Sluggish external demand, fading supply chain advantages and decoupling threats could be the key challenges for China next year amid strong domestic headwinds, according to a leading researcher with the country’s top economic planning agency. As logjams in the global supply chain ease, China is losing the edge it had over the past three years when the coronavirus disrupted production in the rest of the world, said Liu Xueyan, a researcher with the Academy of Macroeconomic Research at the National Development and Reform Commission. China was well-equipped to meet global demand for medical supplies in 2020, electronics and furniture in 2021 and car parts this year, but it is unclear where it will find its next window of opportunity, Liu said. “If there is an upsurge in exports, it’s likely linked to Europe’s energy crisis,” Liu said at a seminar held by the National Association of Financial Market Institutional Investors on Saturday. “Europe’s energy problems have not reached their worst stage yet. If the energy crisis persists under the current political state, it could be a window of opportunity for our energy-intensive industries, including petrochemicals and non-ferrous metals.” This could possibly help the country ease strains on exports and bring in more foreign capital, she added. China’s exports declined by 0.3 per cent in October compared with a year earlier, down from 5.7 per cent growth in September. Despite mounting public frustration , Beijing is clinging to its sweeping zero-Covid policy , which relies on lockdowns, mass testing and quarantines to stamp out local outbreaks. The stringent controls are disrupting consumption and industrial activity in the world’s No 2 economy, while China’s important property sector is in crisis. Subdued global demand is clouding the outlook even further, experts say. If the hard decoupling really were to happen, where could we find partners to participate in our ‘external circulation’? Liu Xueyan Next year, China’s economic recovery will not only be curbed by the coronavirus at home, but external factors such as geopolitical tension, Liu said. Western nations, led by the United States, are stepping up efforts to diversify supply chains away from China. “If the hard decoupling really were to happen, where could we find partners to participate in our ‘external circulation’, and what do we have to exchange when we are faced with rounds of supply chain and logistics strains? This is a key issue that we need to particularly address next year,” Liu said. The US has rolled out a raft of export controls against China’s semiconductor industry, while Washington’s containment efforts threaten to reach other strategic sectors that it sees as being linked to supply-chain security, including certain pharmaceuticals, rare earths, and items related to batteries and electric vehicles. Just days ago, US regulators imposed a ban on electronic equipment from Huawei Technologies Co and ZTE Corp, citing national security concerns, a move in line with its previous efforts to exclude Chinese telecommunications companies from entering US networks.