China’s Growth Slows to Three-Decade Low Excluding Pandemic
A festering property-market meltdown offsets much of the benefit of economy’s post pandemic recovery
A festering property-market meltdown offsets much of the benefit of economy’s post pandemic recovery
HONG KONG—China’s economic growth rate finished at one of the lowest levels in decades last year, underscoring the heavy toll that a property-sector collapse and weak consumer confidence have taken on the world’s second-largest economy despite the lifting of all Covid-19 restrictions.
Gross domestic product in China expanded 5.2% in the fourth quarter and for the full year in 2023, according to data released by the National Bureau of Statistics on Wednesday. The reading confirmed a number uttered by Premier Li Qiang a day earlier at the World Economic Forum in Davos, Switzerland—an unusual disclosure of a high-profile data point by a senior leader before its formal release.
Apart from the three years that China was closed to the outside world during the pandemic, the country’s economy expanded in 2023 at the slowest annual rate since 1990, the year after the political turmoil of the student movement that was crushed around Beijing’s Tiananmen Square in June 1989.
In 2022, China’s economy grew 3%, while 2020—the initial year of Covid-19—saw growth of just 2.2%. This year’s outcome was flattered in part by comparison with the relatively low base of 2022, when harsh pandemic lockdowns swept the nation, crimping growth.
Last year’s 5.2% growth rate managed to top the government’s official target of around 5% growth, following a year of volatility and shifting expectations.
Maintaining growth at a similar pace this year may prove harder, given policymakers’ hesitance so far to launch any big-ticket stimulus packages. Forecasts for China’s growth rate this year among several global investment banks range from 4% to 4.9%. China is expected to announce any formal growth target at an annual legislative session set to take place in March.
In the near term, China has few obvious growth drivers. Export demand is softening as the global economy is projected to slow this year. Chinese families, hit by years of pandemic restrictions and receiving no direct financial support from the government, have turned cautious on spending amid a weak job market. Private businesses have been holding off on new investments while foreign investors are pulling funds out of the country.
The Chinese leadership’s determination to cultivate new engines of growth, in fields such as electric vehicles and renewable energy, is bearing fruit. Still, in the near term, it won’t likely be enough to make up for the shortfalls in job creation and overall growth rate from the rapid decline in its once-mighty real-estate sector.
In the longer run, China faces a daunting list of headwinds, including a population that is rapidly skewing older, high debt levels and a worsening external political environment that has seen relations with the U.S.-led West plummet.
Wednesday’s data release offered fresh signs of the dire state of the country’s demographics. Official statisticians said China’s population shrank by 2.08 million people last year, falling to 1.410 billion, after declining in 2022 for the first time in decades.
Economists are concerned that China may be falling into a vicious cycle in which falling prices and weak demand reinforce one another, as they did in Japan in the 1990s. Chinese policymakers’ reluctance to stimulate more forcefully has confounded many economists, though others have pointed to leader Xi Jinping’s ideologically-rooted reluctance to shower the economy with government money.
Instead, Chinese authorities have unleashed a barrage of smaller-bore measures, such as trimming key interest rates, cutting mortgage costs for home buyers and prodding banks to lend more to distressed property developers. Collectively, though, those measures have done little to reverse downward pressure on the economy. The government said in the fall that it would issue $137 billion in government debt, the biggest stimulus measure it has undertaken so far—though still not enough to reverse the downward momentum, economists say.
“I wonder if they are not realising how big the risk is if deflation pressure becomes entrenched,” says Alicia García-Herrero, chief Asia economist at investment bank Natixis.
Chinese stocks fell after the data was released. The CSI 300 index was down 1.4%, putting it on course to close at its lowest level in almost five years. Hong Kong’s Hang Seng Index, which includes the shares of many Chinese companies, was around 3.7% lower.
The country’s stock market is now in a multi-year slump, with foreign portfolio managers fleeing and individual investors in the country switching to safer assets. The poor state of the economy is a constant concern.
The past year had started off with a sense of buoyant optimism, as the abandonment of three years of stifling Covid-related restrictions spurred a revival of spending by consumers.
But the reopening momentum quickly lost steam after the first quarter, as global demand for Chinese-made exports—a key pillar of China’s economy throughout the pandemic years—began to wane. Persistent high youth unemployment and weak wage growth further weighed on average households’ fragile confidence.
