Macroscope | China will focus on stabilising the economy for now, but long-term goals won’t be forgotten

The more pragmatic turn in economic policy from Chinese policymakers at the end of 2022 led to an abrupt shift in investor sentiment towards China and a sharp boost to the global economic outlook.

More recently, a rise in geopolitical tensions with the United States has cast a shadow on the performance of equity markets, but the positive impact of a Chinese economy that is once again engaged with the world is hard to ignore in the near term. The longer-term focus on financial and economic stability will drive investment and opportunity in the Chinese economy.

When Covid-19 pandemic-induced restrictions are lifted, there is a fairly common pattern that follows: case numbers spike and people spend big. After weeks and months of thinking about where to travel and what food to eat or things to buy, scratching the “revenge spending” itch translates into a powerful economic pulse, especially for a cashed-up consumer newly freed from mobility restraints.

This reopening effect and its associated economic impulse are occurring quickly in China. It can already be seen in the mobility indicators such as subway flow data, traffic congestion, or the number of domestic flights. These have bounced back to close to 2019 levels – a time before Covid-19 was a household name.

The restrictions of the past three years have created both pent-up demand and excess savings to fund that demand. This is a powerful economic driver for China’s economy but also for those markets that produce in-demand products, such as luxury goods from Europe or in-demand destinations around Asia at a time when they might be facing weaker demand from other parts of the world.