Much attention has been paid to China’s zero-Covid policy recently, with a noticeable pickup in the news flow since the Chinese Communist Party National Congress in October, despite President Xi signalling that a pivot away from the policy would not be a near-term priority. A significant factor in the recent increase in news flow was the protests held in relation to the zero-Covid policies.
The protests make clear that the zero-Covid policy has become unsustainable in its current form and there have been recent signals that the central government may be moving closer to this view. China’s Vice-Premier, Sun Chunlan, recently spoke of China’s pandemic containment entering a new stage and temporary lockdowns were lifted in some districts despite rising cases.
Regardless of the strategy Beijing pursues to control the narrative, China is clearly moving towards reopening. The question is now what this will look like and how long it will take. This will largely be determined by the speed with which remaining headwinds are addressed and how severe the strain of Omicron in circulation proves to be.
One of these headwinds is the lack of natural immunity to Covid in China’s population. While the low level of case numbers has ensured a low death rate, it has also resulted in a lack of natural immunity in the Chinese population. This increases the importance of vaccinations.
There are also questions regarding the efficacy of Chinese vaccines.7 In this respect, the visit of German Chancellor Scholz in November, which resulted in an agreement for foreign nationals living in China to be allowed access to the BioNTech vaccine, could be seen as an initial step in a lengthy process that allows use by the domestic population at some point in 2023. President Xi will not be keen on the use of Western vaccines but compromising on this would speed up the reopening of the economy.
Economic growth in China has been weak in 2022 and is set to miss the central government’s 5.5% target by a significant margin. A slow shift away from the zero-Covid policy would support a gradual recovery in 2023, as consumer confidence rebounds. This will also support emerging Asian economies surrounding China, which could play an important role for the global growth picture. Europe could be an additional beneficiary of China’s recovery, with 12.9% of China’s imports sourced from euro area countries in 2020, compared to 7.9% from the US.
The composition of growth in 2023 may be influenced by what fiscal stimulus is provided by the government. It is likely that a large portion of the stimulus will go to infrastructure and boosting the struggling property sector. There could also be some additional support provided to small businesses and households to boost the services sector, which has been suffocated by zero-Covid policies.
In summary, a pivot away from zero-Covid appears to be underway in China but is likely to be a slow and cautious process given the headwinds still to overcome. In turn, this should support a gradual recovery of economic growth in China in 2023, with surrounding emerging Asian economies and European economies also reaping some of the rewards.
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