Goldman Sachs Global Economics Analyst Exhibit 19: A Long Slide for Chinas Property Sector Percentage Percentage Million Million points China: Housing Contribution to Annual GDP Growth points New Apartments Needed Each Year in Urban China 3 3 24 24 Construction DemandSources: 2 Consumption 2 20 Property Investment 20 Fiscal Replacement Real Estate Services Demographic* Upstream Effects Total 1 Total 1 16 16 0 0 12 12 8 8 -1 -1 4 4 -2 -2 0 0 -3 -3 2010 2015 2020 2025 2030 2035 2040 2045 2011 2015 2019 2023 2027 *Demographic demand sources include urbanization, population growth, and household size growth. Source: Haver Analytics, Wind, Goldman Sachs Global Investment Research We recently also estimated that the new US restrictions on exports of advanced chips (and the equipment and software to produce them) to China will subtract about ¼pp from China growth next year and 1.7% from the 2026 level of GDP, assuming US policymakers are serious about implementation. This reflects reduced production in China of both chips and goods using advanced chips, such as smartphones and computers. The relatively muted rebound in aggregate demand—coupled with the relatively limited rise in inflation during reopening in other Asian economies—also drives our benign forecast for 2023 inflation and monetary policy. Specifically, we expect core CPI to pick up only slightly from 0.7% to 1.2% next year, and the policy rate to stay flat at just 2%. Although we do see a sharper reopening boost in 2023H2 and 2024H1 than other forecasters, our long-run China views remain structurally below consensus (Exhibit 20). We estimate that much of the slowdown in actual China growth in recent years corresponds to a slowdown in potential growth to only 4.2% in 2023. We estimate that trend growth will slow further to just above 3% over the next decade on weakness in both demographics and productivity, and the long slide in the property market. 16 November 2022 17