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Macroscope | Worst could be over for China’s economy as reopening unleashes pent-up demand
- Despite weak GDP growth, many indicators suggest December was the low point for China’s economy and recovery is on the way
- The rebound will be largely driven by consumption rather than investment, which means it will be concentrated in consumer sectors, tourism and retail markets
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Weighed down by the zero-Covid policy and disruptions from a rise in infections in December, the Chinese economy decelerated in the final quarter of 2022, with real GDP growth slowing to 2.9 per cent year on year. Despite this weakness, data suggests December may have been the low point for the Chinese economy.
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Domestically, the drastic shift in pandemic policy has seen a wave of Covid-19 infections sweep across the country. A research team from Peking University estimates that infections peaked in most regions before December 20, and that 64 per cent of the country’s population was infected as of January 11.
As infections spread, searches for key symptoms such as fever, cough and sore throat on the Baidu search engine indicate that the public has picked up on the lower severity of the Omicron variant of Covid-19. This has prompted a fairly quick normalisation of economic activities.
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As of last week, subway passenger flows had recovered to 70 to 80 per cent relative to pre-Covid-19 levels in Beijing and Shanghai, and exceeded the pre-Covid-19 levels in Shenzhen. Urban traffic congestion and freight transport have also largely rebounded to 2019 pre-pandemic levels.
That said, China’s housing activity is likely to remain weak amid sluggish income and house price expectations coupled with ongoing concerns about home availability.
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