China says economy will return to faster growth after Covid isolation ends – The Wall Street Journal

China says economy will return to faster growth after Covid isolation ends – The Wall Street Journal

DAVOS, Switzerland — President Xi Jinping’s top economic adviser sought to restore global investor confidence in a Chinese economy battered by the country’s self-imposed Covid isolation, saying in a high-profile speech on Tuesday that China’s growth would return to pre-pandemic levels this year when the country reopens to the world.

“We are confident that China’s growth will most likely return to its normal trend,” Vice Premier Liu He told members of the world economic and political elite gathered in Davos for the annual World Economic Forum.

As life in China has returned to normal after the government lifted pandemic restrictions, Mr Liu said Beijing will focus on boosting domestic demand this year, which he said will lead to more imports from the country’s trading partners.

The open-to-business message comes as foreign investors and companies are increasingly concerned about the health of the world’s second largest economy. A spate of measures initiated by Mr. Xi in recent years, from broad-based Covid-19 lockdowns to crackdowns on private tech and real estate companies, have significantly reduced consumer spending and industrial manufacturing, while reducing unemployment rates, notably among young people, inflated .

The latest official data shows that China’s economy grew 3% in 2022, one of the slowest rates in decades. In an even more worrying sign for the economy’s long-term prospects, the country’s population shrank last year by 850,000 to 1.412 billion for the first time since the early 1960s.

Beijing is now banking on a robust recovery in economic activity as the recent wave of infections peaks. Some government advisers say the central leadership is likely to announce a growth target of between 5% and 5.5% for 2023 at upcoming parliamentary terms in March — the kind of rates China needs to double the size of its economy by 2035, a long time. runtime target.

After securing a third five-year term in power, Mr. Xi has shown some willingness in recent weeks to adjust policies to shore up growth. Over the past month, he abruptly scrapped his zero-Covid policy, which included tough lockdowns and mass testing, eased funding restrictions on property developers and ordered subordinates to signal an end to government regulatory crackdown on the private tech sector.

However, investors and business leaders inside and outside China remain wary of Beijing’s willingness to ease back its recent years’ corporate restrictions sufficiently to re-engage private capital.

Mr. Liu tried to allay those concerns during Tuesday’s speech. He told the crowd in Davos that a return to a planned economy in which the party state dictates economic activity was impossible.

But with his own retirement looming, Mr. Liu, who is known for his pro-market leanings, has also been careful to stick to his boss’s economic and social agenda, which focuses on “common prosperity,” a vaguely defined term that evokes the desire expresses redistributing wealth among the nation’s population. Mr. Liu is expected to resign during the March legislative session.

The term “shared prosperity” stems from China’s planned economy era, which Mr. Xi revived in 2021 when he launched a sweeping effort to attract private technology companies like e-commerce giant Alibaba Group Holding Ltd. to contain

Despite its lack of substance, the slogan has since raised widespread fears among private entrepreneurs and foreign companies operating in China that the government would seek to limit their ability to make money and force them to donate wealth.

Countries around the world are once again welcoming Chinese tourists, who were once the world’s largest source of tourism revenue. But even if China reopens its borders, the travel industry doesn’t expect things to go back to the way they were. Here’s why. Photo illustration: Adam Adada

During his speech in Davos, Mr. Liu said that China’s “common prosperity boost” does not mean the country adopting egalitarianism or socialism, but instead adopting a long-term development goal in which “entrepreneurs, including foreign investors, will play a crucial role as they are key elements in the creation of social wealth.”

Attending his first World Economic Forum since 2018, Mr. Liu drew a full house with his edict from Beijing. But not everyone in the conference room was convinced.

“It’s a very impressive speech with a huge agenda. But it sounds too good to be true,” said Ajit Gulabchand, Chairman of Hindustan Construction Co. Ltd. from Bombay. “The supply chain and the geopolitical issues, the fragmentation of the world, are the same. In that context, it’s going to be quite a big task,” he said, referring to China’s return to growth. “Although his intention is good and there are possibilities, I just don’t know when.”

Others in the audience picked up what Mr. Liu left out of his speech.

“It’s interesting to hear what he said, but also what he didn’t say,” says Philipp von der Wippel, managing director of Project Together, a Berlin-based non-profit organization focused on sustainable development. “I would have been really interested in his response to the West’s stance that China is both an economic partner and a geopolitical rival,” he said.

In a research note following the speech, Goldman Sachs Group Inc. said Tuesday, “In general, these comments are market-friendly and should help restore investor confidence in the economy.”

Bill Ford, managing director of investment firm General Atlantic, which actively invests in Chinese start-ups, said in an interview in Davos: “The risks in China are different, but we remain constructive and positive on China in the long term. It is the second largest economy in the world and we cannot afford to miss out on the investment opportunities there.”

General Atlantic invests in marquee companies like TikTok parent Bytedance Ltd. and fintech giant Ant Group Co. Both companies have found themselves in the regulatory crosshairs in the US and China.

Mr. Liu, who is scheduled to meet US Treasury Secretary Janet Yellen in Switzerland this week, pledged greater global cooperation and also scrutinized rate hikes by the Federal Reserve and other developed economies to curb inflation.

Some Chinese officials have privately complained that the rate hikes have increased pressure on capital outflows from China and made it harder for the People’s Bank to ease monetary policy to boost growth.

During his speech on Tuesday, Mr. Liu warned that such rate hikes by developed economies could lead to a recession and urged greater attention to their spillover effects on developing countries.

Write to Lingling Wei at [email protected] and Jing Yang at [email protected]

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