Liu He Clarifies New Development Paradigm of China at Davos 2023

On 18 January 2023, Chinese Vice Premier Liu He gave a keynote speech about the state of the Chinese economy at the World Economic Forum 2023 (#WEF2023) in Davos, Switzerland.

To give a sense of where the Chinese economy stands, he provided a number of macro-economic parameters. In 2022, China experienced only a 3% economic growth as the borders were basically closed with numerous lockdowns and strict COVID controls. However, on a positive note, the government managed to keep jobs and stabilize prices. Urban unemployment rate was 5.6% and CPI was only 2% in 2022. For 2023, China’s economy is forecasted to grow at around 4.5%.

China has achieved remarkable growth over the past decade with its GDP rising from RMB 54 trillion to 121 trillion and has lifted 300 million people out of extreme poverty. The contribution to global growth by China stands at 36% and it is no exaggeration to say that China remains one of the global engines of growth.

Commenting the real estate sector, he underlined that the property market remains a pillar of the Chinese economy. It accounts for nearly 40% of all bank lending, 50% of overall local government revenues and makes up 60% of urban household assets.

The central government has provided emergency ‘blood transfusion’ to the real estate sector by way of loans, bonds and equity financing. Initial restrictions on property acquisitions have also been relaxed to promote ‘blood formation’ for the sector. The urbanization drive in China is still on a fast track and the supply and demand are still strong. Therefore, China still sees much room for upswing in real estate.

In light of the new situation, China will pursue reforms and undertake a paradigm shift for its economic development based on ‘Dual Circulation.’ To put it simply, the Dual Circulation model consists of a domestic loop and an international loop. The domestic market will act as the mainstay as China promotes consumption-led growth, industrial upgrade and innovation. However, for the Dual Circulation model to work, China must continue to open up more to the world, promote globalization and interdependencies.