Wang Huiyao: 5 reasons China’s reopening is good news for the global economy

SCMP | January 13 , 2023

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From SCMP， 2023-1-10

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■ The lifting of Covid-19 restrictions means the resumption of international business, the revival of tourism and consumer spending, and the return of cultural exchanges.

■ These benefits far outweigh any short-term disruptions or risks to the global economy.

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By Wang Huiyao | Founder of the Center for China and Globalization(CCG)

 

After almost three years of zero-Covid, China’s reopening has occurred “gradually, then suddenly”, to borrow Ernest Hemingway’s famous phrase.

Just a month ago, life here in Beijing had all but ground to a halt as local lockdowns spread across the city. Now, it’s like a cloud has lifted as ring roads, offices and malls around the capital begin to fill up again.

Cases are surging across the country, but most are mild and will soon subside as herd immunity is reached. Infections in Beijing may have peaked already, with other cities likely to follow this month.

The lifting of most restrictions will inject vitality into the economy as people return to regular work and life patterns. The accelerated reopening has prompted Goldman Sachs and Morgan Stanley to raise China GDP growth forecasts to above 5 per cent for 2023.

The positive outlook is reinforced by Beijing’s shift to a more pragmatic pro-growth economic policy, as signalled at the recent central economic work conference. This includes support for the private sector and domestic consumption and a more accommodating stance towards real estate and big tech, key growth drivers that have both suffered regulatory crackdowns over the past two years.

China’s reopening also eases fears of a global recession at a time when advanced economies are slowing as a result of rising interest rates and high energy costs. The country is by far the world’s biggest growth engine, accounting for around 30 per cent of global growth.

Five benefits for the global economy are worth highlighting.

First, despite some short-term disruption from staff shortages, the end of restrictions should gradually help to resolve blockages in supply chains that have caused long delays for products ranging from cars to iPhones, helping to ease inflation.

The second benefit stems from the resumption of travel to and from China. Unlike flows of goods and capital, which remained strong even under zero-Covid, trips in and out of China have been reduced to a trickle, plunging 79 per cent for mainland citizens and 95 cent for foreigners in 2021, compared to 2019 levels.

Eased cross-border travel is a boost for the operations and investment of multinationals. Executives will resume travel between headquarters and China, facilitating new deals and projects. Similarly, Chinese entrepreneurs will embark on long-delayed trips to scour opportunities in overseas markets.

Improved conditions will also help China-based firms attract and retain foreign talent. Last January, it was estimated that as many as 100,000 foreigners were waiting to return to Shanghai alone, including teachers and other elements of the family infrastructure that supports the international workforce.

The third and perhaps most immediate impact of reopening will be the revival of the Chinese consumer. Consumer confidence hit record lows in 2022, but it has already picked up significantly since reopening began, making Chinese consumers the most confident in the world, according to the latest survey by Ipsos.

There is room for a considerable degree of mean-reversion recovery in 2023 as China’s middle class unleashes pent-up spending power. Chinese consumers didn’t get government cheques like in the West, but they hoarded cash during the pandemic.

Nominal disposable income per capita rose by 5.3 per cent in the first nine months of 2022, while residents’ onshore savings rose by 16.7 per cent to a record high of US$17 trillion as of November 2022.

As well as increased spending on imports, China’s reopening means a huge windfall for the global tourism sector, which accounts for over 10 per cent of global GDP.

Before the pandemic, Chinese tourists accounted for almost 20 per cent of international tourism spending, or US$255 billion in 2019. Their absence left a huge black hole, but early signs indicate they will be back in force. Searches for top overseas destinations on travel platform Ctrip surged tenfold within 30 minutes of the announcement on relaxed quarantine rules.

The first beneficiaries of this “outbound rebound” will be nearby destinations highly exposed to Chinese spending like Hong Kong and Thailand, for whom extra travel spending could see a GDP boost of 6 per cent and 3 per cent respectively, according to estimates by Goldman Sachs. Travel-related sectors such as aviation, hotels and retail will also benefit.

The final benefit of China’s reopening for the global economy is less tangible but no less important in the long run.

US-China tensions cast a dark shadow over prospects for the global economy. Zero-Covid exacerbated this problem by choking the bilateral interpersonal exchange that is so important for building trust and mutual understanding.

China’s reopening paves the way for a resumption of in-person engagement between officials, scholars, entrepreneurs and students from both countries. This interaction is important, especially for the next generation of decision-makers.

A recent survey shows that Chinese people with experience studying or travelling in America have more positive attitudes toward the country. Hopefully, 2023 will also bring a return of US students to China, whose numbers fell from thousands to less than 400 during the pandemic, helping to build a pipeline of China literacy for the future.

Given the current climate, it is perhaps not surprising that Beijing’s recent policy shift has spurred many commentators outside China to make a U-turn of their own. After years spent highlighting the harm of lockdowns and other restrictions, many now stress the risks of reopening, such as temporary labour shortages and added inflationary pressures.

These are valid concerns, especially given that rising Chinese demand comes as global monetary policy tightens. However, that should not obscure the big picture. China’s path to reopening may not be straightforward, but it will bring a huge boost to markets and industries around the world in 2023.

From SCMP， 2023-1-10