What comes next for China’s economy when COVID limitations are loosened?

Following three years of severe lockdowns, investors all over the world exhaled a sigh of relief last week when China relaxed certain restrictions against the coronavirus. A top-level Communist Party conference on Wednesday promised to prioritize stable growth while expanding preventative measures in response to huge street demonstrations.

The requirement for testing to travel public transportation has been eliminated, and the majority of sick patients can now isolate at home rather than in quarantine facilities.

The shift indicates that the second-largest economy in the world is finally prepared to live with the virus rather than upholding its strict zero-COVID policy.

The choice was made after China’s imports fell by 10.6% and exports by 8.7% in November, reaching lows not seen since the virus’s early 2020 emergence. Additionally, according to official data released last week, China’s industry activity decreased for a second consecutive month in November as a result of lockdowns and transportation problems that affected vast stretches of the nation.

Source: Noel Celis/AFP/Getty Images

China Zero-Covid reversal lauded

On Friday, leaders in the world of finance hailed the U-turn, saying it will encourage global growth, strengthen supply chains, and assist China’s economy recover.

After a seminar in the city of Huangshan in eastern China, Kristalina Georgieva, the head of the IMF, declared that “China’s achievement matters to China; it matters to the international economy as well.”

In a world dealing with the effects of the pandemic, the turmoil in the Ukraine, and climate change, the pullback from zero-Covid “will help remove one set of uncertainty,” said World Trade Organization Director-General Ngozi Okonjo-Iweala at the same media event.

While many analysts anticipated a significant recovery in China’s economy in 2019, others expressed concern that the policy change would lead to an increase in COVID infections, particularly during the Lunar New Year holiday in January, when the majority of the nation’s 1.4 billion people will be traveling.

China Streets, not full of traffic

According to media reports, many seats on the Beijing metro during rush hour and numerous downtown eateries were abandoned at noon on Friday, indicating that many Chinese are not in a hurry for things to return to normal.

Because Chinese COVID vaccines are less effective than their Western counterparts, many consumers may be concerned about developing a serious illness.

In order to accommodate the anticipated high number of workers who would be absent due to COVID, Chinese businesses and the governmental sector plan to split staff at their locations in Beijing and other cities.

2023 inflation forecast warning

As China reopens, several economists have expressed concern about a potential spike in inflation that could exacerbate price increases in the global economy, where decades-high inflation has begun to peak.

According to a research released this week by Eastspring Investments, “major risks for China” include a disorderly reopening and an increase in inflation as the economy recovers.

According to the paper, China’s economic growth would lead to increased global energy prices, which have already been a major factor in global inflation, and would extend the cost-of-living crisis in many nations.

Since Russia invaded Ukraine in February, a global price increase has largely escaped China’s notice. September had a 3% increase in prices, but November saw a 1.6% decline. In many Western countries, the inflation rate is close to double digits.

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