The Chinese economy has suffered serious setbacks across sectors due to the disruptions induced by the COVID-19 pandemic. The restrictions and crackdown imposed as part of Chinese President Xi Jinping’s flagship zero-COVID policy exacerbated the economic impact of the pandemic. Since the scrapping of the zero-COVID policy in early December and the subsequent easing of policies related to the property sector, most international financial institutions forecast that China’s GDP growth will be around 5%.
However, we observe that despite positive projections, significant medium-to-long-term structural challenges persist. The quest to boost growth in the near term, in fact, will likely delay further action to address these.
Shifts in economic policy, occurring in the three-month period between November 2022 and January 2023, indicate a more extensive focus on stimulating growth by easing fiscal and monetary policies. The immediate concerns focus on boosting confidence, addressing COVID-related challenges, generating employment, ensuring food and energy price and supply stability, supporting the property sector, expanding domestic consumption through supply-side investments and not exacerbating local government budgetary challenges.
Some areas that are likely to see advances are industrial upgradation, core technologies-related work, market diversification, green technologies and low-carbon development. However, reforms needed to address long-term, structural challenges, such as fiscal & tax reform, hukou reform, demand-side consumption support, and developing an enhanced social security net, are unlikely to be pursued.
Finally, China continues to play a central role in the global economy, and broad-based economic decoupling does not appear to be taking place. However, there is intensifying friction with regard to emerging technologies, where splits in the international ecosystem are evident. In addition, Chinese government actions over the past three years, have eroded foreign governments’ and investors’ faith in the predictability, reliability and efficiency of Chinese policymaking.
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