Digital in conversation with Jens Presthus and Alicia García-Herrero, Senior Fellow at Bruegel and Chief Economist for the Asia-Pacific at Natixis, discussing the latest on real estate reform, foreign policy and the role of private enterprise in industrial policy in President Xi Jinping's "revamped China"
Below you can find some key highlights:
- 2023 will likely be quite similar to the first “pandemic rebound year” in 2021. A low base and pent-up demand should lead to a strong recovery driven by consumption. Chinese New Year spending has been positive. At the same time, underlying factors that depressed confidence in 2022 remain – including a structural downturn in the property sector. The extent and scale of the recovery will therefore be driven by Beijing’s policy response.
- There is a narrative building about a “Xi pivot” on property reform and the CCP's approach to private sector firms. This is more likely to be an adjustment to reform rather than abandonment. Xi likely feels there has been a course correction after a prolonged “rectification campaign”, and that internet companies now understand what they need to do to support national interests in for instance industrial policy and poverty alleviation. While this has allowed Xi to ease up, it does not mean we will go back to the old days.
- China’s race against US export restrictions is heating up, creating a new sense of urgency in Beijing. Efforts to invent new technologies and scale up production in areas where China already is leading will likely be boosted. China’s remarkable rise to become the world’s #2 car exporter – largely driven by EVs – shows how Xi is determined for China to be the world’s supplier of new innovations.
- China’s reopening is unlikely to re-ignite inflationary flames. The rebound will not be as dramatic as seen in the US, and weaker activity in most of the rest of the world will counter some of the new demand coming out of China. An official end to covid-era supply chain disruption should also be deflationary. Indeed, since November 1st, oil prices have dropped, showing little expectation about a significant net increase in demand for energy. Isolated price increases are seen, but mainly in metals linked to infrastructure building, such as iron ore and copper.