Rush to Reboot

Boosting domestic demand and market confidence were underlined as ways to encourage a rebound in growth. It urged efforts to ensure the equal treatment of private and State-owned enterprises (SOEs) and attract foreign capital, and stressed the importance of bolstering the digital economy and supporting e-commerce platforms. 　

The meetings were held as China started relaxing its strict dynamic zero-Covid policy, which over the past three years severely depressed the country’s economy. They also stressed better coordination of epidemic prevention and control with economic and social development. 　

Many economists said China has shifted its focus back to economic development and predicted the economic situation would improve in the second half of 2023. But there are concerns that consumers may hesitate to go out and spend as Covid spikes loom in the first quarter of the year. 

Due to Covid outbreaks in major economic centers like Shanghai since March 2022, China’s GDP growth was only 2.5 percent in the first half of 2022, and 3.9 percent in the third quarter. The rebound that had been expected for the fourth quarter did not happen as strains of Omicron swept Beijing, Guangdong Province and other places in November. 　

Many economists forecast GDP growth for 2022 to barely reach 3.5 percent. In that case, average growth from 2020 to 2022 is only 4.6 percent a year, well below the average annual growth (at least 4.7 percent between 2021 and 2035) that China needs to double its per capita GDP by 2035. 　

Yang Weimin, a member of the Standing Committee of the National Committee of the Chinese People’s Political Consultative Conference, analyzed that since economic growth between 2020 and 2021 was about 1 percent lower than in 2019 and growth in the first three quarters of 2022 was only 3 percent, China must return growth to pre-Covid levels for the next five years to achieve its 2035 target. 　

In a WeChat article on restoring economic activities posted in early December 2022 by Ren Zeping, the former chief economist at China Evergrande Group and five other prominent economists suggested setting a goal of 5 percent or above to signal that the government prioritizes economic development, thus helping “stabilize expectations and boost confidence.” 　

Some scholars have even suggested between 6-7 percent. Qu Hongbin, former chief economist of HSBC Greater China, noted in an article for the annual China Chief Economist Forum in December that economic growth in 2022 was far below normal, so only growth of 6-7 percent in 2023 could make up the gap and bring average growth between 2022 and 2023 on par with the previous two years. 　

Zhang Wenkui, a research fellow with the Development Research Center of the State Council, suggested in an article for NewsChina’s Chinese edition in December 2022 that setting a goal of 5 percent GDP growth for five years starting in 2023 is necessary to achieve the 2035 target. 

　

However, Dong Yu, executive vicepresident of China Institute for Development Planning, Tsinghua University, does not think it is appropriate to set long-term growth goals. “The situation changes every year. A goal needs to be set scientifically, reasonably and flexibly based on the change of environment and demand of the year,” Dong told NewsChina. He added that short-term difficulties could emerge after China’s easing of Covid-related controls, like large-scale infections, but he believes recovery will accelerate in the second quarter of 2023. 

On December 14, 2022, China released a sweeping guideline through 2035 to expand domestic consumption. The meeting of the Political Bureau of the CPC Central Committee held in early December 2022 also stressed the need to boost domestic demand. Economists interpreted these as signs that consumption will take precedence over investment in the 2023 policies. 　

Zhang Jun of Fudan University told NewsChina that policymakers have realized restoring consumption is more urgent than investment, as postponing some investment projects will not cause major problems. 　

In response to media concerns, Fu Linhui, spokesperson for the National Bureau of Statistics (NBS), said in an article published on the NBS website in December 2022 that the international situation became more complicated in November and external demand shrank further. As real estate and foreign trade, two driving forces that were expected to restore the Chinese economy from the pandemic outbreak in early 2020, were largely weakened in 2022, more hope is placed on consumption. Shan Hui, a chief economist at Goldman Sachs, predicted in November 2022 that China’s economic growth in 2023 will mainly rely on increased consumption. 　

In 2021, total retail sales of consumer goods reached 44.1 trillion yuan (US$6.5t), a year-on-year rise of 12.5 percent. Consumption expenditure contributed to 65.4 percent of China’s economic growth in 2021, driving GDP growth by 5.3 percentage points. But it failed to keep a similar momentum in 2022. 　

In November 2022, total retail sales of consumer goods fell by 5.9 percent yearon-year, the lowest other than in April and May during the spring outbreaks in Shanghai and Jilin Province. Between January and November 2022, total retail sales of consumer goods dropped by 0.1 percent year-on-year. 　