In the fall, factory activity weakened again and consumer prices dropped into deflationary territory.
Throughout it all, a years long decline in Chinese home prices showed no sign of abating, further depriving revenue for debt-laden developers and eroding homeowners’ wealth and sense of financial security.
Looking ahead, economists have called on leaders in Beijing to step in forcefully to stabilise home prices and contain the risk of widening defaults among property developers.
“The key thing to watch in 2024 is if and when the central government would step in and take the main responsibility to stop the contagion,” said Larry Hu, chief China economist at Macquarie Group.
Whether Beijing can revive consumer confidence will be another key metric to watch this year.
In the central Chinese city of Wuhan, Bella Liu, a 32-year-old employee of a telecommunications firm, remembered 2023 as a year marked by plunging profits and frequent layoffs in her industry. After suffering a nearly 20% loss from her mutual fund investments, she is now parking more of her money in time deposits at her bank.
“In an era of slowing economic growth, I just feel lucky that I have a job,” Liu said.
Full-year economic data released by China on Wednesday showed retail sales, a key gauge of consumer spending, gained 7.4% in December and rose 7.2% for the full year compared with the respective year-earlier periods. Retail sales had fallen 0.2% for the full year in 2022.
The new data suggest that the economy is again beginning to rely more on domestic demand after counting on exports as the main pillar of growth during the pandemic years. Consumption was the largest contributor to overall growth in 2023. Still, it is unclear how much of a role it will play in driving the Chinese economy this year, in part because the release of pent-up pandemic demand has largely run its course, according to economists from Nomura.
Investment was also lacklustre in 2023. Fixed-asset investment growth slowed last year, rising 3.0% for the full year compared with a 5.1% expansion in 2022. Private-sector investment, too, remained weak, falling 0.4% in 2023 compared with a year earlier as policy uncertainty spooked entrepreneurs. Private-sector investment had risen 0.9% in 2022.
Over the course of 2023, Beijing rolled out measures aimed at reining in the technology sector, including the video game industry, while warning about foreign espionage and detaining employees of foreign firms operating in China.
Readings of the property sector offered more reason for caution. New home prices in China’s 70 major cities dropped at a faster clip toward the end of 2023.
Average new home prices in December fell 0.45% from November, and 0.89% when from a year earlier, according to calculations by The Wall Street Journal based on data released by the statistics bureau. The pace of both declines was worse than in November.
For the full year, property investment fell 9.6%, while new construction starts dropped 20.4% and home sales by value declined 6.0%.
The surveyed urban unemployment edged up to 5.1% in December, from 5% in November. Economists have cast doubt on the accuracy of official statistics on joblessness in large part because the survey leaves out the country’s nearly 300 million migrant workers.
In a surprise move, China released a revised youth unemployment figure for the first time since July, when it abruptly suspended the publication of the data series amid a run of fresh record-high readings up to 21.3%.
On Wednesday, China’s statistics bureau said that it would publish a new urban youth unemployment figure each month for people age 16 to 24 that excludes students. The reading was 14.9% in December.
The statistics bureau said that the new methodology offers a more refined and comprehensive picture that would “better reflect the employment situation” by only including graduates who were looking for work.
Still, the economy had pockets of strength, especially in dominating the global supply chain for renewable energy products such as solar panels and electric vehicles. Growth in industrial production rebounded to 4.6%, accelerating from a 3.6% increase the year before, Wednesday’s data show.
—Grace Zhu and Xiao Xiao in Beijing contributed to this article.
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Gail and Ron Fink’s property in Jupiter Inlet Colony sustained major damage during an unusually windy day. ‘The whole backyard is shot. All the landscaping is gone.’
Gail and Ron Fink weren’t home the day the ocean swallowed their backyard.
The Florida couple, who are in their 70s, were a few miles away on Feb. 6—an unusually blustery day in the Sunshine State—as waves pounded their beachfront property in Jupiter Inlet Colony, sweeping sand, dirt and trees out to sea. When it was all over, the Finks’ newly-built, roughly 10,000-square-foot home was intact; so too was their free-form swimming pool, improbably balanced on exposed concrete-and-steel pilings.
“That’s what saved the whole thing,” said Ron, founder of an air- and-water purification company. “The pilings are holding up the house and pool.”
