Economic Statecraft
China After the Pandemic: What to Expect from the Economy

In 2020, the 19th meeting of the CPC Central Committee, in its final communiqué, highlighted the successful implementation of the 13th Five-Year Plan (FYP) (2016-2020) and approved the new 14th Five-Year Plan (FYP) (2021-2025) for national economic and social development of China. Along with this target document, long-term goals for the period up to 2035 were developed and approved, including key directions for the development of the PRC for a fifteen-year period.

Consistently adhering to the development concept of socialism with Chinese characteristics (中国特色社会主义), and steadily promoting modern reforms and openness, China in the new decade is placing its main emphasis on developing domestic demand, increasing supply, and macroeconomic regulation. Further development tasks also include strengthening China’s economic, technological and aggregate potential, carrying out new industrialisation, and modernising the Chinese management system.

Maintaining social stability and improving people’s quality of life is an important foundation for China’s prosperity. For example, by 2020, the country’s basic health insurance covered more than 1.3 billion people, and basic old-age insurance covered almost 1 billion people. Work on this is actively underway, and will last into the next five-year period.

Thus, a lot of attention in 2021-2025 will also be paid to the further development of the social security system. According to Xinhua News Agency, in February 2021, President Xi Jinping, speaking at the National Poverty Reduction Conference, solemnly declared that thanks to the joint efforts of the entire Party and people of all ethnic groups, on the occasion of the 100th anniversary of the founding of the Communist Party of China, the country has won a complete victory in the fight against poverty. In doing so, 98.99 million rural poor citizens have been lifted out of poverty, and 832 counties and 128,000 villages have been removed from the nation’s poverty list.

In October 2022, at the 20th CPC Congress, Xi Jinping, Chairman of the Central Committee of the CPC, said that from now on, the central task of the CPC is to unite and lead the country’s multi-ethnic people to realize the goal of fully buildinga modernised socialist power by the CPC’s centenary.

The period of the pandemic, which lasted three years in China, led to a major reform of the healthcare system. Incidentally, the healthcare system in most countries throughout the world underwent major changes during the coronavirus pandemic. During the fight against COVID-19, China took unprecedented infection prevention and control measures, the Chinese authorities have strongly emphasised that such large-scale and severe restrictions were primarily caused by concern for public health. However, the total periodic lockdowns of large Chinese cities and other regions, as well as the long-term closure of borders led to a slowdown in China’s economic growth in these years, as well as a decrease in export operations and the purchasing activity of the Chinese population itself.

At the end of 2022, due to the impact of Covid restrictions in China, 89 online stores and online platforms were closed, including Eachnet, Mia, and the Fengqu marketplace. Alibaba’s revenue in the third quarter of 2022, as of December 2022, had decreased by 1% compared to the second quarter. One of Alibaba’s main competitors, Jingdong, has abandoned its plans to expand into Southeast Asia and has left Thailand and Indonesia. By the end of 2022, online sales in China had grown by 4% year on year. This amounted to about 13.8 trillion yuan (approximately $2 trillion). Retail sales fell 0.2% at the end of 2022. At the same time, the decline in the retail market slowed to 1.8% in December from a 5.9% decline in November 2022. For 2022, the catering segment showed a record drop of 6.3%.

However, these trends are still temporary, and according to most economic forecasts of foreign and Chinese publications, the Chinese economy will show strong growth in 2023. China’s GDP for 2023 is planned to be 5%.

China’s economic growth accelerated in the first quarter of 2023. Despite numerous challenges, strong growth in services and consumption contributed to the recovery of the economy and raised market expectations. Data from the National Bureau of Statistics on April 18 showed China’s gross domestic product totalled 28.5 trillion yuan in the first quarter of this year, up 4.5% year on year, compared to a growth rate of 3% of GDP in 2022 and a growth rate of 2.9% in the fourth quarter of the last year. Thus, in the first quarter of 2023, relatively fast and stable progress was made in the field of epidemic prevention and control of COVID-19. In the first quarter, the value added of the service sector increased by 5.4% year on year, while demand for services such as tourism and catering accelerated.

During the post-COVID years, much attention will be paid to the development of innovations, support for the real sector of the economy, the modernisation of industrial chains and supply chains. According to Wikipedia, China’s population is 1.411 billion in 2023, which indicates that the potential of its domestic market is very huge. Over the past decades, China has demonstrated stable and rapid GDP growth, significantly higher than the global average, and there has been a comprehensive modernization of industry and the economy.

