2023: The World This Year

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2023: The World This Year
China: A complicated economic recovery

  Avishka Ashok

TWTW#200, 29 January 2023, Vol 5, No 4

China: A complicated economic recovery
Contrary to the CPC’s expectations, there are serious challenges to reviving the economy

What happened in 2022?
In 2022, China’s economy recorded its the slowest growth rate since the mid-1970s. The economy grew three per cent, far below the Communist Party of China’s expectations which predicted a 5.5 per cent economic growth. The CPC predicted the difficulties for the economy in the previous year and therefore, reduced the growth target by 2.6 per cent, compared to the economic growth from 2020. Frequent COVID-19 lockdowns, vulnerable property sector and the climate anomalies have been cited as factors for the slowdown. 

Morgan Stanley predicted that China’s economy would recover and record a modest growth of five per cent in 2023. The World Bank also predicted a growth of 4.3 per cent in 2023 and five per cent in 2024. In the past three years, the pandemic has disrupted the supply chain lines and caused a global economic slowdown. Despite the disruptions, the major driver for China’s international economic growth has been the Belt and Road Initiative. 

Forecasts for 2023
The economy will improve in 2023. China’s multilateral groupings and alliances such as ASEAN, BRICS, RCEP, and enhanced relations with countries in Africa and Russia is further expected to provide positive output for China. China’s trade with Latin America has been picking up gradually and is expected to reach new heights in 2023. The trade accounted for USD 12 billion in 2000 and recorded a trade volume worth USD 445 billion in 2021. The Free Trade Agreement (FTA) with 20 countries in the continent has played an instrumental role in achieving the same. There is an expected recovery of domestic demand after the CPC scrapped off the Zero-COVID policy in December 2022. China is alsoexpected to open up, not just internally but also internationally. Hong Kong has already accepted more than 10,000 work visas in less than a month. Chinese manufacturing and production units within China will be expected to return to above-average productivity levels.

The rare earths sector will work in China’s favour. Despite differences, the West will be forced to work with China because of their dependency on rare earths used in industrial processes, glass manufacturing, automotive emission control, energy storage, batteries, and more. China has the lead in reserves of rare earths with 44 million metric tons. It produces 85 per cent of rare earth oxides and approximately 90 per cent of rare earth metals, alloys and permanent magnets. The government has further finalised a deal with the Taliban in January 2023, agreeing to invest and harvest the rare earths in Afghanistan for the coming three years.  
The semiconductor industry is expected to face blows as Japan and the Netherlands join the US in restricting the export of semiconductor technology to China. Even though the US has the biggest group of Integrated Device Manufacturers for Semiconductors, Japan and the Netherlands play a crucial role in providing the hardware and the software for the industry. Technology has become essential towards all electrical equipment sectors, raising China’s interest in producing the same and reducing dependency on external supply chains. 

The COVID-19 recovery will continue to be an issue. After lifting the zero-COVID restrictions in December 2022, China recorded over 60,000 deaths caused by the coronavirus in one month. More than 80 per cent of the deaths were recorded amongst an age-group of over 80-year-olds. The senior citizens in the country have been the worst hit age group due to the pandemic. The government will therefore have to spend extensively on the healthcare sector and extensively increase the rate of vaccinations amongst the 60-plus population in the country. 

The property sector will remain weak in 2023. The CPC predicts the same, but expects a gradual recovery. The market for new properties is expected to drop in the first half of 2023. Despite the CPC’s predictions for the property sector, the industy is expected to grow by a meagre one per cent. 

It is also important to note that China’s economy is closely connected to the world economy. The impact of the 2020 COVID-19 lockdown was extremely apparent, in not just neighbouring countries, but also across the globe. Therefore, an economic slowdown in China is bound to have an impact on the global economy. 

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