Drone footage and pictures from local photographers and the Finks’ builder show the severity of the destruction, which left their pool suspended in the air, with pipes protruding from the earth. Town officials said erosion claimed 7 to 10 feet of sand and created steep drop-offs in front of about half-dozen homes, including one belonging to Kid Rock , the rapper-turned-country rocker, who paid $3.2 million for the property in 2012. Conair heiress Babe Rizzuto also sustained damage to her property down the street, which she bought for $6.3 million in 2015 and currently has listed for $22.5 million, according to Zillow. Neither responded to requests for comment.
But the Finks house, located just past the end of a granite revetment wall—a kind of sea wall—bore the brunt of the heavy wind and waves.
“The whole backyard is shot. All the landscaping is gone,” said Ron. Also gone are fully matured Palm trees and an ipe-wood deck. “It’s out floating in the ocean someplace.” Ron is self-insured and the repair work will be quite expensive. undefined
A New Jersey native, Ron is an engineer by training who worked at nuclear-testing sites in California and Nevada before moving to Florida in the 1980s. He is the founder of RGF Environmental Group, which makes air- water-and food-purification systems.
For almost 40 years, the Finks—who have three adult children and eight grandchildren—have lived in Admirals Cove, a gated community in Jupiter about 5 miles from their new house. They paid $180,000 for the Admirals Cove lot in 1987 and built a roughly 6,000-square-foot house, Ron said. The Finks also own homes in the Cayman Islands and Bahamas.
Ron said they began looking for property in Jupiter Inlet Cove years ago. “It’s a neat place, just a closed little colony right on the ocean, low key and quiet,” he said.
About 20 miles north of Palm Beach, Jupiter Inlet Colony is at the southern tip of Jupiter Island. The town, founded around 1959, has approximately 240 homes and is surrounded on three sides by water—the Atlantic Ocean, Jupiter Inlet and the Intracoastal Waterway. Long a destination for wealthy homeowners, homes in Jupiter Inlet Colony tend to trade for between $2 million and $5 million, although one sold for $18.6 million in January, according to real-estate brokerage Redfin. Last year, a home on the Intracoastal sold for $21.4 million, a record for the town.
In 2020, the Finks paid $4.9 million for a vacant beachfront lot and subsequently built a coastal-style house with a copper-and shake-style roof, covered loggia, pool and outdoor fire pit. “You know, it’s kind of a dream home,” Ron said. “We have built quite a few homes, but this is the end of the line for us, hopefully the last one.”
He said the property originally belonged to the singer Perry Como, one of the town’s first residents. A prior owner demolished Como’s house, and when the Finks bought it, there were concrete-and-steel pilings sticking out of the ground.
Ron Fink said he never removed about 60 pilings, he simply added roughly 30 more. “Now I’m glad I did,” he said. (Pilings are based on the design of a house, so Ron retained some pilings that he didn’t necessarily need.)
John Melhorn of design-build firm Thomas Melhorn, which built the house, said the Finks were a final review away from obtaining a certificate of occupancy when the backyard was destroyed. “They were right there at the goal line,” he said.
Melhorn said the erosion began in late October amid unusually high winds and ocean swell. During the first week of February, sand beneath a row of sea grapes that stabilized the dunes between the house and ocean began to wash away. By the evening of Feb. 6, the plantings disappeared. The yard was gone by the next morning.
Melhorn said a pre-existing, low wall between the ocean and house—described as a cinder-block retaining wall on land surveys—also washed away, as did a walkway and steps to the beach. But he said the 2-foot-high wall was less of a retaining wall and more like a curb between the street and sidewalk. In this case, a prior owner used it to hold sea grapes back from encroaching on the property. The Finks replaced the wall with decorative stone, now lost to the ocean. An outdoor fire pit is still there, cantilevered over the ocean. “We tried to pull as many things out as we saw the erosion coming, but we lost a lot,” Melhorn said.
In Florida, erosion is increasing because of more frequent, more severe storms and sea-level rise, said Cheryl Hapke, a research professor at the University of South Florida and the chair of the Florida Coastal Mapping Program. But she said it isn’t just hurricane-level storms that cause major damage. “One thing I have found about barrier islands [like Jupiter Inlet Colony] is that sometimes a series of smaller events can have as big an impact as a major hurricane,” she said. “But people get caught off guard. It’s something they don’t think of.”
In Jupiter Inlet Colony, longtime residents said this month’s erosion is the worst the area has seen in years, possibly ever.