Market players are feeling the chill of shrinking consumption. Jiang Yi, founder of crayfish brand Haoxiazhuan in Sichuan Province, told NewsChina that Chengdu, the capital of Sichuan, saw five waves of Covid-19 in 2022, when restaurants would open for one or two months before being forced to close again. “Restaurateurs are under huge stress to survive,” said Jiang, adding that Chengdu consumers are spending less amid dwindling incomes and the bearish macroeconomic situation. 　

He revealed that the industry had experienced its darkest moment after the easing of Covid-related restrictions in December, as people went out even less due to fear of infection. “Catering consumption may take three months to half a year to recover,” Jiang said. 　

Xia Dong, a co-founder of Lefit, a nationwide gym and fitness chain, told NewsChina that while the pandemic resurgences affected the company’s expansion in 2022, “we are optimistic about the future after Covid-related curbs were removed. The current difficulties will pass sooner or later.” 　

“If more specific policies come out during the two sessions of 2023, the economic recovery may start with the restoration of consumption,” Zhang Jun said. 

In an interview with the Xinhua News Agency in December 2022 to elucidate the central economic work meeting, officials from the Central Financial and Economic Affairs Commission (CFEAC), the top financial leadership, noted that China aims to increase the incomes of urban and suburban residents through various channels and help lower-income families who were heavily affected by the pandemic. 　

In an interview with China Securities Journal in December 2022, Zhong Zhengsheng, chief economist with Ping An Securities, said that besides housing, new-energy vehicles and elder care, the government may also stimulate largescale public consumption by distributing coupons. 

Chen Jianheng, an analyst from investment bank CICC, blamed slowed income growth, reduced confidence in income levels and unwillingness to spend for the sluggish consumption in 2022. Restoring consumption will depend on new measures to restore household incomes and consumption confidence, including increasing employment, and the issuing and distribution of consumption coupons, Chen told NewsChina. 　

In November 2022, economist Ren Zeping and his team suggested issuing consumption coupons worth 1 trillion yuan (US$145.7b) or more. In their analysis published on sina.com in late November 2022, he suggested issuing coupons covering all industries to every Chinese person who could only use them if their consumption reached a certain amount. 　

Qiao Baoyun, director of the China Academy of Public Finance and Public Policy, Central University of Finance and Economics, suggested establishing a mechanism that allows for direct financial support to families instead of through county-level governments to boost consumption more efficiently. 

In their response to Xinhua, CFEAC officials said that the private economy and small- and medium-sized enterprises are in even more difficulty and have weaker expectations and confidence, so the meeting emphasized optimising the environment for private enterprises. 　

“A fair, transparent and predictable business environment should be created. Meanwhile, [the government] should see the worries of private entrepreneurs and make targeted efforts to dispel them. It is particularly important to protect the property and life of entrepreneurs and address lawsuits involving property rights to make entrepreneurs feel secure,” Dong Yu told NewsChina. 　

He added that the government should invite more private entrepreneurs to join major national construction projects and remove the thresholds that bar private companies. He stressed the importance of coordinating different policies and enhancing their consistency. 　

The meeting’s attitude toward the platform economy drew much attention, which stressed the need to support platform companies in enhancing development, create jobs and compete in the global market. Zhong Zhengsheng of Ping An Securities told China Securities Journal that he saw it as an indication of a new development phase for the platform economy. 　

China tightened supervision of the platform economy at the end of 2020 in a crackdown on monopolies and unfair competition, as the sector’s rampant expansion had caused disorder in the market. But the round of strict supervision abated in the middle of 2022 after a meeting of the Political Bureau of the CPC Central Committee held in July 2022 said regulation of the platform economy will be “normalized.” 　

During a visit to Alibaba headquarters in Hangzhou, Zhejiang Province on December 18, 2022, Yi Lianhong, Zhejiang Party secretary, said the ecommerce giant should play its part in enhancing development, competing in the global market and making contributions to society. It was interpreted as signalling new development opportunities for the platform economy in a regulated market. 　

“A balance needs to be struck between supervision and innovation. More flexible means of regulation can be adopted,” Dong Yu of Tsinghua University said. 　

The meeting also listed key policy tasks targeting fiscal and monetary issues, industry, science and technology and social issues, stressing that proactive fiscal policy and prudent monetary policy will continue next year. It called for defusing major risks in areas including housing, financial markets and local government debt. 　

China will also make greater efforts to attract and utilize foreign capital, widen market access, promote the opening up of modern service industries and grant foreign-funded enterprises national treatment, the meeting said. 　

Dong stressed the importance of policy consistency to make sure they all facilitate growth at a coordinated pace so that the market clearly receives the meeting’s message of “focusing on economic development.”