Summary
In the third quarter of 2023, China's economic growth decelerated, primarily due to underperforming property and private sector investments. Various financial institutions have revised downward their growth forecasts, casting a shadow over market optimism. The IPO market shows mixed signals, while equity markets are expected to see modest gains. As the year progresses, these factors could cumulatively decide whether China meets its official growth target for 2023.
In Q3 2023, China's economic expansion showed signs of deceleration, largely attributed to stagnation in the property market and lukewarm private sector investment. The nation's Gross Domestic Product (GDP) expanded at 5.5% year-over-year in H1 2023, encompassing a Q2 growth of 6.3% after a 4.5% increment in Q1. Notably, fixed-asset investment expansion cooled off, registering a mere 2.8% growth in Q2, compared to a more robust 5.1% in the preceding quarter. Despite growth in investment in high-tech manufacturing and services—clocking 11.8% and 13.9% respectively—the former witnessed a significant plunge from its prior year's annual growth, which stood at 22.2%.
As for the equity markets, the CSI 300 Index, representing mainland shares, is projected to see a modest Q3 rise of around 3%. Meanwhile, Hong Kong's Hang Seng Index could potentially register a sub-6% uptick. Financial giant Goldman Sachs anticipates a bullish shift in China's stock market towards year-end.
The Initial Public Offering (IPO) sector displayed moderate activity with 25 listings in the first three quarters of 2023, accumulating USD 651 million. This shows a sharp contrast to the previous year, where only 13 IPOs took place, raising USD 449 million. Forecasts suggest the main boards in Shanghai and Shenzhen will host between 50 and 70 IPOs, with expected proceeds ranging from RMB 70 billion to RMB 90 billion. An additional 75 to 85 listings are projected on the Beijing Stock Exchange, targeting a capital inflow between RMB 14 billion and RMB 16 billion.
Financial institutions are increasingly pessimistic about China's growth trajectory. KPMG, for instance, slashed its 2023 GDP growth forecast to 5.5%, and 5.2% for 2024. Bank of America was equally bearish, revising its predictions to 5.1% for 2023 and 4.8% for 2024. Barclays trimmed its projection to 4.5% due to an accelerated decline in the housing market, while The Conference Board trimmed its 2023 forecast from 5.1% to 4.8%.
The property market, historically contributing nearly a quarter to China's economic bulk, is in a rut, with far-reaching implications for consumer spending and local fiscal health. The downward spiral in housing prices is likely to persist, prompting the central government to potentially permit local governments to increase their debt financing to service long-term obligations—a move seen as crucial for a mid-2024 economic recovery.
Over the long run, given its elevated savings rate, China's economy harbors the potential to grow at an annual rate of 5.5%. However, headwinds are imminent. The IPO market is losing steam, and policy measures need to be finessed to ensure the official growth target of approximately 5% for 2023 is not missed. The final quarter of 2023 is critical for gaining a clearer understanding of China's economic landscape, particularly any state interventions geared towards rejuvenating the all-important real estate sector.