2023 is shaping up to be a year of unprecedented economic expansion despite global risks, according to McKinsey partner Jonathan Woetzel and Financial Times Asia editor Robin Harding’s discussion in 2022. In their preview for 2023’s major business news stories that should keep an eye on, McKinsey partner Jonathan Woetzel and Robin Harding provide their outlook and commentary.
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1. China’s economy
China’s economy is an integral factor of global expansion; yet its future remains unclear.
China is facing growing geopolitical tensions with the West and a weak housing market, creating formidable headwinds to its economy. Now is an opportune moment to reexamine growth models as Beijing prioritizes stability over prosperity, and self-reliance over dependence. A slower economic expansion may bring important reforms.
2. China’s stock market
China’s stock markets possess substantial market capitalizations relative to international standards, yet do not play as large a role in its economy as those found in countries like the US where equities account for much of household wealth and businesses rely heavily on raising equity capital to finance investments.
Goldman Sachs predicts this shift from “reopening to recovery” will cause Chinese shares to surge 24% higher by year’s end.
3. China’s trade
Foreign trade drives China’s economy and helps its people live better lives, as well as contributing to globalization for all countries and regions.
China has achieved this through adherence to international trading rules and participation in global value chains, even amid ongoing trade conflicts with the US and antagonism between it and Europe. Exports remain resilient.
4. China’s debt crisis
Many economic actors in China rely on the State to guarantee local government debt and bank deposits which carry an implicit guarantee from it.
Analysts increasingly argue that Beijing’s ability to finance its debt pile is unsustainable and predict that a credit crisis could occur at some point – something which would not bode well for global economy.
5. China’s currency
China’s currency is facing pressure from both internal and external forces. Beijing faces increasing external pressure to allow the yuan to appreciate, as well as internal strain from foreign investment flows and money flows.
China is often accused of engaging in mercantilist policies to artificially undervalue its currency against the dollar, giving Chinese exporters an unfair price advantage. China’s official currency is called “people’s money”, often abbreviated CNY or RMB.
6. China’s economy outlook
After failing to hit their “around 5%” growth target last year, Chinese officials set moderate economic goals for 2023 that surprised many investors who expected massive stimulus measures from Beijing.
Economists anticipate a strong rebound for China once disruptions due to zero-COVID policies have eased. Yet many challenges still face its second largest economy, such as balancing household demand, reforming state-owned enterprises, and managing climate change.
7. China’s banking system
China’s banking system had historically experienced fast expansion, supported by government guarantees for both borrowers and lenders. However, Beijing’s efforts to curb property sector excesses have created additional pressures that threaten these gains.
Regulators now must transform the big four banks into sustainable commercial entities with wider ownership, improved governance and access to capital markets.
8. China’s e-commerce
China’s megacities boast bustling malls and retail markets, while rural consumers largely rely on online shopping as their only viable option. This transition from physical to digital commerce is one key driver behind its rapid e-commerce advancements.
China’s e-commerce sales are expanding at an astonishing pace and are outstripping both South Korea and the US in terms of growth. Furthermore, this country has witnessed rapid development of key industry innovations such as livestreaming.
9. China’s infrastructure
China’s government plans to invest more in infrastructure to boost China’s economy include building inter-city high-speed rail lines, charging stations for electric vehicles and ultra-high voltage power transmission lines.
New infrastructure could play a vital role in improving productivity, increasing domestic demand and maintaining sustainable growth. Unfortunately, due to its debt reduction goals, investing in such projects may be limited; nevertheless, they remain an important policy priority.
10. China’s telecommunications
China boasts the world’s largest telecom market, with hundreds of millions of main line and mobile phone subscribers. Beijing exerts tight control over three integrated telcos that operate as state monopolies and allows it to extract lucrative patents as well as influence standard processes.
Telecommunications consumption currently shows geographical disparities that may hinder advancement. One effective solution is creating a universal service fund to narrow this gap.