Domestic demand to drive growth in 2023

China's growth is expected to pick up notably next year with a gradual recovery in the domestic demand, as it has made boosting demand, with a focus on consumption and investment, its top priority in reviving the COVID-hit economy, experts said.

Facing harsher domestic and external environments, further efforts will be made to rebalance growth with a key focus on reviving consumer and business confidence, they added.

Their comments came after the tone-setting Central Economic Work Conference announced a push to achieve an overall improvement in economic growth. The meeting, which concluded on Friday, stated that China will focus on boosting domestic demand by prioritizing the recovery and expansion of consumption and encouraging the private sector's participation in the construction of key national projects.

Xu Hongcai, deputy director of the China Association of Policy Science's economic policy committee, said the meeting delivered clear signs of adopting a more proactive approach, and spurring consumption and expanding investment will serve as the key drivers for stabilizing the overall economy next year.

Looking to 2023, Xu expects to see a notable rebound in the second quarter, followed by a steady recovery in the third and fourth quarters, due to further optimization of COVID-19 containment measures and stronger policy support.

To foster an overall recovery, more efforts should be made to increase employment, support the development of small and medium-sized enterprises and the private sector, and create a better business environment for both domestic and foreign investors, he added.

Guo Liyan, director of the Comprehensive Situation Research Office of the Chinese Academy of Macroeconomic Research, said the implementation of a package of stimulus policies and follow-up measures will help boost domestic demand, and the accelerated implementation of key infrastructure projects and projects aimed at strengthening weak links in areas related to people's livelihood will help stabilize the economic situation.

Despite mounting uncertainties and challenges, including a complicated and grim external environment, the fundamentals of the Chinese economy and its sound economic growth momentum in the long term remain unchanged, Guo said.

"The Chinese economy has great resilience, potential and vitality, as well as ample tools to step up macro policy regulation, and China has the capabilities to hold up well despite the pressures and risks, stabilize the overall economy and continuously consolidate the recovery trend," she added.

Guo's views were echoed by Wang Yun, deputy director of the Institute for International Economic Research at the Chinese Academy of Macroeconomic Research, who said consumption serves as a "ballast stone" in boosting economic development, while investment plays a key role in optimizing the supply structure.

Citing the key tasks mapped out by the meeting, Wang highlighted the importance of stronger coordination between supply-side structural reforms and domestic demand expansion, saying the government needs to make a big push to encourage the development of new businesses, continue to improve the business environment and encourage more private sector participation in investment in programs on improving weak links in the economy.

Lu Ting, chief China economist at Nomura, said that while some pent-up demand is likely to be released with the further optimization of COVID-19 containment measures, there remain some factors that may hinder the recovery, such as the impact of COVID-19 and insufficient pent-up demand.

He said that many households have depleted their savings, while falling home prices reduce their purchasing power and willingness to spend.

Data from the National Bureau of Statistics showed that China has maintained a recovery trend with steady growth in both industrial production and investment in November, while consumption remains weak amid COVID-19 outbreaks.

"Understandably, as China implements its growth-oriented policies, it is likely that domestic demand will recover, especially relative to foreign demand suppressed by a hawkish Fed (of the United States)," said Hong Hao, chief economist at Grow Investment Group.

"To offset weak domestic demand and cushion the downside of the property market, macro-leverage will increase. Further interest rate and reserve requirement ratio cuts are on the cards," Hong said.