China’s economy grew better than expected in 3Q 2022, rising to 3.9% YoY from 0.4% in 2Q2022, stemming from the manufacturing recovery driven by the easing of lockdowns in major cities like Shanghai and the economic stimulus measures totaling over RMB1 trillion. However, domestic demand still faces significant pressure from its Zero-COVID policy, and the problems in the property sector have yet to be addressed effectively, despite numerous stimulus measures released by the authorities to alleviate such issues during 3Q2022. Looking forward, China’s Zero-COVID policy is likely to last until at least 2023, and will continue to depress the economy. Although more relaxation may be seen in the details of COVID-19 control measures, China might not reopen its borders completely as other countries have done, including the easing of key COVID-19 control measures or coexistence with the COVID-19 virus. Meanwhile, factors that support the Chinese economy for the remainder of 2022, such as monetary and fiscal policy easing, are starting to face more constraints. Various conditions including inflation and the difference in monetary policies between China and the U.S. should be taken into account, as these issues may put additional pressure on the depreciation of the Yuan going forward.
More pickup in China’s economic data is expected ahead, with economic activities tending to expand better than that of 2Q2022 and 3Q2022, and the COVID-19 control measures could be more flexible, reflected in the recent start of an increase in the number of China’s international flights. However, as long as China adheres to a Zero-COVID principle and the problems in the property sector are not fundamentally addressed, China’s economic recovery will remain fragile. KResearch projects that China’s economy will grow by 3.4% in 2022, with a limited likelihood of a return to the pre-COVID-19 pandemic level.
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