China's real estate crash is dragging down GDP growth. Industry problems need to be addressed quickly to boost growth. Comparisons to housing market corrections in other countries suggest China's correction may be halfway complete, indicating further price and volume declines. KKR expects a modest GDP slowdown but potential policy support could ease the drag on the economy. Digitalization, carbon neutrality, and consumer spending are expected to drive growth.
China's economy is ending the first quarter of 2023 with positive momentum. A business survey shows job growth, increased retail spending, and revenue growth. Official data reports strong numbers in retail sales, industrial production, and investment. Despite rising interest rates, borrowing has slowed down. The government has set a growth target of 5% for the year.
Despite challenges in real estate, infrastructure, and exports, China is pivoting its economy towards manufacturing and technology. HSBC, the global bank, expresses optimism about China's long-term economic prospects as it transitions to a more consumer-driven, sustainable economy. While short-term headwinds may persist, HSBC anticipates a stronger future for China as it adapts to economic maturity.
China experienced inflation in February (0.7% year-on-year) after months of deflation. Despite this, some analysts believe deflation still looms and consumers remain cautious. However, Shaun Rein of China Market Research Group suggests investors consider re-entering the Chinese market as valuations are low. China's economic challenges over the past year have led to declines in stock markets, but Rein believes long-term growth prospects are promising, especially in domestic neighborhood electric vehicle manufacturers.
