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China’s economic growth target of 5% for 2023 at risk due to property crisisof 5% for 2023 at risk due to property crisis

China appears to be on course to reach its economic growth target of approximately 5% for the current year, according to the most recent Bloomberg survey. Nevertheless, the ongoing property crisis is heightening the risk of falling short of this target.

As per the survey, which collected responses from 78 economists, it is projected that the economy will expand by 5% in 2023. This represents a slight reduction of 10 basis points compared to a previous poll, with experts pinpointing the property sector as the principal challenge confronting the nation.

Analysts at Poseidon Partner, an investment firm based in Hong Kong, expressed their apprehensions, noting that “the real estate sector will continue to face increasing pressure,” despite recent government measures aimed at supporting the property market. They anticipate that individuals and entities grappling with past debts may continue to encounter difficulties.

The survey results align with research conducted by Bloomberg Economics, which indicates that achieving the “around 5%” growth objective is still feasible but not without uncertainties. They estimate an 18% probability of falling short of this target.

Economists Chang Shu and Andrej Sokol, in a report released on Tuesday, acknowledged that the drag caused by the property market downturn, fragile economic sentiment, and widespread corporate sector debt pressures could potentially steer the economy toward a lower growth trajectory. Their projection for gross domestic product (GDP) growth in 2023 stands at 5.4%.

Several financial institutions, including HSBC Holdings Plc, Morgan Stanley, and Citigroup Inc., have already forecasted growth below 5% for the year, with HSBC recently revising its forecast downward to 4.9% from 5.3%.

Data from August indicates that some of the economic headwinds may be stabilizing, with improvements in exports and manufacturing activity, coupled with credit growth surpassing expectations. Nonetheless, uncertainties persist, particularly concerning the housing market, which has already exhibited signs of deceleration in major cities.

The property crisis emerges as China’s foremost challenge in a separate survey, with 17 out of 21 economists identifying “real estate” as the paramount issue. Some anticipate that housing sales will continue to decline at least until the beginning of the next year.

Former central bank adviser Li Daokui suggests that the property market’s recovery could take up to a year, urging Beijing to boost lending to developers to avert further defaults. While sales in larger cities may rebound sooner, smaller cities may require more time to witness a robust recovery.

To address these challenges, HSBC economists recommend that policymakers exercise caution in deploying an extensive wave of policy support to avoid exacerbating structural imbalances. Although fiscal and monetary support measures are being implemented, their significant impact may require time to materialize.

Additional insights from the Bloomberg survey include:

– China’s GDP is anticipated to grow by 4.3% year-on-year in the third quarter and 4.8% year-on-year in the fourth quarter of 2023, slightly lower than previous estimates.
– The growth forecast for 2024 remains unchanged, with expectations of a 4.5% year-on-year expansion.
– Economists predict a 10 basis point reduction in China’s one and five-year loan prime rates for this year.
– Forecasts for a 10 basis point reduction in the central bank’s one-year medium-term lending facility rate before the end of the year remain consistent.
– Producer prices are expected to contract by 2.9% for the full year, a slight improvement from previous estimates of a 3% decline.
– Exports are likely to decrease by 4.2% in 2023, while imports are projected to decline by 5.6% for the year, with no change from prior projections.

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