J-CURVE EFFECT

By Li Xiaoyang

Traveling abroad is on the to-do list of many Chinese in 2023. Searches for international flights on Ctrip， one of China’s largest online travel agencies， saw a sevenfold increase in the 15 minutes after new policies were issued on December 26， 2022. Authorities have announced the relaxation of COVID-19 control measures， canceled inbound quarantine for international arrivals， and resumed outbound travel starting from January 8.

As the pathogenicity of Omicron has weakened compared with the original strain of the coronavirus and its other variants， China is preparing to boost allround recovery in 2023. The annual Central Economic Work Conference took place in Beijing on December 15-16， 2022， outlining priorities for the government’s economic work in 2023， chief among which is bolstering economic stability.

Traveling abroad is on the to-do list of many Chinese in 2023. Searches for international flights on Ctrip， one of China’s largest online travel agencies， saw a sevenfold increase in the 15 minutes after new policies were issued on December 26， 2022. Authorities have announced the relaxation of COVID-19 control measures， canceled inbound quarantine for international arrivals， and resumed outbound travel starting from January 8.

As the pathogenicity of Omicron has weakened compared with the original strain of the coronavirus and its other variants， China is preparing to boost allround recovery in 2023. The annual Central Economic Work Conference took place in Beijing on December 15-16， 2022， outlining priorities for the government’s economic work in 2023， chief among which is bolstering economic stability.

The tone-setting conference came after the government issued 10 new measures to optimize COVID-19 response in early December， including allowing home quarantine for mild and asymptomatic cases and reducing the need for mandatory nucleic acid testing. Malls， restaurants and other brick-and-mortar stores in many regions have reopened as digital health codes of test results are no longer required for entry， leading to an increase in customers.

The optimized COVID-19 response will have a “J-curve effect”on the Chinese economy in 2023， meaning it may cause a temporary downturn but will bring long-term benefits， Han Wenxiu， Executive Deputy Director of the Office of the Central Committee for Financial and Economic Affairs， told a think tank forum in Beijing on December 17.

The Central Economic Work Conference said the government will continue to implement a proactive fiscal policy and prudent monetary policy in 2023， with the aim to ensure sound growth of major indicators， particularly domestic demand， employment and foreign trade.

Over the past three years， China managed to keep rates of severe illness and death from COVID-19 among the lowest in the world. It registered an average annual economic growth of 4.5 percent in 2020-22， higher than the global average.

“As outlined at the conference， the government will launch more proactive policies， and COVID-19 impacts will be minimized. China’s economic growth is expected to resume its pre-pandemic levels in the second quarter of 2023 as it enters the post-pandemic period，” Wen Bin， chief analyst at China Minsheng Bank， told Beijing Review.

Late-night lights， queues of diners and mouth-watering smells mark the recovery of Guijie， one of the most famous food streets in Beijing. Huda， a popular chain of crayfish restaurants on the street， is one of the food and beverage establishments that have felt the positive impact of the COVID-19 response optimization. Huda’s business has picked up since mid-December. For people favoring hot flavors， spicy crayfish is a popular nighttime meal.

“Since customers were not allowed to dine in starting from late November last year due to tightened COVID-19 restrictions， Huda closed two of its restaurants in the period. To help cope with the challenge， the three remaining restaurants all continued providing takeaway services. From October to December， revenue from takeaway accounted for around 46 percent of Huda’s total，” Fang Xuhu， Assistant General Manager of Huda， told Beijing Review. According to Fang， Huda has more than 400 employees. About 70 percent of them have now returned to work.

“Consumer panic is waning and confidence is improving. With more incentive policies released， the food and beverage industry is likely to return to pre-pandemic levels in March to April this year，” Fang said.

The entertainment and tourism sectors have gradually been recovering. Data from ticketing service agency Maoyan showed that over 10，000 cinemas were open when the blockbuster Avatar： The Way of Water hit Chinese theater screens on December 16. The number of operating cinemas had increased to around 80 percent of the country’s total by December 25. Domestic and outbound travel is expected to rebound during the Chinese New Year （or Spring Festival） holiday in late January.

The Central Economic Work Conference underlined the importance of boosting domestic demand， with a focus on the recovery and expansion of consumption.

“In 2022， consumer spending was restricted by the COVID-19 reemergence， unemployment and a lack of consumer confidence. The role of domestic consumption is particularly important in 2023，” Wen said， adding consumer confidence last year dropped to its lowest level since 1990. In the first three quarters of 2022， retail sales of consumer goods grew only 0.7 percent year on year， according to the National Bureau of Statistics. The new pro-consumption campaign is expected to cover fields including new-energy vehicles （NEVs） and senior care services as they have much room for growth， Pan Helin， Co-Director of the Digital Economy and Financial Innovation Research Center at Zhejiang University’s International Business School， added.

Businesses across China have been resuming operations since restrictions on social and economic activities were eased. Yunxi Drones， located in Beijing’s Yanqing District， is a tech startup that produces smart unmanned aerial vehicles for indoor use. According to Ni Zhisong， the company’s supervisor， most of its 16 employees have returned to normal work. The company’s marketing and promotion， purchase of parts and recruitment are also resuming.

