By Nirav Karkera
China has encountered numerous challenges in recent times, including the Covid-19 pandemic, the Russia-Ukraine crisis, and the emergence of the Omicron variant. In response to these challenges, China implemented a zero Covid policy, which has had significant economic costs and challenges with local enforcement.
Nevertheless, there is now reason for optimism as the lifting of restrictions has resulted in a gradual recovery of economic activity, particularly in the manufacturing and real estate sectors.
Let us examine the current state of China’s economy and identify the factors that contribute to the Great Chinese Recovery narrative.
Factors that are driving the Great Chinese Recovery narrative are as follows:
Removal of COVID-19 containment measures
China has been facing significant economic costs and challenges with local enforcement while trying to maintain a zero-Covid policy. Consequently, they have been forced to abandon this policy to balance the economic and public health priorities.
Although China’s zero-Covid policy had a significant impact on the economy, there are now reasons for optimism following the lifting of restrictions.
With the end of restrictions, we anticipate a gradual recovery in economic activity. The resumption of travel and trade, coupled with a rebound in consumer spending, is likely to contribute positively to the economy. Moreover, the Chinese government’s efforts to support businesses and investment will further help to accelerate economic growth.
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Manufacturing PMI
According to the latest PMI data, the Chinese manufacturing sector showed signs of resurgence in February 2023. It is a welcome development, as the pandemic and associated restrictions adversely affected the sector.
The data indicated that firms witnessed a solid increase in production and new orders as customer demand and operations increased. The renewed employment and purchasing activity are a positive sign for the Chinese economy, which has been trying to recover from the pandemic’s effects.
Furthermore, the data revealed that supply chains experienced a notable reduction in pressure, and lead times improved significantly, reaching their highest point in eight years. These trends signify an increasingly stable and predictable business environment, which is essential for the growth of the manufacturing sector.
The improved conditions and expectations of further increases in client demand have also bolstered business confidence regarding the year ahead to a 23-month high. This surge in business confidence indicates that the Chinese manufacturing sector is poised for growth in the coming months, and the country’s economy is showing a promising recovery.
This data indicates that the Chinese manufacturing sector is bouncing back and contributing to the country’s economic growth. This is a positive sign for the global economy, as China is one of the world’s largest manufacturers and a major player in international trade. The economy displayed a rapid pace of recovery in February, bouncing back from the peak of Covid infections. It was due to the expansion of supply and demand and a surge in overseas demand.
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Rebound in employment
Another positive indicator was the rebound in employment, indicating that businesses are beginning to hire again as the economy shows improvement. Furthermore, logistics improved faster, making it easier for businesses to move goods and services around the country.
Chinese economic officials have set an ambitious target of creating 12 million new jobs, signalling their determination to promote consumer spending and stimulate economic growth. This effort comes following the end of anti-virus controls that kept millions of people at home.
Overall, the government’s efforts to create new jobs and promote consumer spending signals its determination to support the economy’s recovery from the pandemic’s effects.
Easing risks within the real estate sector
The real estate sector is a crucial component of the Chinese economy, accounting for a significant portion of its output. The sector makes up approximately a quarter of the Chinese economy and has been a critical driver for growth in recent years.
Recently, Chinese policymakers have adopted measures to reduce the solvency risks of private property developers, thereby reducing potential risks to the financial system. These measures are likely to have a positive impact on the real estate sector and the broader market.
The focus on reducing solvency risks is particularly relevant given concerns about high debt levels among property developers and the potential impact on the broader economy. By reducing these risks, policymakers hope to create a more stable environment for the real estate sector and support its continued growth.
Bottomline
These positive trends signal a rebound in economic activity after a challenging period, demonstrating China’s resilience in adversity. While there may still be uncertainties ahead, the data suggests that the Chinese economy is on a path towards sustained growth and recovery.
(Author is Head of Research at Fisdom – Source: ACE MF, Fisdom Research)
