A delivery driver collects his customers’ online order as residents line up outside a shop to buy Lunar New Year desserts in Beijing, January 17. China’s economic growth fell to the second lowest level in at least four decades last year under pressure from virus controls and a real estate slump.
Andy Wong/AP
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Andy Wong/AP
A delivery driver collects his customers’ online order as residents line up outside a shop to buy Lunar New Year desserts in Beijing, January 17. China’s economic growth fell to the second lowest level in at least four decades last year under pressure from virus controls and a real estate slump.
Andy Wong/AP
China is emerging from nearly three years of self-imposed isolation, which has been a drag on the world’s second largest economy.
Earlier this month, Chinese officials reported economic growth of 3% in 2022 – the second lowest in at least four decades.
But now that the strict COVID lockdowns have been lifted, officials say the country is back in business. Analysts, however, say it won’t be easy.
Here is why.
“Trust but verify”
China has been trying to lure back foreign investors and businesses after nearly three years of disrupted supply chains, delayed logistics, tight regulation on sectors ranging from consumer technology to property, and onerous lockdowns that have shut down factories.
“More attention will be placed on expanding domestic demand, maintaining stable supply chains, supporting the private sector, reforming state-owned enterprises, attracting foreign investment and the prevention of economic and financial risks,” Liu He, the country’s vice premier and one of his own. the best economic policy makers, business elite assured gathered in Davos in Switzerland earlier this month.
Understandably, some remain skeptical.
“Trust but verify,” advises Nargiza Salidjanova, China director at research firm Rhodium Group.
She says China’s watchdogs are still waiting to see more substantial pro-business policy changes, such as giving private and foreign firms equal access to technology and certain industrial sectors and reducing tariffs on imported goods.
“It’s not enough to talk about these things,” she says. “His message and practice should really align to strongly encourage foreign investors.”
Salidjanova points to the official GDP growth figure of 3% for 2022, despite repeated lockdowns and supply chain disruptions. “The market didn’t believe the numbers. That’s not very encouraging. The first step is to actually start putting out accurate numbers so that investors trust you again.”
A rapid economic recovery will depend on domestic consumption
Alongside China’s challenges are greater global economic uncertainties — as China finally reopens its borders.
China coped well with the pandemic – at first. “In 2020, China started working again with manufacturing. No one else was. So exports really led the recovery in China, the first recovery in China,” says Bert Hofman, professor at the University National of Singapore and former director of China. for the World Bank.
But 2023 is different, says Hofman. “The world economy is not doing so well so export demand will be lackluster at best,” he says.
In the United States, for example, central bankers are working to stave off recession and cool high inflation.
Therefore, given a weaker global economic outlook, China’s recovery will be more dependent on its own citizens spending more.
And that’s the tricky bit.
“It really has to come from the consumer in terms of, you know, are people going to be willing to eat out? Are they willing to spend on entertainment and entertainment items? Are they willing to return to malls and markets -China and kind of giving support to the retail environment?” says Nick Marro, senior analyst with the research firm Economist Intelligence Unit.
Marro believes there will be some pent-up consumer demand as China goes through a surge in COVID cases later this year. Chinese consumers poured their slightly reduced incomes into savings during the pandemic, and so now they have a little more to spend.
However, they are also risk averse and sensitive to any perception that China might change course on public health policy and economic reopening, says Marro. “We are expecting this consumer recovery to be really stretched.”
COVID remains a potential wild card
Of course, COVID-19 is still variable. It is a potential X factor that could further jeopardize China’s economic recovery, in addition to its public health system.
“Part of the equation for how long that immunity lasts [to the current COVID strain] how long it takes is how fast the virus is evolving,” says Lauren Ancel Meyers, a professor at the Center for Pandemic Decision Science at the University of Texas.
She says: “What is the next variant that will come out and spread around the world? How similar does it look to the current variants that are spreading and the vaccines that they use to vaccinate people?”
China’s public health authorities say 80% of the country — more than 1.1 billion people — has already been infected with COVID in this most recent surge.
Such a rapid and wide-scale level of infection can result in a decent amount of natural immunity. But China’s economy is far from immune to further shocks.
