China Economic Outlook. September 2023

Summary

Chinese economy slowed down in Q2 amid housing crash and deflation expectation. We expect the economy could bottom out in the rest of year with the help of policy support.

Key points

• Key points:
• We significantly cut our 2023 GDP forecast from 5.7% to 4.8% and 2024 from 4.8% to 4.4%.
• There are two hot debates on the Chinese economy: whether China will enter into “Japanization” and “balance sheet recession” in the long term and whether China will achieve soft-landing in the short term.
• Monetary and fiscal policy remain easing, but the current easing measures seem weaker-than-expected as the authorities are cautious about financial stability and debt overhang.
• Housing policy is likely to be further relaxed to boost sales and investment in the sector. There is still some policy room for the housing market that the authorities have already eased some of the “constraints” but have not fully utilized the policy room.
• Deflation environment still catches the market's attention. Going forward, how to reverse market sentiments and household confidence will be the key for policy stimulus.

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