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China Economics

Continuing to struggle

China will remain in the economic doldrums throughout 2023. The leadership won't choose to lift the zero-COVID policy until vaccination rates among the elderly have risen substantially. That will require a months-long push that has only just started. If it goes well, re-opening could happen in the middle of 2023. More likely it will take until 2024. Recurrent lockdowns will therefore remain a threat to industry while consumers will avoid the threat of quarantine by staying at home. The risks are skewed to the downside: if zero-COVID ends sooner it is more likely to be because it becomes untenable as infections spread. Social distancing measures would then be needed nationwide to slow the reopening wave of infection and prevent the health system from being overwhelmed. Economically, the impact would resemble that of the lockdown in early 2020. Meanwhile, China’s exports will suffer as global spending slows. And resolution of the property sector crisis (probably in the form of a state-sector bailout of insolvent developers) still looks some way off. Set against that, policymakers have a chance to rethink their cautious approach to fiscal policy in planning for the budget early next year. We expect more support. But it now appears that the economy will have contracted outright this year. It is likely only to crawl back to tepid growth in 2023. Policymakers may try to reassure investors concerned about the implications of Xi’s concentration of power, but his priorities of security and self-sufficiency will not benefit the economy or asset markets.    

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