China has recently reopened its doors after an unprecedented closure of its economy. Transformed by this challenging health crisis episode, the country is undergoing numerous changes, whether they are political, social, or economic. While it remains a land of opportunities for businesses, some balances seem precarious: a trade war with the United States, heightened tensions with Taiwan, a rapprochement with Russia, and complex relations with other Western powers. Is the world’s second-largest economy still as indispensable for businesses as it once was?Two experts from Coface reveal the risks and opportunities of this country for businesses, in light of tumultuous current events. Bernard Aw is Chief Economist for the Asia and Pacific region, and Raphaël Rousselot, Chief Underwriting Officer Asia Pacific.Don’t have time to read? Listen to this full episode of Trade Talk on your favourite platform, or on our website. Bernard, can you describe the economic situation in China right now?
China’s economy was unable to fully recover from the shock of the pandemic as consumption was constrained by the zero-covid policy, in addition to regulatory action on sectors such as housing, technology and education. The removal of strict Covid-19 restrictions was therefore generally seen as positive for the Chinese economy. In the early months following the end of zero-covid policy, economic activity, particularly services, showed a solid rebound. In the first two months of 2023, industrial output was up 2.4% year-on-year, retail sales rose 3.5%, and fixed investment growth came in above expectations at 5.5%. The post-Covid recovery was earlier than expected.Politically, Chinese president Xi Jinping was able to strengthen his power base, replacing key economic positions in the government with people that are known to be loyal to him, such as new premier Li Qiang. Raphaël, after the reopening of their economies and borders, a lot of countries, with mature or emerging economies, have seen an economic catch-up effect. Was it the case in China? Did we see a boom in business activity?In China, we can monitor business activity trends in almost real time thanks to our internal data. For instance, by tracking the frequency of requests for cover against payment default from a period to another. Our data show increasing demand for retail food and beverage on hospitality sectors. Obviously, the airline companies have also benefited from the end of Covid-19 restriction since the population is fully mobile. However, regarding private conceptions, concerns about unemployment or living costs may affect consumer sentiment in the near future. Bernard precisely, what is the country’s economic outlook in the short/medium term? China’s economic outlook remains challenging in the short to medium term as the country faces multiple headwinds, including weak household spending, property market decline, and constrained local governments’ finances. The central government sets a GDP growth target of “around 5%” for 2023, in which Premier Li said achieving the target “is not an easy task and requires redoubled efforts”. The ability to revitalise consumption and stabilise the housing market will be key to a robust economic rebound. We are expecting China’s economy to expand by between 4% and 5% this year.
Can you tell us a bit more about the real estate market? How things have developed recently? Is the sector under control?The November announcement of a 16-point rescue plan by the central bank and the banking and insurance regular represents the most significant change in housing policy since 2016. This announcement provides the clearest message that managing downside risk and restoring housing market stability has become a policy priority and part of an important effort to pursue economic stability. Most significantly in this plan were measures that address developers’ funding problems.While the real estate market remains under pressure, there is some stability setting in. The Real Estate Climate Index has stopped falling. The decline in home prices has slowed in February, and other housing indicators such as real estate sales and investment…
Source : Risks and opportunities after the reopening of China
