China Leaders Surprised by Pace of Economy’s Rebound

beijingwalker · Mar 1, 2023

China Leaders Surprised by Pace of Economy’s Rebound

Bloomberg News, Bloomberg News
February 28, 2023 |

(Bloomberg) -- China’s economy is recovering faster than top officials had expected with the Covid outbreak on reopening passing rapidly through the country, according to a person familiar with the matter, suggesting the government will be restrained in rolling out new stimulus measures this year.

The infection wave that followed the abrupt removal of pandemic restrictions ended faster than senior officials had expected, the person said, declining to be identified discussing government matters. The outbreak was expected to last at least through to February or March of this year, but most of the population was already infected by the end of January, the person said, allowing the economy to recover quickly.
In another sign of growing comfort with the pace of the recovery, Chinese state media were told to convey at next week’s National People’s Congress — the annual parliamentary gathering — that leaders are satisfied with the economic rebound and the need for stimulus is moderate for now, another person familiar with the plans said. The government is looking to “hold up” the economy rather than give extra support, the person said.

China’s State Council Information Office and the National Development and Reform Commission, the country’s economic planning agency, didn’t respond to faxed questions seeking information.
Key data released this week backed the view the economy is recovering strongly after China dropped its zero-tolerance Covid strategy. The manufacturing sector saw its biggest improvement in activity in more than a decade in February and consumer activity climbed, the latest purchasing managers’ surveys showed. Housing sales also rose for the first time in 20 months, according to data from the 100 biggest real estate developers.

The economic outlook remains uncertain, though, against the backdrop of weak global growth and rising interest rates. Demand for Chinese exports from some of the country’s biggest markets like the US and Europe have plummeted in recent months and are likely to remain weak this year. US-China tensions over technology and geopolitical matters have also escalated, weighing on business sentiment.
Economists expect China’s government to set a growth target for this year that’s higher than 5%, with some seeing it at around 5.5% or more. The economy expanded just 3% last year, the second slowest pace since the 1970s.

Many expect monetary and fiscal policy will remain supportive this year, although the chance of a big stimulus package is low. That means the People’s Bank of China will likely refrain from cutting interest rates sharply this year, but it could keep the financial system relatively flush with cash, and use other tools to spur lending in the economy.