What will China’s economic recovery look like after reopening to the world?

Aoife Palmer-O'Riordan

After three years of President Xi Jinping’s zero-Covid policy, China has finally reopened its borders to the world on January the 8th and this has spurred hopes of an economic revival and rapid recovery. Due to how abrupt restrictions have been lifted, there is expected inflation along with economic growth. Although the pandemic has dented the Chinese economy, there are signs that disruption to economic activity is fading fast as worker shortages are decreasing and consumer spending is increasing. In addition, Fitch Ratings has revised its forecast for China’s economic growth in 2023 to 5.0% from its previous 4.1%. This displays the evidence that economic activity and spending has recovered much faster than previously anticipated as China moves away from its zero-Covid policy.

Despite this revision in forecast growth, the economic rebound in 2023 is expected to be less flourishing than the economic activity in 2021 when China’s GDP was 8.4%. This brings to light how there are still persistent weaknesses in China’s economy such as its weak property market as it’s yet to signal it’s bottoming out with continual decreasing house prices. Data in January 2023 showed a 27% contraction in house sales, a continual decline since July 2021. Investment in this sector continued to drop, as did house prices and property investment overall in 2022 dropped 10%. To revive the property market, the government has ramped up its support for developers and lenders, policymakers have lowered mortgage rates for first-time home buyers to stimulate purchases and regulators are planning to relax restrictions on developer borrowing.

Yet, demand for housing is remaining subdued as the persistent drop in house prices are the main reason for holding back buyers from entering the market

On the one hand this shows how the property market will be a drag on China’s economic growth in 2023, even with all these easing measures. On the other hand, it may still be too early in the year for favorable policies to trickle through the market and increase the willingness to buy real estate.

China’s economic recovery will be primarily consumption led as households re-engage in consuming goods and services that were previously hampered by the zero-covid policy. The nature and speed of this recovery depends how consumptions and investment levels change throughout the year as growth will mainly be coming from these two factors and less so from manufacturing. With restrictions lifted, more workers are back to work as well as land and port traffic are back to normal. A return to normality means there are more job opportunities open and it’s easier for idle workers to find a job. This means that it’s expected for wages to rise in the second half of 2023. Job growth will create consumption growth. During the Chinese New Year, households were able to spend generously in businesses and shops as they were now open which boosted retail sales. However, middle-income groups had had their spending power eroded due to lost jobs during COVID but it is anticipated that most should be able to find a job by the end. of the first quarter. A shift in the type of jobs being taken by the labour population, especially seen in the younger generation, from the manufacturing industry and into the service sector is becoming more common as the service sector is growing rapidly. It is expected for consumption to rebound significantly during the May holidays with a predicted growth in retail sales by 8-10% in 2023.