As China abandons zero-Covid, what will the economy look like in

Hong Kong
CNN
 — 

As China moves ever closer to fully reemerging from three years of government-imposed Covid isolation and reintegrating with the world, economic expectations are high.

Beijing’s recent pivot from its stringent zero-Covid strategy — which had long choked businesses — is expected to inject vitality into the world’s second-largest economy next year.

Covid lockdowns and border curbs have left China out of sync with the rest of the world, disrupting supply chains and damaging the flow of trade and investment.

And with the global economy now facing significant challenges, including energy shortages, slowing growth and high inflation, China’s reopening could provide a much-needed and timely boost.

But the process of reopening is likely to be erratic and painful, according to economists, with the country’s economy in for a bumpy ride in the first few months of 2023.

China’s historic property downturn and a potential global recession could also cause more headaches in the new year, they added.

“In the short run, I believe China’s economy is likely to experience chaos rather than progress for a simple reason: China is poorly prepared to deal with Covid,” said Bo Zhuang, senior sovereign analyst at Loomis, Sayles & Company, a Boston-based investment firm.

For nearly three years, China stuck to its zero-tolerance approach to the virus, even though the policy caused unprecedented economic damage and widespread frustration. In 2022, growth slowed sharply, company profits collapsed, and youth unemployment surged to record levels.

Amid growing public unrest and financial pressure, the government abruptly changed course this month, effectively abandoning zero-Covid.

While the easing of restrictions is a long-awaited relief for many, the abruptness of it has caught an unprepared public off guard and left them largely to fend for themselves.

“In the initial phase, I believe the reopening may unleash a wave of Covid cases that could overwhelm the health care system, dampening consumption and production in the process,” Zhuang said.

Already, the rapid spread of infection has driven many people indoors and emptied shops and restaurants. Factories and companies have also been forced to shut or cut production because more workers are getting sick.

“Living with Covid will be more difficult than many assume,” said analysts from Capital Economics.

They expect China’s economy to contract by 0.8% in the first quarter of 2023, before rebounding in the second quarter.

Other experts also expect the economy to recover…