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Friday, July 19, 2024

China’s economy and end of zero-covid challenges for 2023

China has transformed a lot since its authoritarian leader Xi Jinping came to power ten years ago; it is now a physically and psychologically barred country, and this transition will have long-term effects on the rest of the world. It is obvious that the most important issue facing China in 2023 is how it manages the unraveling of the end of zero-covid. Nearly everything else, especially the state of the economy, depends in some way on how quickly the government and the country transition from stringent limitations to a genuine reopening.

In 2022, the Communist Party of China (CPC) convened its 20th National Congress, during which the new central leadership was elected with President Xi Jinping at its helm. Excluding 2020, 2022 saw the poorest performance of the Chinese economy, with a 3% GDP growth rate since 1976. Prior to removing the target from official announcements due to the deteriorating economic climate, China’s government had set a target of 5.5 percent growth.

By the end of 2022, China’s rigorous “zero-COVID” pandemic policy would have had a significant negative impact on the second largest economy in the world, with lockdowns hindering business operations in important industrial hubs like Shanghai and Guangzhou. After extraordinary protests across the nation, China abruptly dropped its “zero COVID” strategy.

In the final days of 2022, COVID instances exploded throughout Beijing and many other major cities. The spike that the government has been warning about for three years is finally materializing. As a result, China’s exit from zero-covid is likely to be chaotic. For starters, experts contend that the present upsurge is only the beginning. Due to the low number of infections, China’s population is more vulnerable to the virus, and the country’s less effective vaccines do not provide as much protection as those used in the United States. The Chinese government has also directed hospitals to increase ICU capacity by the end of December.

Read more: New covid-19 variant: Should we “Beware the Kraken”?

Chinese New Year, the country’s major event, which begins on January 21, will be a period of special concern. Every year during the holiday, hundreds of millions of people travel to celebrate the occasion with their families. The last three years have seen a scaled-back celebration; now that the rules are loosened, all that accumulated travel could turn out to be a countrywide superspreader event, speeding the spread of the virus and spreading it to vulnerable rural areas where China’s healthcare system is even weaker.

This means that within the first few months of 2023, China may experience over a million deaths, as many public health experts have predicted. It’s a doomsday scenario that might have repercussions far beyond China’s public health; if events go so badly, the country’s economic expansion and even Xi’s leadership could be called into doubt.

Over the past year, zero-covid has been an established drag on the economy; factories suffered while their workers were locked down, and Chinese consumers cut back on their purchases as they lost wages and jobs. The GDP growth rate fell far short of the initial goal set by the authorities. The aim now is to free up the Chinese economy once more by removing lockdowns and other limitations.

Read more: Chinese economy recovers from pandemic depression

According to the Wall Street Journal, a Politburo official is developing preparations for a GDP objective exceeding 5 percent in 2023; the precise target won’t be revealed until the National People’s Congress convenes in March. However, not all international financial institutions share this optimism. The World Bank has predicted 4.3 percent GDP growth for China in 2023, which reflects the economy’s vulnerability to the expanding COVID wave.


Recovery ahead?

Even while the reopening is still in progress, one thing is certain: recovery will take time. The Chinese government will be looking to consumers as a crucial driver of growth, but after a year of uncertainty and lost income, people all over China are still reeling. Even if the COVID wave does not pan out as predicted, it might take some time for consumers to resume their travel and shopping habits.

Since other crucial engines of the Chinese economy are likely to underperform, 2023 consumer behavior will be especially crucial. Exports from China, which boosted the economy in 2021, appear to be sluggish going into the new year given the economic difficulties in the U.S. and other countries.

Xi Jinping might be experiencing one of the most difficult years of his reign. His position has been severely weakened as a result of his close association with the “zero COVID” policy, the success of which Chinese media has frequently boasted. Before the November protests, Xi’s control appeared unassailable.

Read more: When Mr. Xi comes to town

Along with calls for an end to the COVID lockdowns, there were people in the streets shouting “Xi Jinping, step down!” Some experts say that Xi might have been too hasty in answering the protesters—shifting gears too dramatically. In this view, Xi may have incorrectly believed that the economic benefits of reopening—even a poorly planned reopening—would outweigh the costs. Xi may suffer reputational damage in the eyes of the public, although it still may not lead to immediate political consequences for him.