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ING global economic outlook 2023 December 2022 second half of the year, China's trade should show some momentum. Import growth should be stronger than exports as the economy rebounds from easier Covid measures in the second half. 3 Challenge of technology advancement means record high fiscal deficit The US CHIPS Act has imposed bans on semiconductors and other items being shipped to China. This has pushed the Chinese government to invest in its own technological advancement. Together with the private sector, China is going to increase spending on R&D to develop high tech, especially in the area of semiconductor chip design and manufacturing. It will then move further into producing its own semiconductor machinery. This should be a long journey and it could be difficult to beat the ever- moving advancement of technology. The level of difficulty here implies that the Chinese government will need to support this R&D process. Up to October 2022, the fiscal deficit to GDP had been around 7%, which was higher than the historic high (data goes back to Dec 1995) of 6.2% in 4Q20. The fiscal deficit to GDP should increase to 8% in 2023 even if there is less spending on Covid tests and quarantines, with about one-third of this money going to support high-tech development. Overall government debt, including local government financial vehicles, should increase to 137% of GDP in 2023 from 129% in 2022. 38

ING Global Economic Outlook 2023 - Page 38 ING Global Economic Outlook 2023 Page 37 Page 39