China’s economic growth masks persistent risks, caution analysts.

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Analysts believe further fiscal and monetary measures, including interest rate cuts, will be necessary to support China’s economy, despite this week’s higher-than expected growth figures.

The National Bureau of Statistics (NBU) on January 17 released a batch of figures on the economy’s performance during 2023. GDP in the fourth quarter had risen by 5.2% year on year. This figure, which was in line with analysts’ forecasts, exceeded the 4.9% recorded during the previous quarter. It was also higher than the average annual growth rate of 4.7% for the year.

Despite the positive figures, analysts argue that the Chinese economy still faces risks that could hamper its long-term growth. Some of the key risks identified include:

  • Debt levels: China’s debt-to-GDP ratio reached an all-time high of over 260% in 2023, and continues to rise. This raises concerns about the sustainability of China’s economic growth.
  • Housing market: China’s property market, particularly in large cities, is showing signs of a bubble, with rapidly rising prices and speculative buying. This poses a risk to financial stability if the bubble were to burst.
  • Shadow banking: China’s shadow banking sector, which consists of non-bank financial institutions that provide credit outside of the formal banking system, remains a source of vulnerability. Regulators have been trying to rein in shadow banking activities, but the sector continues to grow.
  • Trade tensions: China’s economy is heavily dependent on exports, and any escalation in trade tensions with other countries, particularly the US, could have a significant impact on economic growth.

In light of these risks, analysts are calling for further policy measures to support the economy. Some possibilities include:

  • Interest rate cuts: The People’s Bank of China (PBOC) could further lower interest rates to stimulate borrowing and investment.
  • Fiscal stimulus: The government could increase spending on infrastructure projects and other measures to boost economic activity.
  • Structural reforms: China could implement reforms to address issues such as debt overhang, property market speculation, and shadow banking.

Overall, while China’s economy has shown signs of resilience, analysts argue that more needs to be done to address the underlying risks and ensure sustainable long-term growth.

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