China finally eased its covid policies in December 2022, after the protests of the protesters as Covid-19 lockdowns halted industrial production and disrupted supply chains, which directly have been affecting the life quality and families’ income in China. However, a smooth shift away from “zero-covid” policies will be tricky. Fast reopenings and avoiding restrictions can disrupt the stretched health system and increase the significant death toll. Still, China’s economy is forecast to grow more quickly in 2023 than in 2022. What comes next has yet to be determined; however, GDP growth for 2023 is estimated at 4.4%-5.5%. It is worth noting that China’s economic growth in 2022 was equal to 3%, much lower than the 5.5% of the initial GDP forecasts.
China’s priority in 2023 will be the economy and nothing else!
We learned from reopenings in other economies that the economy can rise quickly in the first months after reopening and lifting the restrictions. However, later will face difficulties as fast reopening will increase the infection numbers sharply. Some analysts do not believe in the vaccination process in China, and of course, in the vaccines themselves that the Chinese used. Therefore, they expect to restore some restrictions in the coming months. Therefore, we expect to have faster growth in the first quarter, but second-quarter economic growth will be slower, and then in the second half of 2023, economic growth should be more stable.
In December 2022, Reuters reported that China is working on a stimulus package worth more than $143 billion to support its semiconductor industry, which would be one of its biggest-ever fiscal incentive packages.
While most focus these days are on Covid and its effects, we should remember that China is always facing many other risks, including geopolitical and economic tensions, especially possible tariffs tensions with the US and geopolitical tensions with Taiwan.
These economic challenges may lead Chinese leaders to change their foreign policies to control domestic social conditions and challenges. However, it does not mean they may change the Chinese territorial claims about the South and East China Seas and Taiwan, but we may see relaxation in the border tension with India.
In short, China’s priority in 2023 will be the economy and nothing else, as they need to bring back peace and growth to the markets. On the currency market, we expect the Yuan rate to remain the same, as the government and PBoC are trying to keep the value of the Yuan at an acceptable level to both Chinese importers and exporters, which is between 6.40 and 7.20.