2022 was a challenging year for the global economy, and China’s zero-COVID policy did not help matters. As we look into 2023, the impacts of the zero-COVID lockdowns continue to linger and have spillovers on other Asian economies—mainly through trade dependencies. But as China opens up and removes restrictions on travel, will its economy turn a corner?
We speak with Louis Kuijs, chief economist for Asia at S&P Global Ratings, about China’s economic prospects in 2023, headwinds faced by its economy, and its linkages with other Asian economies.
Unravel: What are China’s growth prospects like in 2023?
Louis Kuijs: Following a very poor 2022, China’s growth should improve significantly in 2023 because of the post-COVID reopening of the economy and easing of the property downturn.
After going through the negative initial economic impact of the move to ‘living with COVID’, the policy shift is likely to lead to a revival of domestic demand, especially private consumption.
Moreover, in the wake of a major shift in property sector policy in late 2022, with additional policy measures following in early 2023, the real estate sector should recover later in the year.
Slower external demand this year is a dampener and a very weak fourth quarter of 2022 means China starts the year with weak economic momentum. Nonetheless, given the expected post-COVID domestic demand recovery and eventual turn-around on the housing market, China should be able to grow around 5% this year.
Unravel: Can we expect the Chinese government to take steps to stimulate domestic demand?
Mr Kuijs: By far the biggest step to stimulate domestic demand was the shift in COVID policy. As noted, and as happened in other countries, this will boost growth considerably this year.
In addition, high-level policy documents and announcements by senior officials indicate that China’s policymakers are re-orienting their focus on economic growth. One key aspect of this is the major change in the property policy stance in recent months.
Given the interest in Beijing in containing financial risks, major easing of fiscal or monetary policy is unlikely. Nonetheless, local government bond issuance seems on track to be relatively generous and monetary conditions should remain accommodative until the recovery has become more mature and inflation moves towards the likely 3% target of the People’s Bank of China (PBoC).
Unravel: What are some external headwinds for China’s economy?
Mr Kuijs: The expected global slowdown amid very low growth in the US and Europe will be a drag as it hampers China’s exports.
High US interest rates as the Federal Reserve continues to fight elevated inflation are another headwind. In addition to its impact on the economy in the US and elsewhere, it limits the room the PBoC has to keep monetary conditions easy without triggering capital outflows and currency depreciation pressure.
Unravel: As we look into 2023 and beyond, do you think other Asian economies’ growth is going to be less linked to China’s, or are they going to be as reliant on Chinese growth?
Mr Kuijs: The reliance of other Asian economies’ growth on China is structural, a function of the fact that exports to China are large in relation to their economies’ size. This reliance could in principle change, but that will take time. In the meantime, China’s economic momentum will be key for economic growth in many Asian countries. In 2023, that dependence on China should be a plus, as China should outgrow the US and Europe handsomely. But there may be other reasons why this reliance is considered an issue.
Louis leads the Asia-Pacific macro team and its research. He contributes to S&P Global Ratings’ macro-credit narrative and represents the firm in events, conferences, and the media, delivering its insights and thought leadership to the marketplace. Before joining S&P Global Ratings in 2022, Louis held senior positions in both the public and private sectors, including at the International Monetary Fund (IMF) in Washington DC, the World Bank in Beijing, and at the Royal Bank of Scotland and Oxford Economics in Hong Kong. While with the World Bank, he led the China Quarterly Update, headed the Bank’s mid-term review of China’s 11th Five Year Plan, and led research on China’s saving and investment, rebalancing, and long-term growth and structural change.