After China’s most economically and politically turbulent year in more than three decades, investors are keen to see how 2023 will unfold for the world’s second largest economy.
The country is experiencing an explosion of COVID infections, after authorities last month suddenly dropped most of the notoriously draconian restrictions that have shackled business activity and daily life through much of the pandemic.
It remains unclear whether predictions of widespread deaths and a nationwide overwhelming of hospitals will in fact materialize, with China in mid-January putting the number of recent COVID deaths at 60,000 and suggesting the worst had passed. More than 90% of Chinese are fully vaccinated, compared with 68% of Americans, according to the countries’ respective health authorities.
Officials have said publicly that they deem the virus weak enough to weather a surge of infections and putting it in the past as rapidly as possible — with the hope of then rapidly resolving the country’s economic doldrums.
The following are the stories to watch in 2923 as we gauge just how successful — or unsuccessful — this approach becomes.
Opening up
Loosening of internal COVID restrictions surprised citizens with its suddenness. Meanwhile, China had initially moved more slowly toward reopening to foreign travelers and businesspeople. In late December, ahead of forecasts, it moved to abolish a centralized quarantine for arrivals and require only three days of isolation at home or in a hotel.
Hong Kong previously scrapped all quarantine requirements for international arrivals.
It was not expected that the prepandemic wave of outbound Chinese travelers would resume quickly. More than half of respondents to a survey of 4,000 Chinese consumers by consultancy Oliver Wyman said they would not travel abroad for several months, if not more than a year.
From the archives (December 2022): Chinese are snapping up flights abroad as Beijing drops more travel restrictions
Consumption rebound
For much of the pandemic, unlike many developed countries, China refrained from large-scale stimulus measures, mostly rolling out supply-side support such as boosting infrastructure projects. This neglect of stimulating domestic consumption was compounded by citizens’ reluctance to spend amid times of uncertainty.
But that appears to be changing. At China’s annual economic summit — chaired by Xi Jinping, given a norm-busting third presidential term in the autumn — officials declared that “the recovery and expansion of consumption should be given top priority,” according to an official readout. Measures include boosting incomes as well as providing subsidies and incentives in a range of categories such as alternative-energy vehicles, housing renovations and elder services.
“Consumer demand is now quickly moving up Beijing’s policy agenda,” consultancy Trivium wrote in December in response to the announcements.
In mid-January, the government released a raft of data showing, among other things, that the world’s most populous country had recorded its first population decline in a generation in 2022, with 9.56 million births against 10.41 million deaths — six years after the lifting of China’s strict one-child policy.
See: China reports first population drop in decades as birthrates plunge
Also: China’s vice premier Liu says the country is open to foreign investors
Property
China’s beleaguered property sector — which had been on the verge of collapse — has been receiving steadily rising government support. Xi late in 2022 said that a raft of new measures would be forthcoming, including requiring lenders to up their loans to developers as well as support for bond issuances by private real-estate firms.
Banks have also slashed average mortgage rates by more than a percentage point in recent months, and mortgage requirements have eased, while processing times have shortened.
“This pragmatic course correction should lead to a gradual, steady recovery in new-home sales in the second half of 2023,” Matthews Asia investment strategist Andy Rothman said in an emailed statement.
Trivium analysts concurred. “We expect more policies in the new year to restore demand for new housing and to boost construction,” they wrote.
These revitalization moves, if successful, bode well for the beginning of a Chinese recovery in 2023, analysts said.
Through COVID relaxations and proactive fiscal measures, consumer mobility and rising sentiment will help reinvigorate China’s growth in the second quarter and foster expansion even further in the year’s second half, said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle.
See: China’s vice premier says growth rate can recover
Pang expects China’s economy to grow more than 5% in 2023, a forecast other analysts are revising their own estimates toward. “And don’t forget, China is likely the only major economy with a serious [monetary] policy easing stance, while much of the world is tightening,” he said.