Currently, China is one of the main locomotives of world technological progress, and Chinese companies, primarily technology companies, are included in the top ratings of all world exchanges. At the same time, China is no longer the country it was in the 1990s — when there was a huge cheap labour force, irregular working hours, and cheap consumer goods in large quantities, albeit of poor quality. In the 2010-2020s, the quality of life of the Chinese people has improved significantly, wages have risen, the average annual per capita income has risen significantly, and the overall value of goods has also risen, which is reflected in the price. At the same time, housing prices, especially before the start of the pandemic, were among the highest in the world.

Therefore, on the one hand, these trends open up huge growth prospects for Chinese companies which focus on the domestic market. On the other hand, for several years now, large Western companies in the manufacturing and non-manufacturing sectors, which have been actively opening factories in China, have moved their production to other countries in the Asia-Pacific region, such as Vietnam, Cambodia, Thailand, Singapore, Malaysia and Indonesia. This is especially true for such industries as electronics, household appliances, auto components, etc. These processes intensified even more during the period of strict quarantine restrictions in China (2020-2022), which, as noted above, led to a decline in the Chinese economy. In 2022, waves of protest against strict restrictive measures and “zero tolerance” policies also swept through China, and long-term lockdowns in Shanghai, Guangzhou and other major cities further increased the exodus of Western companies from the Chinese market.

Tensions between the US and China, the ongoing trade war, and the divergence of positions on the Taiwan issue, have also had a great influence on these processes. China is clearly committed to maintain the long-term prosperity and stability of the Hong Kong and Macau Special Administrative Regions, and promoting the reunification of the Chinese mainland and Taiwan and their peaceful development across the Straits. However, just recently, the United States has repeatedly carried out provocative visits to Taiwan and conducted other ambiguous actions regarding the Taiwan issue, which increases tension between the countries. This trend will continue in the coming years.

At the same time, the global redistribution of markets continues on a global scale. US hegemony, which has lasted for many decades, is weakening. There is a global regionalisation of markets, and new centres of power are emerging. In particular, Russia’s special military operation in Ukraine to protect the civilian population of the Donbass more clearly outlined these global processes.

Despite the fact that China’s trade with the US and the EU is huge, and in 2023, after the lifting of anti-COVID restrictions, export-import operations will be significantly increased, China is forming new centres of economic power in the Asia-Pacific region. In economic and humanitarian respects, cooperation between China and Russia, as well as with the countries of Central Asia, is growing in the Eurasian region. In 2022, despite the pandemic, the trade turnover between Russia and China reached a record $190 billion. Cooperation is developing in the sphere of agriculture, energy and industry.

Cooperation between the member states of the SCO, BRICS, APEC and ASEAN is actively developing. China’s cooperation with the Eurasian Economic Union (EAEU) is growing. In 2023, China is scheduled to host the 3rd Belt and Road Forum, a Chinese global initiative spanning more than 70 countries. The idea of this megaproject was put forward by Chinese President Xi Jinping in September 2013. He first spoke about it in Astana during a state visit to Kazakhstan. First of all, the BRI is aimed at creating and developing new transport corridors, strengthening regional production and marketing chains, and developing trade between Europe and Asia on the Eurasian continent. Regional economic integration within the framework of the BRI extends to the countries of Africa and Latin America. The BRI also includes large-scale interregional investment projects. These international regional associations add an impetus for the development of the economy of China and other participating countries in the post-COVID period.

At the same time, for example, in November 2020, a new regional association was created in Asia — its largest free trade area. The Regional Comprehensive Economic Partnership (RCEP), unites 15 countries, including China, Japan, South Korea, Australia, Singapore and others. Under this agreement, reduced trade duties will apply. The creation of the RCEP significantly expands the markets for Chinese products.

An important aspect of the development of the economy, internal and external trade in China will be the further introduction of the digital yuan, as well as direct settlement systems in national currencies in foreign trade transactions. The use of the dollar and the euro in international settlements will reduce, and China will assist in the development of financial mechanisms for settlements in yuan.

Currently, great emphasis is being placed on the technical modernisation of the Chinese economy, the development of a new type of urbanisation, the creation of smart cities, the development of artificial intelligence (AI) technology and mechanisation. At the same time, the budget includes significant funds to accelerate green and low-carbon development, green initiatives and environmental protection. Incidentally, at the moment, most people in China buy bottled water for drinking in bulk; water cannot be drunk from the tap, as water purification systems require modernisation.

However, these issues have received considerable attention in recent years.Strengthening the national security capacity, developing the space program, multiplying satellite systems, as well as improving 5G technologies, and increasing investment in R&D are also the priorities of China.

All these tasks of China’s development will contribute to maintaining a stable internal and external environment and help build a new type of international relations.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.