We no longer support this browser. Using a supported browser will provide a better experience.

Please update your browser.

Close browser message

As a global leader, we deliver strategic advice and solutions, including capital raising, risk management, and trade finance services to corporations, institutions and governments.

Learn more about our solutions:

  

Serving the world's largest corporate clients and institutional investors, we support the entire investment cycle with market-leading research, analytics, execution and investor services.

Learn more about our solutions:

  

We are a leader in investment management, dedicating to creating a strategic advantage for institutions by connecting clients with J.P. Morgan investment professionals globally.

Learn more about our solutions:

    

Our financial advisors create solutions addressing strategic investment approaches, professional portfolio management and a broad range of wealth management services.

Learn more about our solutions:

    

Leverages cutting-edge technologies and innovative tools to bring clients industry-leading analysis and investment advice.

Learn more:

    

The latest news and announcements.

Learn more:

    

For company information and brand assets for editorial use.

Learn more:

    

The latest news and announcements.

Learn more:

    

In a fast-moving and increasingly complex global economy, our success depends on how faithfully we adhere to our core principles: delivering exceptional client service; acting with integrity and responsibility; and supporting the growth of our employees.

Learn more:

    

J.P. Morgan is a global leader in financial services, offering solutions to the world's most important corporations, governments and institutions in more than 100 countries. As announced in early 2018, JPMorgan Chase will deploy $1.75 billion in philanthropic capital around the world by 2023. We also lead volunteer service activities for employees in local communities by utilizing our many resources, including those that stem from access to capital, economies of scale, global reach and expertise.

Learn more:

    

With over 50,000 technologists across 21 Global Technology Centers, globally, we design, build and deploy technology that enable solutions that are transforming the financial services industry and beyond.

Learn more:

    

Technology Banner

For general inquiries regarding JPMorgan Chase & Co. or other lines of business, please call +1 212 270 6000.

Learn more:

      

For general inquiries regarding JPMorgan Chase & Co. or other lines of business, please call +1 212 270 6000.

Learn more:

      


February 3, 2023

How Will China’s Reopening Play Out?

The transitional pain is much shorter than previously expected … The economic recovery will start in the current quarter with 7% quarter-over-quarter growth (seasonally adjusted annual rate, or SAAR), followed by 7.4% in the second quarter, 5.5% in the third quarter and 6.1% in the fourth quarter.

Haibin Zhu, Chief China Economist and Head of Greater China Economic Research, J.P. Morgan

Reopening will be the biggest catalyst for China’s economic recovery in 2023. However, the earlier and faster-than-expected reopening led to a spike in COVID-19 infections which caused major disruption in December. While the government has stopped publishing daily infection cases, J.P. Morgan estimates the infection ratio had risen to about 40% of the total population by the end of 2022, with herd immunity reached in January, up from less than 1% in November 2022.

High-frequency activity during the Lunar New Year holiday points to a recovery in domestic consumption, especially in sectors that are sensitive to COVID-19:

  • Passenger traffic rose 76% compared to 2022 but was still 47% lower than 2019 levels. Meanwhile, the Baidu mobility index was 41% higher than 2022 and 26% higher than 2019.
  • Lunar New Year consumption was 6.8% higher than it was in 2022. Sales of food, clothing, jewelry and autos rose 9%, 6%, 4.4% and 3.6% respectively.
  • Tourist numbers were 23% higher than in 2022, reaching 89% of 2019 levels. Tourist revenue was 30% higher than in 2022 — 73% of 2019 levels.
  • Movie box-office revenue was 11.9% higher than it was in 2022 and 14.6% higher than in 2019.

     

In addition, there was no new infection wave during the Lunar New Year break, which paves the way for domestic production and consumption normalization in the coming months. “Putting everything together, it appears that China’s economic recovery is more front-loaded compared to our baseline forecast,” said Haibin Zhu, J.P. Morgan’s Chief China Economist and Head of Greater China Economic Research. “The economic recovery will start in the current quarter with 7% quarter-over-quarter SAAR growth, followed by 7.4% in the second quarter, 5.5% in the third quarter and 6.1% in the fourth quarter.” Full-year GDP growth forecast stands at 5.6%.”

