People wander through Anyi Night Alley in Jing’an District, Shanghai. Photo: TUCHONG

The Chinese economy today faces headwinds, this is a fact. However, it is also an undeniable fact that the economy has strong resilience and can maintain its long-term upward momentum.

Overall economic performance

In 2023, in the context of a complex and uncertain external environment, the Chinese economy has demonstrated strong resilience. This is indicated in the economic growth rate, price levels, employment, and international balance of payments.

First, the economy maintains a demonstrable positive growth trend. In fact, China’s economic growth rate has been leading the world for the last decade. According to the World Bank, from 2013 to 2022, China’s total economic output continued to rise, with an average annual growth rate of 6.24%, while the United States was 2.11%, the European Union was 1.63%, Germany was 1.23%, and Japan was 0.54% during the same period. 

In 2023, China’s economic growth rate registered at 5.2%. The economic increment, when calculated at comparable prices, exceeded 6 trillion yuan in 2023. This figure is equivalent to the economic aggregate of a medium-sized country. China’s growth rate not only exceeds the expected global growth rate of around 3%, but also ranks among the top of the world’s major economies.

Second, the overall trend in price increases is moderate. Prices are generally stable, which proves that China’s economy is operating within a reasonable range. With the outbreak of the COVID-19 pandemic globally, many central banks in Western countries assumed negative interest rate policies. These policies have failed to achieve the expected stimulus for growth, instead leading to a sharp increase in inflation rates. In 2023, the consumer price index in China increased by 0.2% compared to 2022, and the overall price level remained stable. This sharply contrasts with Western countries, and also plays an important role in stabilizing social expectations while boosting market confidence.

Third, the vital interests of thousands of households depend on employment—making employment China’s largest livelihood project. Facing profound changes in the external environment, China quickly optimized and adjusted policies and measures to stabilize employment. In 2023, employment costs for enterprises were reduced by more than 200 billion yuan for the whole year, and the government expenditure on employment subsidies exceeded 100 billion yuan. In 2023, China’s urban new employment increased by 12.44 million people, and the urban surveyed unemployment rate in December was 5.1%. The policy of prioritizing employment is the cornerstone of ensuring overall social stability. 

Finally, international trade maintains stable. In 2023, China’s export product structure steadily continued to optimize, with exports of machinery and electronic products reaching 13.92 trillion yuan, a year-on-year increase of 2.9%. Machinery and electronics account for 58.6% of the total export value, an increase of 1.3 percentage points over 2022. In particular, the total exports of China’s “new three” products—electric cars, lithium-ion batteries, and solar panels—reached 1.06 trillion yuan for the first time, and exports of cargo ships and household appliances maintained rapid growth.

At the same time, China’s foreign exchange market operated steadily, the international balance of payments remained even, and foreign exchange reserves stood stable at over $31 trillion throughout the year. The good performance mentioned above fully demonstrates that China’s economic recovery and long-term upward momentum have not changed, and its overall market competitiveness remains solid.

Unique advantages

The Chinese economy’s recovery and positive trend in 2023 is by no means an accident as it stems from the nation’s strong resilience and development potential. Upon deeper analysis, it becomes clear the Chinese economy has unparalleled unique advantages in the following aspects.

First, China’s strong production capacity ensures its sustained and healthy economic operation. The industrial revolution originated in the West, which has led the world in industrialization ever since. However, from the 1970s onward, Western countries began “de-industrialization,” and their national economies have grown stagnant in this stage. This manifests in low economic growth rates, widening wealth gaps, soaring government debt, declining industrial competitiveness, exhaustion of export capacity, and frequent financial crises. 

To fully utilize and leverage its latecomer advantages, China has formed the world’s largest, most comprehensive, complete, and internationally competitive manufacturing industry, becoming the world’s second-largest economy. In 2022, China’s value-added in manufacturing reached 33.5 trillion yuan, accounting for 27.2% of the GDP, and its share of the global total has reached around 30%, ranking first in the world for over a decade. 

Second, high-quality development based on strong innovation capacity has become the main theme of the Chinese economy. The “World Intellectual Property Indicators” report shows that in 2022, China’s patent applications reached about 1.6 million, ranking first in the world. According to the “Global Innovation Index 2023,” China is twelfth globally, with six indicators ranking first in the world while China has 24 global top science and technology clusters, classified as first in the world for the first time in the ranking of top science and technology clusters. 

In 2022, China’s new kinetic energy development index was 766.8, an increase of 28.4% over the previous year. Looking at the main component indicators, the innovation-driven index was 336.3, an increase of 15.5% over the previous year, and the knowledge capacity index was 193.4, an increase of 5.9% over the previous year. China has become the world’s largest and most diverse talent resource powerhouse, with a total talent pool of 220 million people. 

