How will Beijing respond in the second half of 2023?

CHINA FINANCIAL - Report 27 Jun 2023 by Michael Pettis

Special points to highlight in this issue:

* Growth will probably surprise on the upside in the second half of 2023 as Beijing, worried about a disappointing first half of the year, does all it can do to boost economic activity.

* But what can it do? Consumption doesn’t seem to be reviving, and there is no reason to expect a change in the next few months. China’s share of global exports will continue growing, but with weak expected global growth, total exports are unlikely to grow. Given continuing debt problems and weak demand, the property sector will at best stabilize. And business investment, driven mainly by consumption and exports, will almost certainly remain broadly flat for the year.

* That leaves the only lever Beijing has to boost economic activity: an expansion in government-sponsored investment in infrastructure and transportation. This is where I expect a rising share of activity over the rest of 2023. Put differently, growth will pick probably up in the second half of 2023, but in the form of a further deterioration in the quality of growth.

Now read on...

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