Although it will face continued global uncertainty, high global inflation and a slowdown in the world economy and trade, China's economy has signaled a rebound as pressure from contraction of demand, supply shocks and weakening expectations eases, a report released during the China Development Forum 2023 read. Themed Economic Recovery: Opportunities and Cooperation this year, the annual event, which took place offline again for the first time since the onset of COVID-19 in 2020, gathered political bigwigs, business magnates, experts and scholars from the world over in Beijing on March 25-27. The forum came as China seeks to revive its economy after adjusting its pandemic control policy in late 2022.

The International Monetary Fund has raised its projection for China's economic growth in 2023 to 5.2 percent. "For the world economy, however, spring is yet to come," Kristalina Georgieva, the fund's Managing Director, said at the forum, adding the rebound of China's economy will deliver a welcome lift to the world, contributing about one third of global growth this year.

"It will buoy steady and sustained development, adding certainty to a global growth clouded by upheavals," Han Wenxiu, Executive Deputy Director of the Office of the Central Committee for Financial and Economic Affairs of China, echoed.

Boosting demand

"Beyond the direct contribution to global growth, our analysis shows that a 1-percentage-point increase in GDP growth in China leads to a 0.3-percentage-point increase in growth in other Asian economies on average — a welcome boost," Georgieva added.

During the week-long Chinese New Year holiday from January 21 to 27, tourism revenue in China surged 30 percent year on year and cinemas nationwide reported the second-highest box office figure on record, indicating improving consumer sentiment.

Expanding domestic demand is not only key to supporting economic recovery but also a fundamental method to stabilize the mid- to long-term growth of the world's second largest economy, Wang Yiming, Vice Chairman of the China Center for International Economic Exchanges, said.

China now has the world's largest and most dynamic middle- and high-income group, the main consumers of medium- and high-end goods and services in the fields of education, medical care and tourism, Wang said. He called for loosening restrictions on housing purchases to unleash the demand for improved living conditions, stressing that the measures imposed years ago to curb skyrocketing property prices are already unnecessary given the real estate market has stabilized. Big cities should upgrade their urban networks to ease traffic jams and then lift restrictions on auto purchases, he added.

"China should increase the supply of medium- and high-end education and medical services to meet consumer demand at multiple levels," Wang suggested.

Lawrence Juen-Yee Lau, a professor of economics at the Chinese University of Hong Kong, said in the future, China's economic growth would no longer be driven by import and export, but by the aggregate domestic demand, including household consumption, consumption of public goods such as healthcare, education and environmental protection, as well as gross fixed capital formation. The latter, formerly known as gross domestic fixed investment, includes land improvements (fences, ditches, drains and so on); plant, machinery and equipment purchases; and the construction of roads, railways and the likes, including schools, offices, private residential dwellings, etc.

"Household income should be increased to stimulate consumption," he added.

To ensure its economic development by expanding domestic demand, the country needs to unleash total factor productivity (TFP), as well as pay greater attention to the downward trend of TFP and its labor force, Stephen Roach, a senior fellow at Yale University, said at the forum. TFP is a term used in economics to measure the impact of technological advancements, changes in worker knowledge and other factors on total output growth that cannot be explained by traditional inputs such as labor and capital.

Roach went on to say that even though China has done a good job at increasing employment and real wages, the country's social security, senior care and medical care systems still require further reform.

When families worry about their old-age life, this will negatively affect their consumer decisions and thus drag down consumption growth by large, he added.

Since 2011, the demographic dividend, or economic growth that can result from a shift in population age structure, has gradually disappeared worldwide, and the decline in both TFP and the labor force will continue for a long time to come. China should pay great attention to these downward trends to avoid Japan's experience from the late 1980s to the early 2000s, Roach said. During this period known as Japan's "Lost Decade," the country experienced low growth and deflation. Some economists blamed the economic stagnation on consumers' and companies' excessive precautionary savings, whereas others put it on the country's aging population or its monetary policy—or both.

"Restoring and expanding consumption should be the policy focus for expanding domestic demand," Wang said, warning that as external demand shrinks, failing to effectively expand domestic demand risks adding to overcapacity and deflationary pressures.

Future opening up

Since first embarking on reform and opening up in 1978, China has over the decades that followed become deeply embedded in the international value chain and transformed itself into a global manufacturing hub, Yi Xiaozhun, former Deputy Director General of the World Trade Organization, said at the forum.

China will further expand market access and steadily advance opening up in the respect of rules, regulations, management and standards, Han said, adding the country "welcomes companies from all over the world to invest and expand their businesses in China as part of their long-term strategies."

Paid-in foreign investment in the Chinese mainland rose from $144.4 billion in 2020 to $189.1 billion last year, according to the Chinese Ministry of Commerce.

"China is the BMW Group's largest single market and one of its most strategic. Our largest research and development operations outside of Germany are based in China," Oliver Zipse, Chairman of the BMW AG Management Board, said at the forum.

As China's industrial and supply chains adjust to the new environment, the country's economy and market demand can be strong and sustainable, Li Dongsheng, founder and Chairman of TCL Technology Group Corp., a Chinese consumer electronics giant, said. "TCL looks forward to more cooperation with foreign enterprises in technology and trade, jointly contribute to China's high-quality development and promote the expansion of domestic demand in the Chinese market."

Just as BMW's investment creates jobs in China, investment from China's largest battery supplier Contemporary Amperex Technology Co. Ltd. (CATL) brings prosperity to Europe, Zipse added. CATL has launched two factories in Germany and Hungary, respectively. The German plant, which kicked off production in December 2022, will have an annual production capacity of 30 million batteries. The plant in Hungary, with a production capacity of 100 GWh, is the largest investment ever to come into the country and is estimated to create 9,000 new jobs.

Despite challenges, cooperation between U.S. companies and their Chinese counterparts remains resilient, Craig Allen, President of the U.S.-China Business Council (USCBC), said.

U.S. exports to China reached record highs in 2022 and China remains a crucial destination for American agriculture, food, chemical exporters and other commodities. Allen added USCBC data suggests about 1 million Americans are employed because of exports to China.

According to Allen, more needs to be done so that China's investment environment will substantially improve. For instance, he hopes there will be more transparent regulations and enforcement practices on data security and privacy regimes, better industrial policies and a finer balance between state-owned enterprises and the private sector. And areas such as cloud computing, Internet services and agricultural biotechnology would benefit from further liberalization, according to him.

"More competitive environments and fairer markets in China will lead to new jobs, innovation and growth," Allen said.

China remains a significant market for most foreign companies and has gradually become an important source of innovation to strengthen the global competency of some foreign companies, Denis Depoux, Global Managing Director of European business strategy consultancy Roland Berger, said.

For now, multinational companies are largely unable to leave the Chinese market or decouple from China to develop new global value chain, according to Yi.

Han stressed China will continue to deepen economic cooperation with other countries to maintain the integrity, stability and security of global industrial and supply chains.

The industrial and supply chains in China have improved as domestic and foreign companies invested heavily in modernizing their local production systems, Depoux added.

"China has demonstrated its innovation capability and is leapfrogging in several fields, gaining leadership globally in areas like the electric vehicle chain, from batteries to charging infrastructure, photovoltaic panels, wind turbines, nuclear and telecommunications equipment," he added.

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