With the adjustment of China’s COVID-19 measures, its economic recovery has also become the focus of recent market attention. With the evolution of the current trend, researchers at ANBOUND point out that the focus of policy will shift from COVID-19 control to economic construction. This is shown in the CPC Central Committee’s meeting earlier, where the continuous implementation of proactive fiscal and stable monetary policies was mentioned.

With these changes, the market has optimistic expectations for the recovery of the Chinese economy. However, after the initial explosive growth of the RMB exchange rate and the A-share market, the further relaxation with the introduction of the new 10-point plan COVID-19 measures did not cause the market to respond positively. The RMB interest rate is hovering around 6.97, while the Shanghai Composite Index is also below 3200 points, showing weak growth. According to the researchers at ANBOUND, this actually shows that the impact of the pandemic will not disappear due to policy relaxation, and economic recovery will be a gradual process. The retaliatory rebound of the post-pandemic economy may be far less optimistic than previously expected by the market. As it stands, the recovery of the country’s economy is more likely to be a process of many ups and downs.

The relaxation of the COVID-19 measures is certainly beneficial to economic recovery, yet it does not mean that the short-term impact of the pandemic on the Chinese economy and society will vanish immediately. On the contrary, with the loosening of COVID-19 control measures, there will be large-scale surges of outbreaks. This will have a greater impact on the already insufficient Chinese medical capacity. The shock brought by it will have a direct impact on the country’s economic activities. Economists at Morgan Stanley have warned that with current vaccination rates and hospital resources, China is not ready for a rapid reopening. Reopening is a key prerequisite for China to return to its potential growth trajectory, yet the actual situation may not be as optimistic as it seems, according to Lu Ting, Nomura's chief China economist. He believes export will drag down the growth in 2023, and the economy could be damaged due to the increase of the outbreaks, both of which could signal a slower rebound in growth than expected.

This indicates that on the one hand, the market does not have enough confidence in whether China’s medical system can withstand the impact of the outbreaks; on the other hand, COVID-19 measures will still be an important part of the actions taken, and the pandemic will continue to affect the country’s economy and social activities. Moreover, when the short-term disturbance caused by the spread of the novel coronavirus increases, it may also bring a short-term negative impact on the economy. It is only when the situation enters a relatively stable period and the infection cases gradually decline that China’s economic activities will gradually improve. Therefore, the recovery of economic demand will be a gradual and even fluctuating process, instead of an immediate, instantaneous shift.

For China, after three years of the pandemic, with internal and external shocks, its economy has already been weakened and needs to recuperate to gradually recover. Judging from the signals released by the Politburo meeting, although stabilizing growth next year will be its focus, the core of its policy remains "stability", and there has not been a major change in its expression. The large-scale easing policy that some market participants expected is not in line with it. In fact, as far as the current status of the Chinese economy is concerned, researchers at ANBOUND have pointed out that it is not advisable for China to stimulate the economy through massive easing. As the country’s fiscal and monetary policies are not only subject to external shocks and pressures, but also have insufficient space due to inflation and debt problems. ANBOUND’s global research partner Xu Weihong noted that China’s macro policy will adopt a precise approach to improve the economic structure and achieve the aggregate target through easing in specific areas and industries. Therefore, with limited policy stimulus, the restructuring of the Chinese economy relying on its own driving force is still a relatively long-term process.

Final analysis conclusion:

While the relaxation of China’s COVID-19 policies is beneficial to its economic recovery, viral outbreaks will surge in the short term, possibly creating more serious impacts on the economy. Therefore, the recovery of the Chinese economy from COVID-19 will be a process that could be a repetitive one.