“We expect more support from the government， including assistance with research and development costs， preferential policies， and an expansion of cooperation with upstream and downstream enterprises. Although the recent increase in infections affects our production in the short term， our expectation for 2023 is upbeat，” Ni told Beijing Review.

Companies like Yunxi have ample reason to believe they will operate more steadily in the next 12 months. The Central Economic Work Conference announced the government will boost manufacturing industrial chains， improve technological innovation and upgrade traditional industries. Laws and regulations will be improved to protect private enterprises， and financial institutions will enhance support for micro and small businesses that are mostly privately owned.

The conference highlighted tapping into the potential of new economic drivers. “The shrinking of demand will affect supplies， which may lead to a vicious cycle. Policies should be introduced to expand new infrastructure and the digital economy to boost investment and consumption，” Pan told Beijing Review.

The government tightened antimonopoly supervision on online platforms in 2021， but still supported their development. Companies in ecommerce， delivery and other digital services in China have boomed over the past three years. The conference said platform companies will be supported to play a major role in driving economic growth， creating jobs and competing globally.

Despite internal and external challenges， China’s foreign trade of goods expanded 8.6 percent year on year to 38.34 trillion yuan （$5.78 trillion） in the first 11 months of 2022， according to the General Administration of Customs of China. Exports rose 11.9 percent year on year to 21.84 trillion yuan （$3.29 trillion）， and imports increased 4.6 percent from one year ago to 16.5 trillion yuan （$2.48 trillion）.

“China’s exports of products such as NEVs， and lithium and solar power batteries grew last year，”Huo Jianguo， Vice Chairman of the Beijing-based China Society for World Trade Organization Studies， told a webinar on the outlook of the Chinese economy in 2023 last December.

Lynk & Co， an automobile brand owned by China’s automaker Geely， exported more than 4，400 vehicles to Belgium in the last month of 2022. Chen Guan， deputy director of the company’s manufacturing base in Yuyao， Zhejiang Province， told China News Service that orders to the factory grew by over 200 percent year on year in 2022.

NEVs were strong driving forces for China’s foreign trade last year. From January to October， Chinese companies exported some 499，000 NEVs， increasing 96.7 percent year on year， the China Association of Automobile Manufacturers said.

After travel restrictions were lifted， governments of some regions， including Zhejiang and Guangdong provinces， have chartered flights so that representatives of local businesses can participate in international exhibitions and engage potential customers and partners overseas.

According to the Central Economic Work Conference， the authorities will widen market access， promote the opening up of modern service industries， and ensure equal treatment of domestic and foreign-funded enterprises.

Many global enterprises are showing confidence in the Chinese market. Japan-based cosmetics giant Shiseido Group announced in November 2022 that it would continue to invest and had chosen China as the location to build its second largest research and development center over the next few years.

“The government needs to introduce more transparent and predictable policies to boost the expectations of foreign investors and businesses，” Wen said.

The Central Economic Work Conference also outlined measures for strengthening fiscal sustainability， controlling local government debt risks and ensuring the people’s wellbeing.

The number of new college graduates will reach a record 11.58 million in 2023， according to the Ministry of Education. The conference said private businesses will a play a greater role in creating new jobs.

According to Wen， macro policies are expected to reduce the burden on micro and small enterprises as well as on people with low to medium incomes. He estimated the government will cut taxes for businesses and individuals by around 3 trillion yuan （$430 billion） in 2023.

The conference stressed meeting people’s basic housing needs and the need for improved housing conditions， while exploring a long-term rental housing market.

“In contrast with previous years， the property market policies for 2023 focus on fending off risks. The government will promote the sound operation of real estate enterprises to ensure timely deliveries of pre-sold homes，” Wen said.

Childbirth support policies will be improved and the statutory pension age is expected to be increased. While dropping quarantine measures， the government will further optimize COVID-19 response and focus on senior citizens and those with underlying conditions， the conference said.

To achieve sound economic performance in 2023， China is ready to leverage its advantages while shoring up its weak points. According to Huo， global downturn pressure and virusinduced challenges to logistics will continue to affect foreign trade. But global logistics costs will become more stable， which bodes well for enterprises.

Uncertainties in the U.S. and European markets remain， while China’s trade with Association of Southeast Asian Nations （ASEAN） members is expected to keep growing with the Regional Comprehensive Economic Partnership delivering significant opportunities for regional businesses， Huo said. The free trade agreement between the 10 ASEAN member states and five of their trading partners—China， Japan， the Republic of Korea， Australia and New Zealand， took effect in January 2022.

According to Wen， growth of global demand will slow down in 2023 and so domestic consumption should play an ever greater role in driving up the economy.

Wen expects recovery in the coming months， but he remains cautious given the impact of COVID-19 on people’s consumption habits.“Consumption by some East Asian countries that lifted COVID-19 restrictions before China did has not yet recovered to pre-pandemic levels. The scars of COVID-19 still need time and effort to heal，” he said. BR