China’s economy faces ‘greater challenges’ in 2023 as risk of global recession, debt crises grows

Uncertainty facing the global economy next year will exacerbate challenges at home for China, economists in Beijing say, while urging swift support to help counter external headwinds. As the risk of global recession looms, China should stay alert to turbulence in international markets and the potential of another financial crisis, said former vice-finance minister Zhu Guangyao at a forum organised by web portal Sina on Wednesday. “There could be greater challenges for 2023,” he said.

Debt crises have broken out in some less developed countries following US monetary policy tightening, while war in Ukraine has roiled energy and food markets.

A recession is looming for Britain and if the US Congress does not raise its debt limit in a timely manner the US Treasury bill market could collapse, unleashing a financial storm, Zhu said. His warning comes ahead of the tone-setting central economic work conference, where China’s new leadership lineup will decide the economic and policy outlook for the year ahead.

Zhu predicted rate hikes among developed countries will not stop until mid-2023, highlighting the need for international macroeconomic policy coordination.

Developed markets are major destinations for Chinese goods, and financial volatility there often spills across global markets. The Chinese economy saw huge disruptions during the 2008 global financial crisis, when falling external demand forced closure of factories on the coast and 20 million migrant workers were forced to return to their hometowns.

While China has been affected by aggressive rate hikes in the West, its economy has suffered more from rigid coronavirus controls, such as lockdowns.

Though the government made a sudden about face last week, the economy is in for a bumpy road as zero-Covid comes to an end. China’s 24-member Politburo, headed by President Xi Jinping, has pledged to stabilise economic growth, employment and prices next year. It will aid the economy with targeted monetary tools and more fiscal support.

China’s economic growth has declined since 2011, the year when Chinese labour peaked, but has come under enormous pressure over the past three years.

“The fall in economic growth is a potential risk that deserves our high attention,” Li Daokui, a Tsinghua University professor and former central bank adviser, said at the same forum. “Speed is very important.” Li echoed growing calls for a stronger stimulus package to save the economy, proposing three arrows – invigorating market entities, debt restructuring and property market stabilisation, and the need for a united front against US economic pressure.

“Our economic authorities and business community should form a consensus that ensuring [a certain level of] growth should be an important task for China in the years ahead,” he said. Many analysts are expecting a growth target of around 5 per cent and higher fiscal deficit ratio, compared to the projected expansion of around 3.2 per cent in 2022. “We should have confidence because the Chinese economy still has huge potential,” Li said.