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The Road Back to Growth in China

Barring a “black swan” event, China can achieve 6% GDP growth this year, thereby ending a 12-year slowdown. The key ingredient must be carefully planned and prudently funded infrastructure investment.

BEIJING – According to China’s National Bureau of Statistics, the economy grew by 4.5% year on year in the first quarter of 2023. While that hardly matches the robust growth of the pre-pandemic period, it did exceed market expectations. And with the right policies, China can do even better.

There is plenty of pessimism about China’s economic prospects nowadays, with many warning – not without reason – that China has entered a deflationary period. In the first quarter of 2023, China’s consumer price index (CPI) rose by only 1.3% year on year – down from 1.8% in the previous quarter. More striking, China’s producer price index (PPI) fell by 2.5% year on year in March – its sixth consecutive month of decline.

This is not a new trend. In fact, China’s PPI has been negative for the better part of the last decade. Beginning in March 2012, China’s PPI was in negative territory for 54 consecutive months. In January 2019, it turned negative again – and remained so for 17 months. While CPI has remained positive, it has grown by less than 2% annually, on average, for a decade.