Sonnets of China’s Post-COVID Economic Recovery

February 07, 2023

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As the third year of the COVID-19 epidemic drew to a close, China’s strategy moved from managing the spread of the virus to encouraging economic development. China’s economy and social order responded positively, and major cities began to recover, despite the epidemic being far from over. In late November 2022, China relaxed pandemic restrictions and ended its “zero-COVID” policy, which almost immediately revived economic growth. 

 

Worldwide, policy makers paid close attention to China’s economy in late 2022 as the country streamlined its COVID-19 legislation. According to China’s Ministry of Culture and Tourism, over 52.7 million Chinese citizens travelled throughout the country over the three-day new year’s vacation. Tourism receipts for the 2022-23 new year period of approximately US$3.8 billion surged from the US$2.2 billion generated 12 months earlier. On December 15, 2022, the Economist Intelligence Unit predicted that once the public health crisis was resolved, demand for Chinese products would increase in the second half of 2023. Goldman Sachs predicted that once China was fully reopened, Thailand’s GDP might increase by 3%. Arup Raha of Oxford Economics suggested that China’s growth effect on Thailand would lessen the unpredictability that influences the pricing of local assets like the value of the currency. The Economist noted that Thailand’s central bank would be less likely to raise interest rates, a desirable impact since the country’s output is still below potential. Moreover, the post-COVID flow of Chinese visitors would be beneficial to both the tourism and retail sectors. Retail sales in Singapore are projected to increase by SGD$2 billion in 2023. For The Economist, China’s economic revival, and its significant role in global trade and production contribute to overall global expansion.

 

As the COVID-19 pandemic recedes, its impact on the economy and industry has also declined and China’s resilient economy has entered a new phase of recovery. Moreover, the complex industrial network that the pandemic catalyzed has been progressively developed and refined, paving the way for a new path to economic recovery. To halt a prolonged decline in the real estate sector, China has recently introduced new initiatives designed to boost developer finance and stimulate house sales. On the downside, the government’s new measures may also cause a substantial drop in near-term economic activities. Research, however, shows that tougher rules are more effective in helping an economy recover from the shock of a pandemic over the long term. Moreover, China’s massive domestic market has provided impetus for advancing the pandemic-era commercialization of technological innovations. To generate a significant increase in sales, public confidence must be restored over time and families convinced to adjust their approaches to building wealth. China has determinedly called for international cooperation in the battle against the COVID-19 pandemic and swiftly joined collective responses.

 

Economic resilience is measured in a country’s capacity to rapidly recover from severe setbacks. As a consequence of pro-growth initiatives, 2023 is expected to be a stronger economic year for China. The country’s GDP is predicted to expand by 4.8% or more in 2023, which is comparable to projections for 2021. Exports, among other things, have been crucial to China’s economic revival. Red flags for China’s economy in 2023 are the potential recessions in the United States and Europe and projected downturn in the global economy. To better weather the post-pandemic economic storm, China has the capacity to make the following policy adjustments: 

 

In 2023, confidence and domestic demand underpin China’s economic policies and the short-term and long-term policy frameworks needed to stabilize the economy. As normalcy returns and income growth are restored, private spending is emerging as the key driver for China’s economic recovery. However, market participants are naturally concerned with China’s implementation of such growth measures. Consumer spending is hampered by three years of lockdowns that decreased salaries, and the severe financial pressure placed on many families, especially those with lower incomes. As such, families have reduced discretionary spending and focused on returning to work and saving money. To stimulate household spending, the central government needs to increase public services and target the 300 million migrant workers living in metropolitan areas that have long been excluded from state welfare and healthcare programs.

 

Consistency and continuous reform efforts remain the cornerstone for boosting market expectations and rebuilding market confidence. To maintain robust government expenditures in 2023, the government will need to increase tax revenue or expand the budget deficit substantially. Fiscal deficits, special-purpose bonds, and interest subsidies are some of the tools employed to ensure fiscal sustainability and manage the risks associated with local government debt. Green development and small businesses, among others, will continue to receive policy attention and funding from the government. Additionally, China’s central bank is expected to renew a number of the targeted loan instruments utilized during the epidemic as they reach their expiration dates. 

 

How the world’s second-biggest economy will function in 2023 remains a major international concern despite China’s positive record of previous economic efforts and policies. The Western media reported in 2022 that the unemployment rate in China was increasing and that youth unemployment had risen to 20%. Predictions that the Chinese economy would eventually have a higher GDP than the US economy were also contested.

