China’s economy will get back on track, despite low growth in 2022, Vice-Premier Liu He tells Davos

Chinese Vice-Premier Liu He said the country is returning back to normality faster than expected, projecting a rosy picture for this year despite recording the second-lowest annual growth figures in more than 40 years.

Liu also said China would stick to its socialist market economy and remain open to foreign businesses, adding that it would never return to a planned economy.

Liu was speaking at the World Economic Forum in Davos, where he is due to meet US Treasury Secretary Janet Yellen on Wednesday. Liu, President Xi Jinping’s top economic adviser, is also expected to seek further economic coordination with other leading economies.

“We are confident that in 2023 China’s growth will most likely return to its normal trend. The Chinese economy will see a significant improvement,” he said.

He added that since China ended its zero-Covid policy last month, the time it had taken to reach a peak in the number of infections had been relatively quick, “which somehow is beyond our expectations”.

“Life has been restored to normal in China,” he said, adding that his prediction of this year’s economic development had taken this into consideration.

“Our focus [on Covid] is now on treating the elderly and we have sufficient supplies.”

China has lifted most of its Covid-19 pandemic restrictions, removing quarantine requirements for foreign travellers. Chinese officials said foreign businesses have already started planning trips, and Beijing would seek to maintain economic cooperation with other economies.

“In 2023, we will continue to work to make progress while maintaining stability and follow a proactive fiscal policy and prudent monetary policy,” he said.

“We expected a noticeable increase of imports, more corporate investment and household consumption to return to normal this year.”

Liu’s remarks came as China said its economy grew by 2.9 per cent in the fourth quarter of last year, bringing the full-year growth rate to 3 per cent.

The full-year growth figure was slightly higher than analysts’ predictions of 2.9 per cent and was better than the 2.2 per cent growth rate recorded in 2020, the lowest figure since 1976.

China had set an economic growth target of “around 5.5 per cent” for last year, but this had long been seen as unattainable due to the impact of the coronavirus.

Liu said China had drawn on its experiences from the past four decades, adding that opening up should remain a basic state policy and the market must play the fundamental role in resource allocation.

“Some people say that China will go [back to] the planned economy. That is by no means possible,” he said. “China’s door to the outside world will only open wider.”

He said the embattled real estate sector was a pillar of the Chinese economy, which accounted for nearly 40 per cent of bank lending, around half of local fiscal resources and 60 per cent of urban household assets.

“China’s property market has seen noticeable improvement. Looking ahead, urbanisation is still on the fast track, enormous potential demand will be generated in the process,” said Liu.

Concerns over China’s long-term economic outlook have deepened as the country reported its first population decline in six decades.

Mothers in China had 9.56 million babies last year, a 9.98 per cent drop from 2021’s figure of 10.62 million.

The national birth rate fell to a record low of 6.77 births for every 1,000 people in 2022, down from 7.52 in 2021, marking the lowest rate since records began in 1949 – reinforcing warnings of a demographic crisis that threatens long-term economic growth.

Liu also expressed concern over the aggressive interest rate increases by some countries, largely referring to the US Federal Reserve, which raised rates by more than 400 basis points in the past 10 months.

Beijing, despite tight capital controls and close monitoring of cross-border capital flows, saw the yuan plunge to a 10-year low of 7.25 against the US dollar in early November.

“We call for more attention to the negative spillover effects of major countries’ rate hikes on emerging markets and developing countries, so as not to add more debt or financial risks,” Liu said.

Yellen and Liu “will exchange views on macroeconomic developments and other economic issues as well as deepen communication between the United States and the People’s Republic of China”, a US Treasury official said.

The Chinese Commerce Ministry said the meeting would “strengthen macroeconomic and financial policy coordination” between the two countries, adding that “China and US economic and trade teams have maintained good communication”.

The meeting was held to follow up on commitments made when Xi and Joe Biden met in Bali in November.

US Secretary of State Antony Blinken is planning to visit Beijing on February 5 and 6 and is expected to meet the new Foreign Minister Qin Gang, Politico reported on Tuesday.

Blinken is expected to push for a lifting of the suspensions on high-level bilateral contacts – including anti-drugs initiatives and military dialogues – that Beijing imposed in August in reprisal for then-House speaker Nancy Pelosi’s trip to Taiwan, the report said.

He is also under pressure to seek the release of US citizens detained in China and to raise administration concerns about what the State Department last week referred to as “China’s ongoing and accelerating expansion of its nuclear arsenal”.

For 3 years zero-Covid haunted China’s economy. It’s gone, but the scars remain

Chinese foreign ministry spokesman Wang Wenbin declined to confirm the date of Blinken’s trip, but said China and the US were in discussions over the visit.

Pang Zhongying, an international relations professor at Sichuan University, said Li was delivering a “general message that China will continue to open up and take part in the globalisation of the world economy”.

Pang said Liu was “one of the few people” in the Chinese leadership who understood what a major recession would mean for the world economy.

Pang said the new Chinese government, which will be unveiled at the annual legislative session in March, will have to overcome a series of barriers to better relations with the US.

“For example, the unresolved tariff issue with the Biden administration will have to be handled by the next government from next March,” said Peng.

“But [Liu] will bring important messages back [from foreign business and political leaders], and this will be helpful for the next government.”