol, in their recent report, mention the property slump, fragile sentiment, and corporate sector debt stress as potential drags on the economy. They project a GDP expansion of 5.4% for the year.

Several major financial institutions, including HSBC Holdings Plc, Morgan Stanley, and Citigroup Inc., have already predicted growth below 5% for this year. HSBC, for instance, recently lowered its forecast from 5.3% to 4.9%.

August data offered a glimmer of hope, with signs that some of the economic challenges may be easing. Exports saw a less severe decline, and manufacturing activity in official surveys approached the expansion threshold. Credit growth exceeded expectations, hinting at some stability in household demand for mortgages, thanks to government efforts to support the real estate market.

While these positive developments have reduced the probability of China missing its official growth target, uncertainty remains, especially regarding the housing market. The housing rally in major cities has lost momentum, according to home sales data.

China’s property crisis is widely considered the nation’s most significant challenge, according to a separate survey. Seventeen out of 21 economists polled by Bloomberg named “real estate” as the top issue. Three mentioned the economic slowdown, while one respondent cited a confidence crisis in the nation.

Regarding the ongoing slump in housing sales, 15 out of 21 economists in the survey expect home purchases to continue declining at least until the beginning of next year. Some experts even suggest it could take up to a year for the property market to recover fully.

Former central bank adviser Li Daokui urged Beijing to encourage lending to developers to prevent further defaults and hasten the property market’s recovery. While sales in larger cities might rebound sooner, smaller cities may take longer to experience a “good recovery.”