Focus topics

Growth policy: bumpy road toward economic recovery

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Immediate economic growth expected, but no clear path to rapid recovery

  • Other economies in East Asia exited from strict Covid restrictions ahead of China. All had a quick recovery in the 1st quarter after the Covid policy shift. However, the following quarters showed a mixed picture: Singapore and Korea maintained resilient growth while Japan, HK and Taiwan recorded multiple quarters of negative growth.​
  • Therefore, we expect the Chinese economy to grow significantly in Q1 2023 from a low base in Q4 2022. However, the recovery pace for the whole year is highly uncertain.​

Shaken consumer and business confidence

  • While the restrictions on economic activities are being lifted, the capability and willingness to invest and consume cannot be turned around overnight.​
  • The difference in policy between China and other economies during the pandemic was not merely China’s “Zero-Covid” approach. China also put less emphasis on supporting mid and lower-income groups, allowing consumer confidence to be significantly damaged.​
  • Although the NBS claims +2.9 percent y-o-y growth in average household income in 2022, a PBoC survey in Q4 reports only 10.8 percent of respondents increased their income and 22.8 percent are willing to increase consumption.​

Ideology could disrupt recovery

  • If the Chinese government sticks to its playbook of stimulating investment, it may achieve the intended growth results in the short term. But the growth will be difficult to sustain as long as household consumption remains weak.​
  • To boost consumption, policymakers need to reduce unemployment, e.g., by continuing the current removal of crackdowns in the tech sector. They also need to offer better social welfare to distressed groups to recover a sense of security necessary for an increase in consumption.​
  • Most importantly, the government would need to take a consistent growth-oriented path and shift its reputation among businesses and consumers, damaged by its emphasis on socialist ideology. Since Xi consolidated power last October, the resistance within the Party against ideology-driven, growth-restricting policies is further weakened. Therefore, the policy dynamics throughout 2023 might be in part detrimental to a speedy economic recovery.​


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