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China's Economic Comeback

Although the sudden end of China's zero-COVID policy led to a massive increase in infections as 2022 came to a close, it also positioned the economy for a long-awaited return to normalcy. With policymakers stressing consumption and providing stimulus and liquidity, China's growth outlook has improved dramatically.

KNOXVILLE – December 2022 brought a swift end to China’s zero-COVID policy – and an equally rapid rise in infections. But for all the disruptions that this shift caused, the Chinese economy is well positioned for a strong comeback this year. Three major trends to watch out for are a recovery in investment and consumption, a normalization of supply chains, and improvements in the hitherto troubled real-estate sector.

Partly because China’s long-delayed COVID-19 outbreak has been so rapid, it could prove relatively short-lived. Experts anticipate that the rise in infections will last only through the second quarter of 2023. While a May 2022 study in Nature predicted that China would have 112 million cases and 1.6 million deaths in the first six months following the end of zero-COVID, leaked health notes showed that 250 million people had already been infected before the end of December 2022. Several weeks later, a prominent government scientist estimated that 80% of the population had already been infected.

As long as China does not revert to its zero-COVID policy – and especially if it expands its medical capacity – it should be able to put economic growth back on track in the coming months. Workers will be able to return to factories and offices, truck drivers will be able to transport goods without delay, and businesspeople will be able to travel more freely. This is not wishful thinking; it was already starting to happen at the start of the year. Public-transit ridership and domestic travel had both risen despite the raging pandemic.

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