Will Inflation Spike in China After Reopening?

We look for headline CPI inflation to average 2% year-over-year in 2023.

Haibin Zhu, Chief China Economist and Head of Greater China Economic Research

Across the rest of the world, slowdowns in growth can mainly be attributed to high inflation. In China, they are mainly due to the Omicron drag. China has been an outlier compared to the rest of the global economy, facing broad-based disinflation with lagging demand recovery despite steady production recovery. The consumer price index (CPI) averaged 2% growth in 2022 — which is below the 3% target — and the producer price index inflation was negative throughout the fourth quarter of 2022.

The major factor that will affect inflation this year is the rapid reopening of the economy, with consumer prices expected to recover from the second quarter of 2023. While there are risk factors, J.P. Morgan Research predicts that inflation will stay in check. “We expect CPI inflation to stay below 2% for most of this year, before turning up and approaching 3% toward the end of the year and into 2024,” said Zhu. “Overall, we look for headline CPI inflation to average 2% year-over-year in 2023.”

CPI, core CPI and PPI inflation in China

Line chart showing that CPI, core CPI and PPI inflation are all forecast to rise in 2023.

CPI, core CPI and PPI inflation are all forecast to rise in 2023 after an initial dip, following the reopening of the economy.


However, there are concerns that pricing pressure may spiral out of control and accelerate significantly during reopening, adding stress to global inflation throughout 2023. There are two main risk factors:



“Tourism and entertainment prices will likely face upside pressure, while housing and rental pressure should remain modest amid a sluggish property market,” said Zhu. “All in all, we look for a gradual recovery.”

China’s Housing Market: Will the Policy Pivot Work?

A strong housing market rebound looks unlikely … housing policy relaxation is weaker than it was during the 2015-16 rebound and there is no large-scale stimulus package.

Haibin Zhu, Chief China Economist and Head of Greater China Economic Research

Across sectors, housing was the largest drag on China’s economic growth in 2022 and the market registered record-low activity, despite policy adjustments introduced from late 2021. In 2022, new home sales (in floor space) fell 26.8%, new home starts fell 39.8% and real estate investment fell 10%.

The declining real estate market

Line chart showing that floor space started, floor space sold and real estate investment are expected to decline.

Floor space started, floor space sold and real estate investment are expected to continue falling after spiking in 2021 then declining in 2022.


In November last year, the People’s Bank of China (PBOC) and China Banking and Insurance Regulatory Commission (CBIRC) announced a 16-point rescue plan for the housing market, marking the most significant shift in housing policy since 2016. “On the investment side, this is a game changer for prudent private developers,” said Zhu. “The November measures explicitly address developers’ funding problems.”

In an attempt to boost demand, further measures have followed, which focus on lowering down payments and relaxing restrictions around purchasing a home. This indicates that housing has become a policy priority and highlights the importance of achieving stability in the market. 

Why Is China Focusing on the Housing Market?

The dramatic changes to housing policy come after concern over risks to financial stability as well as a desire to achieve growth stabilization. The major housing market correction which has been under way since the second half of 2021 has led to rising developer defaults, increasing pressure on local governments and a collapse in land sales. Further correction runs the risk of accelerating house price declines, which have so far only been minor. Other negative outcomes include increasing financial risk for households as well as the potential for a balance sheet recession

Will China’s New Housing Policies Be Effective?

  • Short-term housing activity has remained subdued due to COVID-19 constraints, low income expectations, concerns about home delivery and weak house price expectations.
  • The housing market will likely reach its lowest point in the second quarter of 2023 and some of the current obstacles will begin to fade.
  • Longer term, a strong rebound in housing activity looks unlikely and demand is a major constraint.

House prices have mainly held steady in China

Line chart showing that despite declining floor space started and sold numbers, the 70-city home price has mostly held steady.

While floor space sold and floor space started have mainly followed a downward trend since December 2020, the 70-city home price remained largely unaltered through to September 2022.


