As China ‘shifts gears’ on zero-Covid, leaders vow that ensuring economic stability is now top priority
- China will lay out economic priorities for 2023 at the central economic work conference this month, but analysts are already guessing what the GDP growth target will be
- Politburo pledges in tone-setting meeting to optimise pandemic-control measures and ensure that economic operations take a positive turn across the board
As they ease coronavirus controls and pivot towards a reopening, China’s new leadership line-up is looking to prioritise economic recovery while trying to stabilise employment for 2023.
The policy shift, touched on during Tuesday’s tone-setting meeting of China’s primary decision-making body, reflects how Beijing is taking a pragmatic approach and allowing due time for its adjustments to pay economic dividends, particularly amid worsening external demand.
Analysts expect 2023 to be the year in which the new top leadership under President Xi Jinping will consolidate China’s economic recovery, with strong fiscal and monetary support expected until at least midyear, plus more remedy measures introduced to improve market confidence.
“For the next year, we must make economic stability our top priority and pursue progress while ensuring stability,” the official Xinhua reported on Wednesday morning, citing a statement following the Politburo meeting.
China’s November trade momentum falters, missing expectations
Joerg Wuttke, president of the European Union Chamber of Commerce in China, called the latest import data “absolutely shocking” and said it shows how “the economy is really weak”.
“So, it was high time to shift gears, and that’s what they’ve done,” Wuttke said, referring to the zero-Covid policy changes.
“And now it’s important that they don’t flip-flop – that they implement these policies, that they are listening to the market, that they’re communicating with people, that they are giving not just a booster shot for vaccines, but also a booster shot in sentiment, indicating that people can eventually live with this.”
03:44
Beijing closes some Covid testing booths as China enters new phase of pandemic controls
Additionally, the Politburo pledged to optimise pandemic-control measures and ensure that economic operations, on the whole, take a positive turn.
It also vowed more powerful and targeted monetary support, while also requesting increased policy coordination. And it reiterated a pledge to attract more foreign investment with greater market access.
“We’ll try to achieve an effective improvement of quality and a reasonable pace of expansion,” it said, aiming for “an overall improvement in the economic performance” for 2023.
The economic analysis meeting of the 24-member Politburo is considered a prelude to the upcoming central economic work conference, which will be attended by top leaders, provincial governors, economic and financial officials, and executives of state-owned banks or industrial giants.
They will gather to outline economic priorities for next year and discuss the nation’s gross domestic product (GDP) growth target.
What can be expected from China’s economic work conference in December?
For the coming year, Ding Shuang, chief Greater China economist at Standard Chartered Bank, said Beijing is likely to set its 2023 GDP growth target above 5 per cent, because it needs to avoid being lower than its potential growth for a long period, and setting such a rate would also serve to help revitalise market confidence.
“This will rely more on domestic demand and also count on a further optimisation of pandemic-control policy,” Ding said.
Ding added that Chinese authorities should maintain strong fiscal spending at least until mid-2023, to help offset coronavirus disruptions and the worsening foreign demand.
“China still needs to reserve policy tools and make contingency plans, as the pandemic could repeatedly impact the economy,” he said.
Wuttke with the EU Chamber also stressed that “the next six months are going to be absolutely vital in order to give the population the faith and the confidence that – maybe by the end of summer next year – China will be living with the Omicron [variant], and it will be getting back to a normal, and then, subsequently, the economy will be doing fine”.
While the government’s economic targets are not expected to be disclosed until the National People’s Congress in March, many policy advisers have called in the past month for the GDP growth target to be at least 5 per cent for 2023.
The target would be well in line with the average growth over the past five years, as mentioned by Xi at a separate closed-door meeting on Friday.
Chinese leader tells EU ‘frustrated students’ are behind Covid-19 protests
When discussing China’s economic arrangements for 2023 and consulting non-Communist Party cadres and the business community, Xi welcomed “weighty” advice on scientific and precise pandemic controls, on an effective expansion of domestic demand, on high-level technology self-sufficiency, and on how to invigorate business entities.
Zhang Zhiwei, chief economist of Pinpoint Asset Management, said Beijing’s policymakers have already recognised a variety of problems, including weak confidence and supply-chain risks.
“So far, the government has surprised the market in terms of its policies on Covid and the property market,” Zhang said. “I’d expect more positive policy surprises in the next few months.
“I’d expect policies to become more market-friendly in 2023.”
Bert Hofman, director of the East Asian Institute at the National University of Singapore, said the Politburo “explicitly endorsed” the new direction of coronavirus controls.
“So, while there are still many challenges ahead,” he said. “This is a clear step towards further opening and better balancing Covid controls with the impact on society and the economy.”
