China’s economic reopening and focus on domestic demand

China’s earlier-than-expected reopening of the economy after a swift end to its zero-COVID policy has been hailed by global strategists and investors as one of the highlights of 2023. China’s growth must continue.

With domestic consumption accounting for about 15 percent of global GDP, China struggles to reverse the slowing global growth trajectory and bolster its interests.

Overall, China’s sharp turnaround to zero Covid should have the biggest effect on domestic demand after the initial effects disappear. There have been fears about the impact on supply chains, given that some disruption is expected in the first phase of the reopening.

However, given that the Chinese authorities have restored supply chains relatively quickly in the face of shocks, it can be said that they will soon return to a relatively normal stable status. Indicators such as PMI supplier delivery times or freight costs are normalizing relatively quickly.

China’s economic growth should be in the range of 4-6 percent in 2023. But to reach 5 percent or more, consumption must be the main driver and rise by 9 percent. Overall, domestic demand is expected to grow from 2 percent to 6 percent in 2022 or this year.

A January and February statistical analysis shows that the recovery is promising, with consistent production, retail sales, and housing sales normalizing. But there is still uncertainty over whether the steadily upward recovery will be sustained.

Demand for other imports, particularly from Asia, may also increase

China’s reopening will also positively impact Asian tourism, with Thailand as a major beneficiary. However, outbound travel and tourism could see delays of three to six months after reopening due to the resumption of flights and restrictions on passports for travelers.

The reopening will put some pressure on global growth and inflation. Therefore, China’s economic reopening is unlikely to change the direction of the global economy by itself.