China’s economy is recovering faster than top officials had expected with its Covid outbreak on reopening passing rapidly, according to a person familiar with the matter, suggesting the government will be restrained in rolling out new stimulus measures this year.
(Bloomberg) — China’s economy is recovering faster than top officials had expected with its Covid outbreak on reopening passing rapidly, according to a person familiar with the matter, suggesting the government will be restrained in rolling out new stimulus measures this year.
The infection wave that followed the abrupt removal of pandemic restrictions ended faster than senior leaders had expected, the person said, declining to be identified discussing government matters. The outbreak was expected to last at least through to February or March of this year, but most of the population was already infected by the end of January, the person said, allowing parts of the economy to recover quickly.
In another sign of China’s growing comfort with the pace of the recovery, the country’s state media have been told to convey at next week’s National People’s Congress — the annual parliamentary gathering — that leaders are satisfied with how the rebound is playing out and the need for stimulus is moderate for now, another person familiar with the plans said.
The government is looking to “hold up” the economy rather than give extra support, the person said.
China’s State Council Information Office and the National Development and Reform Commission, the country’s economic planning agency, didn’t respond to faxed questions seeking more information Wednesday.
Premier Li Keqiang told Kristalina Georgieva, managing director of the International Monetary Fund, on a call on Wednesday that the economy is “stabilizing and rebounding” currently and has “enormous” space for future development.
Key data released this week backed the view the economy is recovering strongly after China abandoned its zero-tolerance Covid strategy in December. The reversal caught observers by surprise, with officials shifting from locking down neighborhoods and warning about the virus’s dangers to allowing factory staff to work while infected within a matter of weeks.
The manufacturing sector saw its biggest improvement in activity in more than a decade in February and consumer activity climbed, the latest purchasing managers’ surveys showed. Chinese housing sales also rose for the first time in 20 months, according to data from the 100 biggest real estate developers.
The economic outlook remains uncertain, though, against the backdrop of weak global growth and rising interest rates. Demand for Chinese exports from some of the country’s biggest markets like the US and Europe have plummeted in recent months and are likely to remain weak this year. US-China tensions over technology and geopolitical matters have also escalated, weighing on business sentiment.
Chinese stocks listed in Hong Kong declined on Thursday after the PMI data helped spark a strong rally in the previous session. The Hang Seng China Enterprises Index fell as much as 1.5% in early trading following a 5.1% surge on Wednesday.
Authorities may lean “toward a more wait-and-see approach moving forward” given the pace of recovery, said Jun Rong Yeap, a market strategist at IG Asia Pte.
Growth Target
China’s state media on Thursday called for further policy stimulus to bolster a recovery that’s not yet strong enough. The Securities Times — which is run by the People’s Daily, the official newspaper of the Communist Party — said in a commentary that more supportive macroeconomic policies are required to ensure a continuous and stable recovery.
The author, a reporter at the paper, argues the economy still faces multiple challenges, including insufficient domestic demand, possible Covid flare-ups and knock-on effects from rising global interest rate.
Economists expect China’s government to set a growth target for this year that’s higher than 5%, with some seeing it at around 5.5% or more. The economy expanded just 3% last year, the second slowest pace since the 1970s, amid the mass testing, lockdowns and widespread disruption that were the hallmarks of President Xi Jinping’s Covid Zero policy.
Many expect monetary and fiscal policy will remain supportive this year, although the chance of a big stimulus package is low. That means the People’s Bank of China will likely refrain from cutting interest rates sharply this year, but it could keep the financial system relatively flush with cash, and use other tools to spur lending in the economy.
China has been intent on reviving growth and consumer demand since the decision to move on from Covid Zero was made. That resulted in a downplaying of the severity of the reopening virus wave from officials and state media, with the country halting regular updates on cases and deaths and narrowing the definition for what constitutes a Covid fatality.
Read More: China’s World-Beating Drop in Covid Deaths Revives Data Concerns
Reports from on the ground and on Chinese social media, which is consistently censored, indicated the outbreak was widespread, with hospitals overwhelmed by cases and crematoriums and funeral homes backed up for months. Vaccination rates for China’s elderly were lower than in other major economies and its homegrown shots less effective, which may account for how quickly the virus burned through the Covid-naive population.
–With assistance from Yujing Liu and Ishika Mookerjee.
(Updates with comment from premier and state media.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.