Analysis: China’s 2023 economic outlook

China faces uncertainty in 2023; COVID-19 remains difficult, and experts and business leaders expect the dampening effects of the credit market to persist.
Machinery is used to load and unload containers at the China-Kazakhstan Logistics Cooperation Base in Lianyungang city, Jiangsu province, China, 23 November 2022.
Machinery is used to load and unload containers at the China-Kazakhstan Logistics Cooperation Base in Lianyungang city, Jiangsu province, China, 23 November 2022.

China's economy could face some of its starkest challenges in years amid a wavering global economy and major changes in the country's financial system.

Businesses in the country are navigating the continued effects of COVID-19, as well as government reforms to the credit market. Consumers' confidence in the country's property market has been shaken, and, separately, businesses face a restricted flow of money to power their expansion.

In response, business leaders report that they're preparing for an unknown period of slower growth — in contrast to the economic boom that has defined the country's economy for many years.

The country faces "lower incomes, reduced employment prospects, reduced spending power, and lower property values", said Logan Wright, a partner and director of China Markets Research at Rhodium Group.

Wright, who returned to the US recently after decades in China, said that it's all but impossible to make predictions about the country's growth rate in the year ahead.

"We're in the midst of a pretty dramatic adjustment, not only in the property sector and the export sector, but also from the slowdown in credit growth," he said.

But some big factors are sure to play a role. Here's what he and others expect.

Credit changes

Changes to the credit markets are becoming apparent — especially in real estate.

China's economic growth in the 2010s was fuelled in large part by rapid increases in lending, especially through "shadow" forms of credit, according to Wright. Shadow banking is the management of credit outside of the formal banking system and its regulations. Instead of offering traditional loans through a bank, a bank might route transactions through third parties in order to avoid regulations and costs while providing capital for growing businesses. Alternatively, businesses in search of capital might turn to nonbank organisations, according to the Brookings Institution.

These less-closely regulated loans "essentially allowed the financial system to serve as a shock absorber for the economic system and the political system", Wright said. "In many ways, the financial system grew so rapidly precisely to offset some of the weakness in the domestic economy and to prevent that weakness from materialising earlier in China's development."

But embracing these forms of finance led to increased volatility and instability, and China's government responded in 2016 with tighter monetary and regulatory controls, Wright said.

Years later, the effects of increased regulation are still playing out. "Because the shadow banking system was so much larger than Beijing had anticipated, the crackdown and the slowdown in credit had a big impact on the economy," Wright explained.

The decline in the availability of credit has increasingly affected the economy. First, smaller banks defaulted on their obligations, which led to a greater aversion to risk amongst other lenders. The defaults spread to corporate bonds in 2020, followed by property developers in 2021.

As developers have run into money problems, their work on residential projects has stalled — leaving buyers on the hook and scaring off potential buyers. Land sales dropped by nearly 50% in the first half of 2022, compared to a year earlier, and construction has slowed, too. As in other countries, that's likely to affect other parts of the economy as demand for material and services falls.

"In 2023, what I think is under-appreciated is that the property market is certainly going to continue to decline — a very meaningful drag on growth," Wright said. "We don't really know what demand looks like in the absence of investment-driven demand. And, fundamentally, there's just less demand among owner-occupiers going forward."

That's compounded further by declines in China's working-age population, leading to expectations that the country's population is beginning a broader decline, as a researcher wrote for the World Economic Forum website.

In September, China reported an annual economic growth rate of 3.9% — a number that is short of the government's goals and well below the country's pre-pandemic average. The greatest question, Wright said, is how China's powerful central government will respond to these changing economic conditions.

Meanwhile, here's how businesses are preparing for the year ahead.

Funding shortages are affecting startups

Yiqing Chen, FCMA, CGMA, is CFO of Ascentage Pharma, a biopharmaceutical company developing novel therapies for cancer. It was a booming industry in the late 2010s, and interest was fuelled further by COVID-19 and renewed interest in biomedical innovation, Chen told FM.

But then, Chen said, companies faced "the most severe unexpected downturn in capital market". While China faces unique challenges in capital markets, a similar decline in funding availability has slowed business activity in the US, too, according to PwC.

In China, the downturn led to tough decisions. Companies that had poured "abundant" funds into research and development then had to divide up limited budget resources. Chen's company has tried to adapt by setting up a new sales and marketing team and allying with pharmaceutical distribution groups.

Still, he worries about the sector: "This downturn may accelerate," he said. That could lead small biotech companies to put themselves up for sale, allowing long-term investors and Big Pharma to make a move for consolidation.

The supply chain still hasn't healed

Cindy Jing, FCMA, CGMA, the managing director of chemical manufacturer Pulcra China, told FM that some manufacturers, especially those in the automotive industry, have recovered from the shock to supply chains.

But other industries are still struggling with logistics. The chemical industry has "seen capacity shortage problems in both international logistics and domestic transportation", Jing said. As in other countries, supply chain issues have been prolonged by events including the Russia-Ukraine war.

Those disruptions have led to "a great negative impact on international logistics and energy, and also led to the continuous rise in the price of chemical raw materials, especially the global price of oil, gas, coal. I personally think it will take some time for the chemical industry to recover to the pre-pandemic situation," she said.

John Jin, FCMA, CGMA, the CFO of PayPal China, said that one major supply chain factor is beginning to resolve: The cost of sea-freight shipping is falling after a dramatic pandemic spike. That will help exporters and stimulate international trade, he said. But, he warned, it may take another six to 12 months for the supply chain as a whole to return to normal.

Meanwhile, high inflation and global geopolitics will continue to trouble the economy, Jin added. "I am personally not optimistic the consumption and trade will return to normal until those key challenges are resolved," he said.

COVID-19 restrictions

China has made international headlines in recent months for its response to COVID-19 outbreaks. In 2022, the government instituted a months-long lockdown affecting millions of people in Shanghai, part of a broader effort to maintain a "zero COVID" policy while many other world economies have fully reopened.

Further shutdowns could disrupt business activity, such as travel, and may also lead to economic slowdowns.

"The outbreak of COVID-19 in recent years and the lockdown in Shanghai this year have had some negative impact on our business and delayed the progress of our investment project in China, but the goal remains the same," Jing of Pulcra China reported.

In early December, COVID-19 controls started to be eased in Guangzhou, Guangdong province, and then other cities in China. But early into 2023 infections continued to surge.

Business leaders had learned to live with restrictions and with the virus itself. Janet Yan, FCMA, CGMA, finance director of New World Wuhan Hotel in Wuhan, said that COVID-19 led to "drastic fluctuation" for her business.

In response, the company moved to reduce its staff, cross-train existing workers, and outsource work where possible. The business also established a shared service centre for finance, used technology to allow people to work remotely, and used software to automate processes.


Yan sees opportunity ahead despite the difficulties. "We can see [increased] spending … especially for high-income groups," she told FM. "Moreover, the market rebounded very fast."

In the chemicals industry, Jing also has reasons for optimism. She thinks a government focus on sustainability will open new business opportunities, and Pulcra's already planning for growth.

"We have expansion plans in China in the next few years," she said. "For example, we decided to invest a new operation site in Jinshan to expand our capacity to meet the Chinese market demand as well as to radiate to the neighbouring countries and regions."

— Andrew Kenney is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at