After a year of domestic economic volatility and international turmoil, China is focused on economic growth this year. And that means the country will further deepen reform and expand opening-up.
In December, Chinese leadership held its Central Economic Work Conference in Beijing. Judging by the speeches of the President Xi Jinping, Premier Li Keqiang, and the Premier-to-be Li Qiang, the top policymakers will zoom on economic growth. In 2023, the aim will be to restore the pre-pandemic high-growth environment.
The Economist magazine has called it “this year’s biggest economic event”. But as always, the devil is in the details: How do policy authorities plan to stimulate private sector growth?
Dual circulation strategy on the move
In 2023, China will tackle growth challenges with its dual circulation strategy. While external circulation (or cross-border activities) will deepen regional and international trade and investment ties, internal circulation will seek to accelerate domestic demand (in the mainland economy).
Now that most of the COVID-19 restrictions have been lifted, the government will implement a variety of measures to expand consumption. The idea is to foster the incomes of urban and rural residents to support housing improvement, new energy vehicles (NEVs), and elderly care services, among other things.
But the momentum is on the supply side, particularly infrastructure investment. Government incentives seek to increase financing, especially by encouraging more private capital to participate in large national projects on energy, water, transportation and data centers, among others.
Fiscal support will be targeted and focused, whereas monetary policy is likely to remain cautious and neutral until the end of the Federal Reserve’s tightening in the US. In turn, sectoral success is predicated on three critical areas: COVID-19, the technology sector and property markets.
With the lifting of the COVID-19 restrictions, stringent top-down restrictions are effectively giving way to bottom-up responses. The faster China can avoid the kind of short-term reactions and disruptions, which are typical to the transition, the speedier will be the return to the growth momentum.
In 2023, China has potential to outpace many other emerging economies. China’s secular long-term trend growth remains around 4 to 5 percent through the 2020s.
Boosting competitive high-tech, steadying property markets
In the technology sector, the efforts of the policymakers to foster more competition began with a fast and broad momentum last year. Such initiatives will cultivate Chinese “little giants” and particularly small and midsized enterprises (SMEs). In Germany, Mittelstand SMEs have proved resilient in periods of rapid economic change. After all, SMEs are less capital-intensive than big business but provide broader job opportunities in the long run.
But as John Maynard Keynes once put it, “in the long-run, we will all be dead.” It is vital to pace new technology-regulation regimes so that they will foster steady growth rather than disruptions or create bottlenecks. After all, Chinese world-class technology giants from Huawei to TikTok must also cope with Washington’s suppressive regimes that exploit geopolitics to foster America’s ailing competitiveness.
After half a decade of volatility, even turmoil, the Chinese property markets could be heading toward a turnaround. In real estate, the new support measures, particularly the government’s 16-point recovery plan, will contribute to stabilization. In 2022 property sales may still have fallen by 25 percent or so; in 2023, it may fall only by 5-10 percent.
While highly leveraged private developers continue to struggle, higher-quality developers will strengthen over time. As S&P Global Ratings recently concluded, the rising dominance of state-owned developers means the Chinese market will be more stable with more focus on completing unfinished homes.
Against geopolitical headwinds, thriving external circulation
In the past decade, the United States has steadily escalated “great power competition” against China. Having little to do with economic efficiency, it promotes destabilization initiatives to weaken China, even at the expense of American welfare and big business.
Defined purposely ambiguously, the “enhanced” US restrictions on the sales of advanced semiconductors to China are a prime example. They will hit the hardest the biggest global technology giants in the US, and in South Korea and Taipei.
By contrast, China continues to shun trade protectionism and expansive geopolitics. The quest for global economic cooperation and development is central to China’s external circulation. It will deepen trade and investment ties, especially with the Regional Comprehensive Economic Partnership (RCEP), which could be a game changer as the bloc accounts for almost a third of China’s total trade value.
Despite trade protectionism in the West, the Belt and Road Initiative (BRI) will promote steady progress on the back of recovery in Southeast Asia. China’s trade with ASEAN is growing 2-3 times faster relative to the EU and the US, respectively. China’s goal is also to expand bilateral trade with the ROK and Japan in spite of political and strategic differences.
The Belt and Road projects are also intensifying from South Asia and Eurasia to the Middle East and Africa. And in Latin America, the third presidency of Lula in Braziland the rise of other progressive leaders holds a promise for more multipolar world trade.
Finally, as consumption in China is about to expand, the use of renminbi as a settlement currency will gradually increase with and within these trade blocs.
Reform and opening up
Today, the risk of recession casts a dark shadow over the US economy. The Eurozone is facing a deep recession, Japan’s economy is shrinking, and United Kingdom is struggling with the worst fall in living standards since records began. Hence, the penchant of their policymakers to increase military expenditure, when their economies can least afford it, is self-destructive.
Ironically, as the overstretched West is moving toward closer society and protectionism, China will stay course in economic reform and opening up, and high-quality development. And so will most other large emerging and developing economies. Development is not viable without peace and stability.
A version of the commentary was published by China Daily on January 9, 2022