Mayor Ed Hocevar, who has lived there for 17 years, said it has been a particularly cool and challenging winter with an abnormal number of Nor’easters. On Feb. 6, local news channels warned of high winds, with gusts between 40 and 50 miles an hour. (There were also reports of an earthquake off the coast that week, causing high waves.)
Since the 1980s, Jupiter Inlet Colony has had a granite rock revetment wall that extends from the northern end of the community past 11 oceanfront homes. “But we’ve got 28 homes along the beachfront, so it isn’t complete,” Hocevar said. “Where the wall ended is where the significant damage occurred.” Hocevar said he doesn’t know why the wall wasn’t completed, although local lore is that homeowners building the wall ran out of money.
Last week, the town hired a local mining company to bring in 7,000 tons of sand to replace what washed away. Hocevar said it would cost about $500,000, which will come out of the town’s reserve fund. Long term, he said, extending the revetment wall isn’t a strong possibility.
Hapke, the coastal geology expert, said that in recent decades, sea walls and hardened structures have fallen out of favor as scientists discovered they are detrimental to the environment around them. “Storm water wants to flow, so it will redirect water to the area without a sea wall,” she said, adding that the most ideal long-term solution is to move homes away from the coastline.
Hocevar, 67, who has been mayor of Jupiter Inlet Colony for about a month, said the town is working closely with the Department of Environmental Protection on its response. He said the DEP’s recommendation, should erosion like this occur again, is to bring in more sand. Hocevar emphasised that the community is rallying together. “Think about it as a fortress and your wall has been breached,” he said. “You want to protect your neighbourhood and that’s what we’re trying to do here.”
Holly Meyer Lucas of Compass, who represented the seller when the Finks purchased their property, said Jupiter Inlet Colony is a “special little enclave” where sales exploded during Covid. “Listings sell after a day or sell off-market,” she said.
Lucas said the consensus among local real-estate agents is that property values will hold, despite the erosion. “I think this is a really rare, weird, fluky event,” she said. “I’ve sold everywhere up and down the coast and I’ve never heard of anything like this.”
Babe Rizzuto, whose house is two doors down from the Finks, listed her house for $24.5 million in December 2023 and cut the price to $22.5 million on Feb. 6, according to Zillow.
“She’s going to continue to sell,” said Milla Russo of Illustrated Properties, who is marketing the property with her husband, Andrew Russo. “Even though the timing isn’t great, it is what it is.”
Russo said there has been erosion in the past, and during hurricanes residents of Jupiter Inlet Colony are the first in the area to evacuate. But in general, people are not preoccupied with the weather. “Maybe because we live here, when the hurricanes come, we all have hurricane parties. We go to people’s homes and we barbecue and grill. Of course we’re careful and we lock up and all that, but weather is weather,” she said. “We’ve never been terribly scared.”
(The Russos were also involved in selling the Fink property. However, in 2020 the closing agent on the deal, Florida-based Eavenson, Fraser & Lunsford, PLLC, sued Milla Russo and Illustrated Properties as part of a commission dispute. The seller, Michael Cantor’s Range Road Developers, was named as a defendant and cross-plaintiff in the suit, in which a judge ruled in favor of Eavenson, court records show. Milla Russo declined to comment on the suit. Eavenson declined to comment beyond the judge’s findings and Cantor did not respond to requests for comment.)
Ron was also matter-of-fact about the state of beachfront living. Bring a life jacket, he jokingly told a photographer who inquired last week about taking his picture.
However, the Finks are facing weeks of costly repairs. Although the town is bringing in sand to replace the decimated beachfront, the couple is self-insured and will be on the hook for the cost of rebuilding. Several major home insurers have pulled out of Florida, and Ron said insurance on the house would have cost $100,000 a year. Now, he estimated they could face about $1 million worth of repair work. “We gotta eat it,” he said.
The couple, who was supposed to move into the house this month, has put those plans on hold—for now. An engineer recently inspected the property and deemed the house safe, Ron said. “We’re doing wallpaper today,” he said. “We can put it back together again.” The patio and pool area, meanwhile, are roped off while the area underneath is backfilled with sand.
Ron said being near the ocean makes it worthwhile. “I just love the ocean, we both do. It’s important to us,” he said. “It isn’t easy to look at, but I’ve been through a lot worse.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’