Advertisement
Advertisement
China's economic recovery
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
Premier Li Keqiang speaks at a meeting on government work regarding economic stabilisation for the fourth quarter on Wednesday in Beijing. Photo: Xinhua

China urged to set ‘clear road map’ for zero-Covid exit to enable economic recovery as premier looks to fourth quarter

  • Premier Li Keqiang said China’s economy generally recovered and stabilised in the third quarter and that Beijing will push ahead in the last three months of the year
  • It has been rolling out measures since May, including tax cuts and infrastructure spending, to support the economy crippled by zero-Covid and a property crisis

China’s economic growth outlook hinges on its zero-Covid policy, analysts said, as Premier Li Keqiang pushed forward policy implementation in the last quarter of the year to steady the coronavirus-hit economy.

The world’s second largest economy generally recovered and stabilised in the third quarter, Li said on Wednesday according to state media, with China set to push ahead with its economic programme in the last three months of the year.

Beijing has been rolling out measures since May, including tax cuts and infrastructure spending, in a bid to cushion the blow facing the economy and to boost investor confidence.

It is necessary to enhance confidence, seize this window of opportunity, stabilise market expectations, and promote the full implementation of policy measures
Li Keqiang

“It is necessary to enhance confidence, seize this window of opportunity, stabilise market expectations, and promote the full implementation of policy measures and their full effect to ensure economic operation, within a reasonable range,” Li told a meeting on government work regarding economic stabilisation for the fourth quarter.

“In view of the prominent contradiction of weak demand, we will find ways to expand effective investment and promote consumption.”

Li’s remarks come as policymakers seek to support the economy crippled by strict coronavirus measures and a property crisis, particularly ahead of the 20th party congress next month.

China is not expected to meet its annual growth target of “around 5.5 per cent” this year, but the world’s second largest economy is seen to have recovered better than expected in August.
Retail sales rose by 5.4 per cent year on year last month, up from the 2.7 per cent growth in July, while car sales surged by 15.9 per cent year on year thanks to policy support including tax cuts and subsidies.

Restaurant revenues also rebounded to post growth of 8.4 per cent, up from a 1.5 per cent contraction in July.

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, rose by 4.2 per cent in August, year on year, up from 3.8 per cent growth in July.

Analysts agreed there were signs of recovery visible in the third quarter after the government altered its zero-Covid policy to a more targeted approach to minimise the impact on economic growth, but there is still no clear indication when it will come to an end altogether.

Beijing continues to fire on all cylinders to stamp out the coronavirus, and has yet to release a clear road map for exiting its zero-Covid strategy
Nomura

“The outlook for the coming year seems unusually unclear, even though we are already at the end of the third quarter,” said Nomura last week, who expect China’s latest leadership reshuffle that will start at the party congress next month to be only fully completed by mid-March.

“Beijing continues to fire on all cylinders to stamp out the coronavirus, and has yet to release a clear road map for exiting its zero-Covid strategy.”

Analysts at the Japanese investment bank have upgraded their forecast for China’s third quarter gross domestic product (GDP) growth from 2.6 per cent to 2.8 per cent, but have also revised down their fourth quarter expectations from 3.3 per cent to 2.8 per cent.

China’s economy grew by only 0.4 per cent in the second quarter of the year, with third quarter data set to be released in mid-October during the party congress.

China’s 2023 GDP growth is likely to be 2.7 per cent, according to Nomura, but its annual GDP growth forecast for 2023 has been cut to 4.3 per cent from 5.1 per cent, citing uncertainty over the zero-Covid policy, weak export growth as well as the poor recovery in the property sector.

China’s GDP growth to lag behind rest of developing East Asia: World Bank

US investment bank Morgan Stanley last week also pointed out that a shift in China’s virus management approach is needed given weaker exports and a continued drag on property sector activity.

“Between the third quarter 2022 to first quarter 2023, we expect growth will remain sub-par at around 3 per cent. If China reopens from the spring of 2023, we estimate GDP growth will strengthen to around 5.5 per cent in the second half of 2023,” Morgan Stanley said.

China is set to begin its week-long National Day holiday – a period during which travel and spending traditionally peak – on Saturday.

But based on information compiled by French investment bank Natixis, which follows both manufacturing and non-manufacturing sentiment, the positive seasonality effect may be less significant this year since some local governments have already urged residents to refrain from cross-region travel during holiday.

“Under an optimistic scenario in which China starts to open up in 2022, the low GDP base in 2022 should support the growth in 2023, similar to what happened in 2021 after the very low growth in 2020,” Natixis said on Tuesday.

Until the health side improves in one way or another, those betting on a quick end to zero-Covid are in for a rude surprise
Shehzad Qazi

“However, from a long-term perspective, the Covid-19 outbreak may have already caused scarring effects on the Chinese economy, especially on investor’s sentiment, which may take time to recover even if mobility restrictions ease.”

Shehzad Qazi, managing director at China Beige Book, believes President Xi Jinping is likely to continue to prioritise health over economic growth.

“Segments of the market are predicting the end of zero-Covid after the party congress, but this is based on the assumption that an economic rebound will be Xi’s primary goal, chiefly because that’s what foreign observers think should be the goal,” Qazi said.

“In fact, the yardstick by which Xi measures the success of health measures is more likely to continue to be health, not GDP. Until the health side improves in one way or another, those betting on a quick end to zero-Covid are in for a rude surprise.”

4