What next for China’s economy as COVID curbs eased? – DW – 12/09/2022

Investors around the world breathed a sigh of relief this week after China loosened some restrictions against the coronavirus following three years of strict lockdowns. Reacting to unprecedented street protests, a top-level Communist Party meeting on Wednesday pledged to focus on stabilizing growth while optimizing pandemic measures.

Among the rules dropped is the need for tests to ride public transport, while most infected people can now isolate at home rather than in quarantine centers.

The change is a sign that the world’s second-largest economy is finally ready to live with the virus, rather than maintaining its draconian zero-COVID policy.

The decision came as China’s imports plunged 10.6% and exports dropped 8.7% in November, levels not seen since early 2020 when the virus first emerged. Official data last week also showed China’s factory activity shrank for a second straight month in November, as large swathes of the country were hit by lockdowns and transport disruptions. 

Despite the easing of COVID rules, the wearing of masks is a key part of Beijing’s responseImage: Noel Celis/AFP/Getty Images

Zero-Covid reversal lauded

Global finance leaders on Friday welcomed the about-face, saying it would help to restore China’s business activity, shore up supply chains and support global growth.

“China’s performance matters (not just) to China — it matters to the world economy as well,” International Monetary Fund (IMF) chief Kristalina Georgieva said after a conference in the eastern Chinese city of Huangshan.

The retreat from zero-Covid “will help remove one set of uncertainties” in a world reeling from the impacts of the pandemic, the Ukraine conflict and climate change, said WTO Director-General Ngozi Okonjo-Iweala, at the same media briefing.

While many analysts predicted a strong rebound in China’s economy next year, some warned that COVID infections were set to spike as a result of the policy shift, particularly around the Lunar New Year holiday in January, when much of the country’s 1.4 billion population is on the move.

Passengers crowd the Hongqiao Railway Station as they are going back home by train for the Chinese Lunar New Year in 2019.
China’s Luna New Year holiday will be a massive test for the new COVID policyImage: Ji Haixin/HPIC/dpa/picture alliance

Infection rate could soar

A fresh COVID surge could spark similar labor shortages that impacted Western countries when they reopened from lockdowns, they said.  

“There’s going to be chaos,” Jeffrey Goldstein, a China-based consultant who helps foreign brands manufacture goods in Asia, told Reuters news agency. “China’s three years behind, so what’s going to happen in China is what happened in the rest of the world.”

The China Association of Automobile Manufacturers warned that large numbers of COVID infections would have an “adverse impact” on the vehicle market next year.

The likely stop-start reopening means that China’s economy will only begin to rebound in the second half of the year, said Nie Wen, a Shanghai-based economist at Hwabao Trust, who cut his China growth forecast for the first quarter to 3.5%-4% from 5% previously.

Zhiwei Zhang, chief economist of Pinpoint Asset Management said he “expects exports will stay weak in the next few months as China goes through a bumpy reopening,” adding that China would need to rely more on domestic demand in 2023 due to a weaker global economy.

Morgan Stanley analysts also expect growth to “stay subpar” near term, with “a more meaningful rebound” in the second half of the year and 5% growth for the full year.

Chinese leaders have set an annual economic growth target of about 5.5%, after a better than expected 3.9% expansion in the third quarter.

The impact of protests in China

To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video

Streets, transport not full

In a sign that many Chinese are in no rush for life to return to normal, media reports suggest that many seats on the Beijing subway, for example, were empty during rush hour and some downtown restaurants were deserted at lunchtime on Friday. 

Many consumers may be fearful of serious illness due to the lower efficacy of Chinese COVID vaccines compared to their Western peers.

Chinese companies and the public sector plan to split staff at their workplaces in Beijing and other cities in preparation for large numbers of workers to be off sick with COVID.

Inflation warning for 2023

Some analysts have warned about a potential surge in inflation as China reopens, which could also worsen price hikes in the global economy where decades-high inflation has started to peak.

“A disorderly reopening and a rise in inflation as the economy rebounds would be key risks for China,” a report by Eastspring Investments this week warned. 

The report said China’s recovery would spur higher energy prices around the world, which have already been a key driver of global inflation, and would prolong the cost-of-living crisis in many countries.

China has been relatively unaffected by a global surge in prices since Russia’s invasion of Ukraine in February. Prices rose 3% in September but fell back to 1.6% in November. This compares to near double-digit inflation in many Western countries.

Edited by: Uwe Hessler

For all the latest business News Click Here 

Read original article here

Denial of responsibility! TechAI is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.