The sick dragon of Asia? The spluttered reopening of the Chinese economy

Introduction

The ending of restrictive COVID-19 policies and the fading away of pandemic-related health impacts propelled the Chinese economy to a rapid rebound in the first quarter of 2023. But there are signs that the recovery is faltering, with headwinds facing the property market, high youth unemployment, and weak exports threatening the recovery before it’s even begun. This note explores what has happened to the Chinese economy since it exited COVID restrictions in December 2022 and what this may mean for the UK.

China since 2020

The epicentre of the COVID pandemic, China saw harsh measures to control the spread of the virus. From the beginning of the crisis, China adopted a “zero-COVID” policy involving targeted lockdowns that disrupted manufacturing, limited domestic consumption and banned intra- and international travel. As a result of these measures, the growth of the Chinese economy averaged just 2.9% in 2021, and 3% in 2022, compared to an annual average of 7.4% in the ten years to 2019.

While extremely successful at controlling the virus in the earlier periods of the outbreak, the last quarter of 2022 saw a large outbreak of COVID-19 in China which led to further declines in mobility and economic activity. With leadership committed to stamping out any presence of the virus, it seemed as if the zero-COVID policy would continue indefinitely. However, on 8^th December 2022, the Government unexpectedly lifted restrictions. While this set the stage for a reopening economic boom as seen in other countries, it also allowed the virus to spread unchecked through a vulnerable population, with some officials estimating that around 250 million people (18% of the population) caught COVID in the first 20 days in December, with a death-toll much higher than officially reported.

As the health impacts of the reopening wave faded, China seemed poised to make a comeback, with positive spillover effects for the global economy.