 

Importantly, the worldwide news cycle is no longer dominated by the COVID-19 pandemic as more countries relax their prohibitions on virus containment. Media focus has turned to geopolitical rivalries, economic crises, supply chain concerns, military conflict in Ukraine, pandemic fallout, and other health crises. While the majority of countries have ensured access to quality medical care for their citizens, several struggled economically to provide adequate healthcare responses to COVID-19. Disruptions to trade and investment, especially at the outset of the crisis in Ukraine, are stark reminders of global economic fragility. While international commerce and investment have both improved significantly in the post-pandemic phase, the upturn is not uniform across countries and industries. Nevertheless, observers see 2023 and China’s refocus on economic policy as a turning point. China’s sluggish economic development of previous several years was due, in large part, to factors other than China’s COVID regulations – the conflict between Russia and Ukraine, US sanctions and restrictions on trade, and the commercial interruptions brought on by tight COVID control processes across the globe. 

 

Half of the increase in global GDP during the first three years of COVID is attributable to China. As such, the international community relies on China to foster greater international economic collaboration. China’s revised COVID policy contributed positively to the country’s domestic economy as well as the global economic recovery. By enacting rules to protect its citizens and enterprises, the Chinese government has helped to nurture a recovery that is more robust, inclusive, and long-lasting. The following evidence demonstrates why China will continue to play a crucial role in the recovery of the global economy:

 

I. China’s COVID response aid has provided an opportunity for the country to attract new partnerships across the Global South and foster mutual economic and political growth. The vaccination gap, especially in poor nations, is a major setback for international development efforts. China actively aids developing nations in their economic recovery efforts and is a staunch advocate of genuine multilateralism. The populations of less developed nations increasingly regard China as a pillar of human rights and a partner that delivers on its promises, offers timely assistance and produces tangible benefits. Building on its reputational strength, China’s global partnership network will expand and strengthen.

 

II. China’s continued reform and opening up and economic aid to partners did not slacken during the pandemic. Recipient countries of China’s assistance economically benefited and bilateral commerce, without doubt, rose accordingly. Moreover, global economic recovery benefited from China’s COVID response assistance including the export of vaccine doses worth an estimated 120 billion yuan. International support for the COVID response effort was a resonant gesture of peace and generosity.

 

III. The Chinese government responded to the COVID-19 outbreak by enacting a variety of initiatives and programs, which aimed at maintaining economic activity, but also led to economic and technological progress. China’s ground-breaking new technologies, represented by technologically driven pandemic-control programs which monitor population movement and geographical dispersion using big data and face recognition, have bright prospects for future application. Moreover, China’s exports are bolstered by the country’s international cooperation initiatives, such as the provision of biological products and medical equipment to underdeveloped countries.

 

IV. China-led regional financial arrangements are beneficial. For vulnerable low- and middle-income countries, the International Monetary Fund’s ability to provide finance for investment projects is contingent on their progress toward sustainable development objectives. It is admirable that the international community seeks to help the most vulnerable nations recover from the pandemic’s shock, but there are still obstacles to overcome, including economic stabilization of many middle-income countries, least-developed countries, and low-income countries. China, in tandem with other leading countries, needs a more ambitious policy agenda to address debt vulnerability, which continues to receive too little attention. In addition to the small and insufficient sums allocated to poor nations to bridge their financial shortfalls during the pandemic, there are the larger challenges of restructuring the global debt architecture.

 

V. The Ukraine crisis has caused food and electricity shortages and worsened the bleak economic climate. Humanitarian assistance, particularly large-scale migration management, necessitates reallocation of public resources in developing countries. This has negatively impacted official development assistance, and post-COVID-19 infrastructure and sustainable development goals project funding packages, which were supposed to stimulate future global investment in sustainable recovery. China has a lot to offer in terms of foreign projects and stands to benefit from active participation. For example, China has played an important role in helping low-income countries receive global debt relief and expanded access to vaccines. The severity and length of the pandemic has significantly reduced the capacity of many countries to service previously incurred debt. China’s assistance in establishing sustainable debt trajectories would help borrowers make greater future contributions to the global economy.

 

VI. China’s efforts to advance international trade and, in particular, WTO reform, are very important. China leads international climate efforts, such as co-chairing the G20 Sustainable Finance Working Group and working with the EU on green investment requirements, which contribute to a global green recovery. China’s contribution to the IMF bolsters the reserves of all 190 member nations by drawing on the collective power of the Fund’s membership. Furthermore, China provides liquidity assistance to a wide range of low-income nations, allowing them to better finance healthcare and protect their most vulnerable populations.

 

The COVID-19 public health calamity severely damaged the global economy. The post-COVID-19 economic recovery trajectory is crucial for achieving sustained and high-quality global economic development. China has manifested its global responsibility by extensive participation in UN peacekeeping missions, providing humanitarian relief in times of disaster and respecting global environmental and free trade principles. Moreover, China’s economic resilience has both sustained and significantly increased global economic growth. Looking to the future, China’s active policy direction is energizing both the supply and the demand sides and promoting increased resilience in other economies to mitigate future global risks.

 

 

 

 

 

 

 

This article is from the December issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the September issue, please click here:

http://www.taiheinstitute.org/Content/2023/01-31/1406041512.html

 

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