China’s Economic Roadmap: A Surprising Shift towards Sustained Growth
China’s recent policy changes, including the removing strict Covid restrictions in early December, are fueling optimism that an economic rebound is imminent. The country is ending a two-year ban on Australian coal imports, easing regulations on tech companies like Alibaba and dialing back the stringent “three red lines” that have contributed to a property market meltdown, as reported by Bloomberg News. These moves are believe to have a positive impact on the economy.
Hao Hong, the chief economist at Grow Investment Group, stated that China’s recent policy changes have been significant and impactful, stating that there have been shifts in almost every sector. He also mentioned that while the environment is more favorable, there are still lingering concerns and emphasized the importance of proper implementation, consistency, and follow-up.
Despite this, market players are currently benefiting from the positive changes, with tech giants Alibaba and Tencent gaining $100 billion in market value in 2023, following a year in which both companies lost a significant portion of their value. Additionally, the MSCI China Index has risen about 50% since reaching an 11-year low in October. China’s economy is forecast to grow by 4.8% this year, whereas the US and the Eurozone are expected to experience little growth or even contraction. Some financial institutions are even more optimistic, with Morgan Stanley recently increase its 2023 GDP growth target by 0.3 percentage points to 5.7%, believing that the initial pain of a rapid reopening will be offset by an earlier and stronger recovery.
Uncertainty Surrounds Changes in China’s Policies and Growth Approach
The reasons for the recent changes in China’s policies are uncertain. It could be due to President Xi Jinping’s recent reappointment, or a recognition that previous strategies were negatively impacting the economy. Furthermore, citizens’ protests against lockdown measures could also be a factor behind the shift away from strict Covid-19 policies. Although investors are optimistic that the current pro-growth approach will continue, uncertainty remains as the internal workings of China’s political system are not transparent. Additionally, it is hard to know if this trend will last, as some experts caution.