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China's population decline accelerated in 2023 as the economy grew at one of the slowest rates in decades, suggesting the world's second-largest economy continues to face challenges from a housing downturn, deflation and demographic pressures.
Gross domestic product grew 5.2 percent last year, surpassing growth of just 3 percent in 2022 when the economy was constrained by Beijing's draconian zero-Covid restrictions, and exceeding the government's official target of about 5 percent, which already represents the lowest benchmark in decades.
But the population fell for the second year in a row as deaths rose and births fell. Wang Feng, an expert in Chinese demography at the University of California, Irvine, said the decline of 2 million people shows the “footprint of Covid-19” that spread across the country in early 2023 after authorities launched the anti-pandemic measures were hastily lifted.
Analysts said the data highlighted the challenge for President Xi Jinping, who began an unprecedented third five-year term last year, to engineer a stronger economic recovery.
“In some ways the strong headline is a bit misleading,” said Fred Neumann, chief Asia economist at HSBC. “The previous year was very weak and actually masks some of the underlying weaknesses that we are seeing in terms of overall demand.”
Chinese stocks lost ground after the data was released. Hong Kong's Hang Seng Mainland Properties Index fell 4.9 percent to an all-time low, while the Hang Seng China Enterprises fell 3.5 percent to fall 9 percent this month. The broader Hang Seng index fell 3.4 percent, while the CSI 300 index of Shanghai- and Shenzhen-listed stocks fell 1.1 percent.
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The real estate sector, which has been mired in a debt crisis for three years, will continue to suffer in 2023, official statistics showed on Wednesday. Investment in real estate development fell 9.6 percent year-on-year last year, while new home prices fell 0.4 percent in December compared to the previous month, the biggest decline since February 2015.
China's population fell to 1.4 billion people in 2023 as 11 million deaths outpaced 9 million births, and demographers are predicting further declines as the population ages rapidly. The number of deaths last year was nearly 600,000 more than in 2022, surpassing the increase of more than 200,000 between 2021 and 2022.
“It is very likely that the rapid increase in the number of deaths is due to the chaotic end of zero Covid, which led to many excess deaths,” said Wang of the University of California.
The population, which fell in 2022 for the first time in 60 years, is the result of a 1980s policy that limited most couples to one child and is well below the average of 2.1 needed to do the same to maintain level. The statewide death rate was 7.87 per 1,000 residents in 2023, the highest since the early 1970s and an increase from 7.37 the previous year.
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China's Prime Minister Li Qiang anticipated the official data release on Tuesday, announcing key GDP growth figures at the World Economic Forum in Davos on Tuesday. Li praised policymakers' focus on “strengthening internal drivers” rather than unleashing massive stimulus that some experts have called for to revive growth.
Economists said the annual growth rate was likely flattered by up to two percentage points based on a comparison with low growth during the pandemic, and suggested Beijing needs to do more to stabilize the property market and boost consumption this year to curb deflationary pressure.
GDP in the fourth quarter was 1 percent higher than in the third quarter and 5.2 percent higher year-on-year, narrowly missing analyst forecasts of 5.3 percent. The quarter-on-quarter growth rate was lower than the 1.5 percent in the third quarter, which was revised upwards.
Julian Evans-Pritchard, head of China economics at Capital Economics, said this did not appear to be consistent with signs of an economic recovery in the fourth quarter, after alternative data sources suggested an outright contraction in the third quarter.
“We have seen in the past that during downturns, official GDP data often does not fully reflect the extent of the weakness and later makes up for this by not showing the full extent of the recovery either,” he said. “So I suspect that we are currently seeing something similar.”
Non-rural fixed investment increased 3 percent in 2023 compared to the previous year, with infrastructure investment increasing 5.9 percent and manufacturing increasing 6.5 percent. Private investment fell 0.4 percent, the National Bureau of Statistics said.
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Retail sales, a measure of consumption, rose 7.4 percent year-on-year in December, compared with the 8 percent forecast by analysts, while industrial production rose 6.8 percent last month from a year earlier, above expectations 6.6 percent.
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China's top leaders said the economy is on the right track and “panic stimulus measures are not needed,” said Eswar Prasad, senior fellow at think tank Brookings Institution.
However, the data revealed an economy that “experienced subdued growth at best, characterized by weak domestic demand and persistent deflationary pressures,” he added. “It seems premature to say the economy is out of the woods.”
Additional reporting by William Sandlund in Hong Kong
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