Key Messages
- After an uneven growth performance this year, China’s economy is projected to recover in 2023. Activity in China has followed the ups and downs of the pandemic—outbreaks and economic slowdowns have been followed by uneven recoveries. Despite policy support, real GDP growth is expected to slow to 2.7 percent in 2022, before recovering to 4.3 percent in 2023 amid a reopening of the economy.
- The growth outlook is subject to significant risks. Recurrent COVID-19 outbreaks, the possibility of renewed mobility restrictions and precautionary behavior to slow the spread of the virus could lead to longer-than-expected disruption in economic activity. Persistent stress in the real estate sector could also have wider macroeconomic and financial spillovers. China’s economy is also vulnerable to climate change, highly uncertain world growth prospects, greater-than-expected tightening in global financial conditions and heightened geopolitical tensions.
- The continued adaptation of China’s public health policies will be crucial to mitigate public health risks and also minimize further economic disruption. Accelerated efforts on public health preparedness now could enable a safer and less disruptive re-opening. Public health measures could include focused efforts to increase vaccination rates among vulnerable groups, rollout of a booster campaign, increased access to effective COVID-19 treatments, and efficient use of limited hospital capacity for severe cases.
- Continued macroeconomic policy support will be needed in the near term, as the economy remains below potential and the global environment is weakening. China has adequate fiscal policy space, especially at the central level, that could be deployed to bolster a stronger recovery. Directing these fiscal efforts toward social spending and green investment rather than traditional infrastructure would not only support short-term demand but also contribute to more inclusive and sustainable growth in the medium-term.
- Deeper structural reforms, put on hold by the pandemic, will have to be restarted to successfully achieve more balanced, inclusive, and sustainable growth. Reform priorities include creating a level playing field for the private sector by ensuring a predictable regulatory environment and addressing distortions in the access to credit. Such measures could be complemented with reforms to strengthen social security and reduce inequalities in access to quality healthcare and education. At the same time stronger efforts are needed to accelerate the transition to a low carbon economy through more market-based instruments and investment in climate-smart infrastructure.
- Increasing youth unemployment rates have highlighted the emergence of another pressing challenge for policymakers. Employment subsidies and public works programs have provided near-term support to youth employment. The special topic of this report argues that these short-term measures could be complemented with structural measures to strengthen the skillset of the youth, improve labor market mobility, address information asymmetries, and strengthen labor market statistics.