Eevery december Chinese Communist Party leaders gather to discuss their “economic work” for the coming year. The lengthy statement they then release to the public gives an indication of their mindset and priorities. But when leaders met in Beijing on December 15-16, the most fateful economic election of the next 12 months was about to begin already done.
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Whether by mistake or on purpose, local officials failed to impose lockdowns on the scale needed to halt a widespread Covid-19 outbreak in November. Their decision, if you can call it that, brought an abrupt end to China’s “zero Covid” policy. China’s central government is unable to defeat the virus and says it’s too mild to be worth defeating.
This will ultimately be a great boon to China’s economy. Before the country can achieve that happier future, it must contend with the world’s last major wave of infections. Corresponding hsbca bank, year-on-year growth could fall below zero in the first quarter of 2023.
The economy faces near-term threats to supply and demand. Some employees get sick; others take time off to care for affected family members. Schools have gone online in parts of China, trapping parents at home. As hospitals fill up, local officials could try again to slow the spread of the disease by restricting interregional traffic and clogging up logistics.
The bigger threat is trust and spending. Many Chinese resented the “zero Covid” regime, but many still fear the disease. About 61% will stay at home or go out less as infections rise, according to a Bank of America survey. In November, retail sales were down more than 7% year-on-year when adjusted for inflation.
In Beijing, where the virus is spreading fast, shopping malls are unusually quiet, even as fever clinics (and some bars) are packed with people seeking relief for their bodies (or minds). The risk of infection in the country’s capital is so great that the National Bureau of Statistics canceled its regular press conference to review the month’s economic numbers — as good an indication of China’s predicament as anything the bureau normally releases.
This means that the heads of state will be denied economic work in 2023. But you don’t necessarily guess that when you read their explanation. Just as China’s economic statistics are often suspiciously smooth, the statements that China releases after its economic labor conference are artificially consistent. They repeat phrases (“active fiscal policy”) and slogans (“Housing is for living, not for speculating”) from previous years.
It’s probably intended to give that impression stability and continuity. Last week’s statement made only passing mention of China’s abrupt departure from the “zero Covid” policy. The statement said China will focus on the elderly and vulnerable and will calibrate its response to infections to “weave the recent Covid-19 pandemic smoothly.”
However, the statement acknowledges some of the dangers of a post-zero Covid world. China’s leaders must revive domestic market confidence and restore China’s appeal to overseas investors, most of whom have not been there in years. “Improving public confidence and expectations” is listed as a good starting point for economic strategy in 2023. China’s leaders promise “maximum convenience” to foreign investors.
The statement also offers a rare acknowledgment of criticism, or what it calls “wrong” interpretations. It addresses the view that China has become hostile to private enterprise and unwilling to reform its large state-owned enterprises. Examples include a crackdown indebted builders and a regulatory blitz that humiliated some of the country’s most successful e-commerce companies in 2021. In response, the statement pledges that China will make clear its adherence to the “two unshakable ones,” the name the party gives to its dual commitment to consolidating the state sector and supporting the private sector.
Robin Xing of Morgan Stanley, another bank, believes China’s regulatory, macroeconomic and Covid policies are geared towards growth for the first time in three years. Others are more skeptical. The government’s attempt to restore confidence is like breaking a horse into pieces, putting it back together and expecting it to walk again, according to one netizen. The doubters will want to see more evidence that China is as committed to private business as it is to its pro-market slogans. Official rhetoric is not always a good guide to politics. If it were, China would still emerge victorious with zero-Covid. ■
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