China still enjoys several so-called “structural enablers” over the longer term.
Primary among these is the story of Chinese urbanisation. Infrastructure has grown 7.5 per cent year on year in the first five months of 2023. And the urbanization rate is still low at 65 per cent. Because of this many “city clusters” are being developed and will likely be a source of productivity improvement.
Also crucial for the growth story are Chinese supply chains. Like Japan and Germany decades ago, China’s industrial industry remains robust. These global supply chain logistics, all leading back to China, took years to establish. As a result China is not easy to replace, just ask anyone involved in the electric vehicle sector.
Another “structural enabler” for the Chinese economy is the humble household balance sheet. Despite market concerns about high corporate debt, Chinese households are cash rich – holding total net deposits of US$6.5 trillion. Once consumer confidence improves, households will unleash their massive spending power.
Nations need to invest in change to advance and China is doing just that. China’s decarbonisation efforts led to investment in clean energy of US$546 billion, the world’s highest in 2022. Renewable energy now comprises 47 per cent of power generation capacity, up 2.5ppt and surpassing coal.
Finally, China’s current account is in surplus. Foreign debt is only 14 per cent of GDP and is fully covered by US$3 trillion of foreign exchange reserves.
This is a country that can withstand external financial shocks.
Raymond Yeung is Chief Economist for Greater China at ANZ