Chinese Premier Xi must avoid another policy-induced recession

Beijing [China], April 28 : China has not yet completely escaped the recession brought about by its zero-Covid policy. To prevent the economy from stalling again, President Xi Jinping must steadily implement policies that do not rattle consumers and businesses, Asia Nikkei reported.

China's gross domestic product for the January-March period of 2023 grew 4.5 per cent year on year in real terms, exceeding market expectations. That is up from 2.9 per cent in the October-December period of 2022 when the economy sputtered because of zero-Covid. The economy is now back on a normal trajectory.

With the lifting of the zero-Covid policy, the travel and restaurant industries have regained momentum. Overseas demand has remained strong and supported the overall economy despite fears that it would contract because of policy rate hikes in the US and Europe, Asia Nikkei reported.

However, the recovery lacks vigour even though the pandemic has been contained. The growth rate for the January-March period did not reach the full-year target of "around 5 per cent" set by Beijing for 2023, and the outlook is not bright.

What is of concern is the lacklustre consumer spending, which accounts for 40 per cent of GDP. Spending on services is healthy but outlays on expensive consumer durable goods, such as automobiles and smartphones, have been particularly weak, Asia Nikkei reported.

Behind this gloom are deep-seated concerns about employment. In a survey of depositors by the People's Bank of China, the central bank, for January-March, 41 per cent of respondents said finding employment was difficult or that they felt "unsure." That is up by nearly 5 percentage points from the same period last year.

Going forward, it will be even more difficult to rely on overseas demand for growth. Many believe a global economic slowdown will become more pronounced in the second half of the year as interest rate hikes in the US and Europe put downward pressure on their real economies, the report stated.

Ensuring a steady increase in domestic demand is the way to maintain stable Chinese growth. It requires allowing free economic activity to tap the vitality of the private sector. Xi should move away from his clampdown on private businesses and his excessive favouritism toward state-owned enterprises, Asia Nikkei reported.

Boosting productivity in China, where the population has begun to decline, will require leveraging the power of foreign investment. Nevertheless, the Xi administration has taken damaging actions, such as emphasizing a hard-line position on Taiwan and detaining an employee of Japanese drugmaker Astellas Pharma without citing a specific reason.

To protect the stability of the global economy, China should not repeat its policy failures.