In recent years, the investment growth rate of high-tech industries in China has been much faster than the overall investment growth rate, and the added value of the automobile manufacturing industry, electrical machinery industry, and equipment manufacturing industry has increased significantly, fully indicating that China’s economy has turned toward innovation-driven high-quality development. Innovation is the primary driving force for development. The driving force of China’s economic development has shifted from large-scale factors to innovation, solidifying the foundation for China’s economy to maintain its upward momentum.

Third, the newest technological revolution is accelerating the transformation of the Chinese economy. In today’s era, digital technology’s intersection with the economy pioneers the global technological revolution and industrial transformation. This nexus is the key to the new round of international competition. China attaches great importance to the development of the digital economy and vigorously promotes the deep integration of the digital economy and the real economy. 

Currently, China has built the world’s largest and most technologically advanced digital infrastructure. By the end of 2022, there were 110 “gigabit cities” built across the country, with a total of 2.312 million 5G base stations opened, while the number of 5G terminal users exceeded 450 million, accounting for more than 60% of the global total. The total scale of computing power in data centers ranks second in the world, with an average annual growth rate of over 25%. 

At the same time, the digital economy is vast and developing rapidly. From 2014 to 2022, the scale of China’s digital economy increased from 16.2 trillion yuan to over 50 trillion yuan, ranking second in the world in terms of total volume. By the end of 2023, the number of internet users in China reached 1.079 billion, and the internet penetration rate was 76.4%—making it the only country in the world with an internet user base exceeding 1 billion. The digitization and intelligentization of various industries shaping the national economy are key for high-quality development and the healthy and stable operation of the Chinese economy.

Fourth, the super-large-scale market provides strong confidence for China to cope with the risks of external market contraction. China’s population exceeds 1.4 billion, among which 400 million belong to the middle-income demographic, and the per capita GDP exceeds 12,000 US dollars, forming the preliminary advantages of a super-large-scale market. In 2023, final consumption expenditures in China drove economic growth by 4.3 percentage points, an increase of 3.1 percentage points over the previous year, contributing 82.5% to economic growth. 

With the increase of residents’ income and the enlargement of the middle-income group, the consumption scale in China will continue to expand. The advantage of a super-large-scale market means that it has huge potential domestic demand, providing a broad market space and cooperation opportunities for enterprises in other countries. These Chinese companies will need to expand their imports of high-quality consumer goods, advanced technologies, important equipment, and key components, as well as energy and resource products and domestically scarce agricultural products, to improve the development level of the local real economy, the manufacturing industry, and inject new impetus into the development of the national economy and fuel the global economic recovery. 

Another advantage of China’s super-large-scale market and domestic demand potential is that it encourages highly competitive manufacturing industries to “go global,” forming advantageous interactions between domestic demand and foreign demand and enabling China’s foreign trade to achieve steady growth in scale and quality improvement against the background of relatively sluggish global trade performance.

Fifth, China is transitioning from the advantage of a high population quantity to an improved population quality. The growth potential of any economy is mainly determined by potential demand and production capacity. According to the “2024 Chinese Economic Forecast and Outlook” report, released by the Chinese Academy of Sciences, rural residents who live in the countryside account for 36% of the total population, while another 18% reside in urban areas. Increased urbanization will elevate income and consumption levels for this population segment. With 900 million people in China having at least a junior high school education, their increased income levels will lead to sustained growth in consumer demand. 

In addition, China’s national savings rate remains above 40%, and this potential capital supply plays a significant role in driving investment. With an average life expectancy of 78 years, and approximately 140 million active and healthy people aged 60 to 70, along with gross enrollment rates of 91.4% for high school students and 57.8% for higher education, these demographic factors indicate that China still possesses relatively abundant labor resources, which can provide strong support for sustained economic growth.

Efficient macroeconomic governance 

Macro-economic governance is an important component of the national governance system. Through long-term exploration and practice, China has adhered to the principles of managing both demand and supply, combining short-term and medium-to-long-term regulation, coordinating domestic and international considerations, and mixing interval regulation with precise regulation. 

In response to new macroeconomic issues in recent years, China has implemented a series of policy measures aimed at harnessing both the fundamental role of consumption and the critical role of investment, supporting industrial transformation and upgrading, promoting the development and growth of the private economy, and fostering a favorable business environment. 

Going forward, we need to promote high-quality development through scientific and efficient macroeconomic governance, better integrate effective markets with proactive government interventions, and ensure complementarity between macro and micro policies. These targeted interventions will further facilitate the rapid release of policy dividends and effectively drive sustained recovery, ultimately improving the Chinese economy.

He Zili is a professor from the School of Economics at Nankai University.

Edited by YANG XUE