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17 Jan 2023

International Economy

China’s zero-COVID policy led to its economic growth of only 3.0 percent in 2022, the lowest in more than five decades (Business Brief No.3987)


        In 2023, China’s economy is likely to see improved recovery following the cancellation of the zero-COVID policy. However, its economic growth is expected to remain lower than pre-pandemic levels amid risks from the property sector slowdown and geopolitical conflicts.

        Chinese economic growth in 4Q22 dropped to 2.9 percent YoY, from 3.9 percent YoY in 3Q22. A key factor behind the growth in 4Q22 was investment in fixed assets. Meanwhile, consumer spending, as reflected in retail sales, continued to shrink. For full-year 2022, the Chinese economy grew 3.0 percent, mainly driven by investment. Year-on-year, fixed-asset investment grew by 5.1 percent, while consumer spending was hit by the zero-COVID policy. China’s exports slowed at the end of the year due to the global economic slowdown, leading to full-year growth of only 7.0 percent YoY.

        Cancellation of the zero-COVID policy should contribute to China’s economic recovery in 2023, led by domestic spending whereas its international trade has heavily been pressured by the global economic slowdown. China’s reopening came earlier than markets had forecast amid the risk stemming from public health system. Under these circumstances, Chinese economic activity is unlikely to return to a full recovery anytime soon. During one to two months following the Chinese New Year festival, however, the number of COVID cases is expected to have passed its peak and should gradually decrease, possibly in 2Q23. This would be a boon to the start of its economic recovery, especially with the return of domestic spending. However, China will face several key risks that need close attention, including 1) the ailing property industry; 2) geopolitical risks that remain intensified – both tensions between China and Taiwan, and the US-China conflict; and 3) structural problems and policy uncertainties.

        In summary, the Chinese economy in 2023 is projected to expand by 4.6 percent YoY. Growth will likely remain sluggish compared to pre-pandemic levels, amid major risks that must still be monitored.

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International Economy