With COVID lockdowns lifted, China says it’s back to business.but it’s not that easy

China is emerging from nearly three years of self-isolation that has been a drag on the world’s second-largest economy.

Earlier this month, Chinese officials reported 3% economic growth in 2022. This is his second lowest in at least 40 years.

But now that the strict coronavirus lockdown has been lifted, officials say the country has reopened for business. But analysts say it won’t be easy.

This is why.

“Trust but verify”

China is attracting foreign investors and companies after nearly three years of supply chain disruptions, logistics delays, heavy restrictions on sectors ranging from consumer tech to real estate, and a nasty lockdown that has closed factories. I’m trying to call you back.

“More emphasis will be placed on expanding domestic demand, keeping supply chains stable, supporting the private sector, reforming state-owned enterprises, attracting foreign investment, and preventing economic and financial risks,” said a top economic policy maker. reassured the business elite who gathered in Davos, Switzerland earlier this month.

Naturally, some are skeptical.

“Trust but verify,” advises Nargiza Sarijanova, China director at research firm Rhodium Group.

She said China watchers are still waiting for more substantive pro-business policy changes, such as giving private and foreign firms equal access to technology and certain industrial sectors, and lowering tariffs on imports. says that

“It’s not enough to just talk about these things,” she says. “The message and practice must really match to give foreign investors a strong boost.”

Salidjanova points to official GDP growth of 3% in 2022 despite repeated lockdowns and supply chain disruptions. “The market didn’t believe the numbers.

Rapid economic recovery depends on domestic consumption

Adding to China’s challenges is greater global economic uncertainty, as China finally reopens its borders.

China weathered the pandemic well — at first. “In 2020, China launched manufacturing again. No one else did. So exports drove China’s recovery. It’s the first recovery in China,” said the National University of Singapore. Bert Hoffman, a professor and former China Director, said: for the World Bank.

But 2023 will be different, says Hoffman. “The global economy is not doing very well, so export demand will be lackluster at best,” he says.

In the United States, for example, the central bank is working to delay recession and keep high inflation in check.

As such, given the weakening global economic outlook, China’s recovery will rely heavily on increasing spending by its own citizens.

And that’s the tricky bit.

“It really has to come from the consumer. Are people willing to eat out? Are they willing to spend on entertainment and leisure goods? Are they willing to return to China’s malls and markets?” Will it support the retail environment?” says Nick Marlo, senior analyst at the research firm The Economist Intelligence Unit.

Marro believes consumer demand has stalled somewhat as China weathers a significant spike in COVID cases later this year. Chinese consumers now have a little more leeway to spend as they have saved some of their slightly reduced income during the pandemic.

But they are also risk-averse and sensitive to perceptions that China could change the course of public health policies and economic reopening, says Marro. “We expect this consumer recovery to really drag on.”

COVID remains a potential wildcard

Of course, COVID-19 remains a variable. In addition to the public health system, this is a potential X-factor that may continue to jeopardize China’s economic recovery.

“Part of the equation for that immunity period [to the current COVID strain] What persists is how quickly the virus evolves,” says Lauren Ansel Meyers, a professor at the University of Texas Center for Pandemic Decision Science.

she said: “What is the next subspecies to emerge and spread around the world? How similar will it be to the currently prevalent subspecies and vaccines used to vaccinate people?”

Chinese public health officials say 80% of the country (more than 1.1 billion people) are already infected with COVID in this latest surge.

Such rapid and massive levels of infection can result in significant amounts of innate immunity. However, the Chinese economy is not immune to further shocks.

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