After China surprised markets with a sudden re-opening late last year, all eyes remain fixed on how this will play out in global and emerging economies in the months ahead.
Most economists have predicted positive growth to unfold beginning in the second quarter of 2023 as the country recovers from the high economic and social costs of its strict zero-COVID policies.
“The news was welcomed by those impacted and championed by the markets as the world has been awaiting China’s reopening to provide a lift to global growth.
“Unfortunately, the reopening has been met with a wave of infections across the country resulting in the population being cautious to re-engage in outside contact and travel,” noted Thomas Poullaouec, T. Rowe Price head of multi-asset solutions APAC.
“As more of the population re-engages it will provide a boost for domestic growth, fueled by pent-up demand and savings accumulated over the shutdown.
“Additionally, a re-emergent Chinese economy should be supportive for broader emerging markets and commodities as growth and trade rebound.”
Alice Shen, senior associate at VanEck, pointed out that the onshore market had already responded faster than anticipated.
She explained: “China’s latest activity indicators show the economy is rebounding faster than expected, and the recovery is likely to be driven more by services/consumption from now on, with manufacturing/net exports taking the backseat (for now).
“Fewer movement restrictions and huge pent-up demand should boost consumption and its contribution to growth as the re-opening progresses.”
She added that, after three years of lockdown, a large pent-up demand from cashed-up Chinese consumers was likely to be observed leading up to the Chinese New Year (22 January, 2023). Household savings in the country now stood at some $3.8 trillion.
“Chinese tourists are ready to take flight, with popular Asia Pacific travel destinations such as Australia, Thailand and Japan likely to receive a boost to their economies,” Shen stated.
Long-term, other sectors that were expected to enjoy above-average growth included high-end manufacturing, new energy, and electric vehicles as China worked towards its target of carbon neutrality by 2060.
HSBC’s China team expected a strong pick-up in GDP from Q2 2023 onwards.
“This should be good for Australia and one of the factors that helps to prevent Australia from having a recession in 2023,” elaborated Paul Bloxham, HSBC chief strategist, Australia, NZ & global commodities.
“A return of Chinese tourists and students should support services exports. Stabilisation in China’s housing sector and a ramp up in infrastructure should drive demand for commodities.”
As per market strategists at BlackRock, China’s reopening was expected to record economic growth over 6% in 2023 and would brighten the view on emerging markets (EMs).
“Chinese assets represent a sizable share of EM indexes, so we see overall EMs as a beneficiary of the reopening. Rising Chinese demand is likely to benefit other EM exporters with strong ties to China as growth rebounds too,” stated BlackRock’s January commentary.
“We prefer Chinese assets to developed markets (DM) peers as well. Structural risks including an aging population and geopolitical tensions with the US persist, but a strong rally in risk assets since October is becoming harder for some tactical investors to ignore.”
