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Chinese economy: exports and Covid-19

China’s economy faces challenges in boosting its exports and coping with the Covid-19 pandemic, highlights an analysis released by National Bank of Canada.

Although by early 2023 the sluggishness of Chinese households may have been partly offset by strong foreign demand, an export-led growth model no longer works in a world of global slowdown.

To continue growing in 2023, the Chinese economy will need the support of strong consumer spending. One more reason to end the zero-Covid policy.

The transition to living with the virus could be tough, the analysis adds. The relaxation of public health restrictions comes at a time when the number of new cases is rising sharply.

Some attribute the slowdown in recent days to a marked decline in the number of tests performed rather than a drop in infections.

Chinese economy

Several factors suggest that the outlook could deteriorate rapidly. First, only 40% of people aged 80 years and older have received the third dose of vaccine needed for effective protection against the Omicron variant.

These people are susceptible to a severe form of the disease and could increase pressure on a hospital system that is under-equipped to cope with a spike in cases.

In addition, the arrival of the Chinese New Year and the millions of trips people often make for the occasion could contribute to the spread of the virus throughout the country.

Thus, if China suddenly reverses its public health measures, a short but extremely intense wave is expected.

Analysis indicates that one million people could succumb to Covid between now and when sufficient herd immunity is achieved.

As these numbers will apparently be unacceptable to the Chinese Communist Party, a partial reopening punctuated by partial closures is anticipated to allow the healthcare system to catch its breath. This would result in a somewhat more prolonged but less severe wave of infections.

The economic consequences would still be considerable. Many households are expected to limit their activities, even where restrictions are completely lifted.

At the very least, Beijing appears to be preparing the ground for such a scenario by boosting its monetary stimulus.

In late November, the People’s Bank of China announced that it would reduce the reserve requirement ratio by 25 basis points as of December 5, injecting some $70 billion into the economy.

 

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