China tries to calm economic waters as Covid storm rages

Top economic agency bids to shore up market confidence with pledge to stabilise supply chains
Finish line ‘now in sight’ as China transitions from zero-Covid policy, officials say

China's economic recovery

Frank Tangin Beijing

Published: 11:00pm, 19 Dec 2022

Why you can trust SCMP

China’s top economic decision-making body has urged manufacturers to maintain stable food and drug production, and to ensure industrial supply chain stability as the country abruptly shifts from Beijing’s stringent zero-Covid policy.

In a lengthy question-and-answer article on the risks and outlook for China’s economy next year, published by the state-run Xinhua on Monday, the Office of the Central Financial and Economic Affairs Commission (CFEAC) said the present difficulties were “temporary and unavoidable”, but that economic and social order would help quicken recovery after the recent reopening.

“This will unleash huge vigour, and ensure that economic activities continue to circulate and reach their full growth potential,” the commission said. “We must have good management for the transitional period. The finish line is now in sight.”

China puts private sector front and centre in fresh economy-boosting vows

The comments came as Beijing has been racing to shore up market confidence following the removal of zero-Covid restrictions across the country. The policy U-turn has raised questions about management decisions over public health, with concerns over drug shortages and vaccination rates among the elderly as coronavirus cases spike nationwide.

The office said authorities would ensure adequate medicine supplies for households, monitor key industrial and supply chains, and guarantee supplies of basic necessities at stable prices as its “three key tasks to counter the shocks of short-term spikes in infections”.

On Friday, at the end of an annual economic work conference chaired by President Xi Jinping, officials signalled they would begin to prioritise economic and employment issues.

Beijing has pledged “overall improvement” in the national economy in 2023, which was widely interpreted as a GDP growth target of at least 5 per cent. Policymakers have promised stabilised economic growth, employment and prices, with the help of more fiscal support and improved monetary policy.

The leadership also promised to tackle weaker segments of the national economy by helping the distressed property sector, boosting domestic consumption, pledging equal treatment for the private sector, and addressing the concerns of foreign investors and hi-tech companies.

Since Beijing began unwinding its hardline zero-Covid policy, infections across the country have jumped, but accurate figures are not available and authorities have said it is impossible to track the outbreaks because of their rapid spread.

“We face many dilemmas, with multiple targets to attain, in our economic development. We need to find the optimal solution amid multiple restrictions,” the office said, according to Xinhua.

Financial markets have mostly predicted a tough quarter or two ahead for China, citing the experience of overseas reopenings, but they also say Beijing’s policy support will remain proactive.

“Covid management, economic policy and regulatory policy are aligning in a pro-growth fashion for 2023, for the first time in three years,” said Robin Xing, Morgan Stanley chief China economist, in a research report on Monday.

US firms in China will see ‘no light at the end of the tunnel’ in 2023

Chinese officials expect the nation’s economic recovery to speed up from the second quarter of 2023, according to the Xinhua article.

Beijing has acknowledged growing external risks, including a potential drop in global economic growth next year, the lingering impact of the Russia-Ukraine war, and mounting pressure from aggressive interest rate hikes in major Western countries.

Adjustments of global supply chains could also be a challenge, officials in Beijing have said, because the United States has stepped up technology-containment restrictions.

The article said that small and medium-sized foreign investors were still interested in the Chinese market, and that China would expand global cooperation on technology and expertise to cement its status in the global supply chain.

Domestically, China has also faced persistent pressure from rising unemployment, especially among younger workers. Employment will become an increasingly prominent issue as the number of fresh college graduates is expected to reach a new high of 11.5 million next year, the article said.