One of the main drawbacks is the geographical limitation of measures designed to boost housing demand. One such measure is a dynamic adjustment mechanism on mortgage rates for first-time homebuyers, but cities can only implement this if they have seen home prices declining over three consecutive months.

“Even with the changes that have been made, housing policy relaxation is still weaker than it was during the 2015-16 rebound,” added Zhu. “There is no nationwide reduction of down payments or housing transaction costs. Some home purchasing restrictions have been removed but only in a few cities and most importantly, there is no large-scale stimulus package such as the monetary subsidy for shanty town renovation in the 2015 episode.”

How Much Debt Does China Have and Will It Continue to Rise?

After debt reached a historical high in the last year, we expect that total debt to GDP will rise another 10 percentage points in 2023.

Haibin Zhu, Chief China Economist and Head of Greater China Economic Research

J.P. Morgan estimates that China’s total debt to GDP ratio increased by 11 percentage points to a historical high of 285% in 2022. It is expected that total debt to GDP will rise another 10 percentage points in 2023. 

China’s total non-financial debt

Line chart showing that China’s total non-financial debt has followed an upward trend from 2007 to 2022.

China’s total debt to GDP ratio hit a historical high of 285% in 2022 and is anticipated to rise further in 2023. Total debt outstanding has steadily risen from 2007 to 2023.
 


Drivers of debt in China

Line chart showing the growth rate of corporate debt has mainly been lower than government and household debt since 2015.

Corporate debt, government debt and household debt are the main drivers of debt in China. The growth rate of corporate debt has been lower than that of government and household debt since 2015, other than the marginal reversal with household debt in the third quarter of 2022.


While corporate debt has grown more slowly in recent years, this does not necessarily imply less vulnerability — perhaps the opposite, as corporate balance sheets have been deteriorating since the outbreak of the COVID-19 pandemic. In fact, small and medium-size enterprise (SME) loans have grown faster than other corporate loans and could be a possible vulnerability in 2023, with the potential for defaults to rise rapidly once COVID-19 rescue measures expire.

The other major risk factor is debt from local government financing vehicles (LGFV), which are set up to fund public projects. As they are similar to state-owned enterprises, their debt is classified as corporate debt and at 44% of GDP, it represents a significant amount. LGFV projects often have low profitability so their debt repayment capacity is weaker, especially during an economic downturn. What’s more, LGFVs are directly involved in the property market — they bid for land and may play an essential role in the provision of affordable rental housing. This could make them susceptible to housing market corrections and increase debt further, though the government is taking action to protect pricing and retreats have been modest so far.

Will China’s Monetary Policy Ease?

We believe that monetary policy will ease slightly in 2023 … The probability of a rate hike by the PBOC in 2023 is very low.

Haibin Zhu, Chief China Economist and Head of Greater China Economic Research


Another key question is whether China will adopt its own method of quantitative easing — a form of monetary policy where a central bank purchases government bonds or other financial instruments to increase money supply and lower long-term interest rates. The answer is not completely clear yet. PBOC Governor Yi has rejected the proposal, however the debate is unlikely to go away and will be one to watch in relation to China’s future monetary policy. 

 

Adapted from J.P. Morgan’s economic research report “Ten questions about China in 2023”, January 10, 2023, by Haibin Zhu, Grace Ng, Tingting Ge and Ji Yan.

Related Insights

2023 Market Outlook

2023 Market Outlook

Explore key economic and market forecasts for 2023.

The Future of Big Tech

The Future of Big Tech

What challenges and opportunities lie ahead for the industry?

Currency Volatility

Currency Volatility

Will we see the return of a strong dollar in 2023, and what’s in store for currency markets around the world?

This communication is provided for information purposes only. Please read J.P. Morgan research reports related to its contents for more information, including important disclosures. JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively, J.P. Morgan) normally make a market and trade as principal in securities, other financial products and other asset classes that may be discussed in this communication.

This communication has been prepared based upon information, including market prices, data and other information, from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan. Copyright 2023 JPMorgan Chase & Co. All rights reserved.