Boom in China after the end of zero-Covid?


China's economy had recovered remarkably quickly after the first year of Corona, then it came to a standstill again. How will the 180-degree turnaround affect Corona policy?

Car production in Qingdao in January 2023

At three percent, China's economic growth in 2022 remained well below the target. Since the start of the reform and opening-up policy at the end of the 1970s, China's growth has not exceeded three percent for the third time after 2020 and 2022.

Especially since the spread of the omicron variant of the COVID pathogen, Chinese authorities have increasingly decided on draconian lockdowns in order to break chains of infection, often in vain. This so-called “dynamic zero-Covid strategy” led to slumps in consumption and production and disrupted supply chains. The lockdown in the economic metropolis of Shanghai  China was hit particularly hard in May and April 2022: the growth rate in the second quarter was only 0.9 percent compared to the same period last year.

New Year's celebrations in Wuhan on January 1, 2023. The pandemic broke out three years ago in the central Chinese metropolis.

Under enormous economic and social pressure, Beijing then took an abrupt turnaround in corona policy at the beginning of December. initiated. Still, many experts are not optimistic about China's economic growth. At the end of the year, the IMF lowered the growth forecast for China again, reasoning: The radical departure from the strict zero-Covid policy triggered a “bush fire” of virus infections that will have a negative impact on the Chinese and global economy in the next three to six months will have an impact.

However, some experts are of the opinion that the “bush fire” will only affect the economy in the short term. “The long-awaited economic recovery is likely to come this year. The fact that the wave of infections will probably peak in the next few weeks or months opens up better prospects for the rest of 2023,” says Jürgen Matthes, China expert from the institute of the German economy in Cologne (IW Köln), in an interview with DW.

Container port in Qingdao. China wants to move away from export-oriented growth

In fact, China's economy recovered quickly and strongly after the first wave of infections in 2020. While developed countries were still suffering from lockdowns, Chinese factories were able to produce at full force. Thanks to the strict zero-Covid policy, there were hardly any corona infections in China at the time. In 2021, China achieved a record export surplus and was thus able to report growth of over eight percent. At the same time, it intensified the “container crisis”: Containers were needed for China's exports, but due to flagging production in other countries, these containers did not come back to China, or only with a long delay.

Short-term winner of the Pandemic

At the time, many users on the Chinese Internet saw Beijing as the winner of the pandemic. However, China expert Rolf Langhammer is critical of this success of 2021: “In the medium term, China is striving for domestic and service-oriented development, so it no longer wants to be dependent on the export markets. In the early phase of the pandemic, China was the first country to China became the world's workbench again, but the Chinese government really didn't want that.”

That's why Langhammer sees China at most as a “temporary beneficiary of the pandemic”. Since the other countries have long since started up their production again, the recovery in 2023 could be much more difficult than in 2020 and 2021. “China has pursued a stop-and-go policy, which creates uncertainty on the one hand. On the other On the other hand, there are medium-term economic problems such as the unequal distribution of income and wealth.”

Dealing with Covid only a burdening factor 

Problems such as demographic change and the real estate crisis also slowed down future growth. Overall, the Kiel economist is of the opinion that internal structural problems are currently more important for China's economy than external factors such as the pandemic. Nevertheless, Langhammer believes a growth rate of four to 4.5 percent is possible this year.

Defensive against Aggression from the Mainland: Maneuvers on Taiwan in August 2022

According to the China researcher Jürgen Matthes from IW Cologne, the corona pandemic is not the most important external factor for China's economic development. Geopolitics plays a much bigger role. “The way China is dealing with corona politics is like a shock to many. This contributes to the fact that China plays a smaller role in the value chain at one point or another. But right now there are considerations in Europe and US to become less dependent on China due to concerns that China could invade Taiwan in the foreseeable future.So I think geostrategic considerations have more influence on China's weight in global supply chains.About half of German companies say in surveys that they feel relatively dependent on China and want to reduce this dependency.”

Matthes predicts that China's economy will recover this year, but the upswing is likely to fall well short of the triple pressure from Covid politics, geostrategic frictions and internal structural problems. His conclusion: “It's hard to say what's the worst in the end. These factors are all there at the same time.”