China’s economy could derail full recovery post-Covid due to mounting external challenges

Companies welcomed China’s decision to end quarantines for travelers from abroad as an important step to revive slumping business activity. AP.

Beijing: China that is struggling to save its population from the widely spreading Covid-19 has a daunting task to bring its dwindling economy back on track.

The economy of Xi Jinping-governed country is at low levels almost three years after the start of the coronavirus pandemic that signals at an arduous path to recovery. Weak business sentiment, coupled with shrinking industrial orders are weighing on China’s growth.

Meanwhile, economists warn that increasing external challenges could derail a full economic recovery of China.

As per a survey conducted by People’s Bank of China, more than half of business owners claimed that the economy is cooling and the business climate getting weaker.

The China’s central bank has conducted the poll in the fourth quarter on 5,000 entrepreneurs in the industrial sector. The Centre for Economics and Business Research (CEBR) informed that the Chinese economy grew by 3.2 per cent in 2022, well below forecast.

CEBR said its forecasts predict that China’s growth may be slightly short of what is required to hit this target.

China’s economic recovery is still challenged

A tough task lies before the China’s leadership to stabilise the economy that has been badly affected by years of hardline Covid restrictions. The stringent controls were relaxed suddenly in early December that has unleashed China’s worst wave of Covid outbreaks to date.

Earlier this week, at a virtual meeting, the National Development and Reform Commission (NDRC), the country’s top economic planner, urged four regional economic powerhouses – Beijing, Shanghai, Anhui and Guangdong – to increase stabilisation.

“We must grasp the window of opportunity to ensure the use of policy and development financing tools to maximise workloads. We must strive for a good beginning for the next year,” the NDRC said in a statement.

The survey by the People’s Bank of China also highlighted that two indices gauging export orders and entrepreneurs’ assessment of overall economic performance fell to the lowest level since the second quarter of 2020.

In the fourth quarter, the export order index dropped to 38.9 from 42.2 in the previous three months.

The macroeconomic heat index fell to 23.5 in the fourth quarter from 26.9 in the previous quarter.

As per reports, China has been receiving fewer orders from the United States, Europe and other developed markets amid forecasts of a global recession next year. Also, China has been facing US export restrictions on key technology components.

According to mobility data analyzed by economists at Goldman Sachs, China is expected to see “weaker growth momentum during the frontloaded ‘exit wave’ on the back of surging infections, a temporary labor shortage and increased supply chain disruptions.”

“Amid the rapid reopening, the challenge to China’s medical system may have been significantly escalated, especially for less developed inland and rural areas amid the upcoming Lunar New Year holiday,” Goldman economists including Lisheng Wang and Hui Shan said, adding that they expect mainland China’s daily new cases to reach a peak in late December or early January.

With inputs from agencies

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