Best wishes
A happy Lunar New Year to everyone around the world, from Origin8.
So, what will the coming year likely mean for China and its neighbours?
A jump in circumstances?
There are significant shifts underway in China as we head into the Year of the Rabbit. Many think 2023 will be a year of change, but back towards more stability after the erratic patterns of the last few years – with war, economic turmoil and pandemics.
For Asia in general and emerging markets, investors are likely to hope for three things, and according to a report by Deutsche Bank, they are:
- greater visibility on the peak of the inflation and rates cycle
- positive tailwinds from the reopening in China
- better appetite for emerging markets assets after the struggles of the last few years.
This is the year that China and east Asia re-opens more emphatically for business, and the policy shifts by Beijing are a major part of any change.
And this goes beyond unwinding the zero covid strategy, by also easing restrictions on property developers, and possibly a more robust fiscal support for the economy.
A slowdown of other sorts
It’s perhaps an irony that the rabbit is synonymous with rapid procreation, when this past year China’s population actually declined.
Its population has fallen for the first time in 60 years, with the national birth rate hitting a record low – 6.77 births per 1,000 people. The population in 2022 – 1.4118 billion – fell by 850,000 from 2021.
This development means that for the first time for decades, China will actually be actively seeking to boost its birth rate, to try and head off future workforce shortages.
Consumption calling
But China’s economic growth rate could potentially double in 2023, as we might see a strong domino effect into the rest of Asia via higher demand for consumer goods, for tourism services and for investment.
This could add to some demand side pressures but analysts speculate that China’s re-opening and consequential positive impact to supply will be beneficial for Asia, more so than to other emerging market economies and the developed world.
Capital Economics, a consultancy, expects China to report 5.5% growth this year, up from 3% earlier. If China can ride out its grim exit wave, its bounce back could have significant global implications.
The effect on the world
A resurgence in China’s pent-up consumer and investment activity will support global demand. Goods exporters and popular Chinese tourist destinations, particularly across south-east and east Asia, will more than likely see optimism and revenue rise.
A surge in bookings on travel websites points to a potential recovery in global spending by Chinese tourists, which in 2019 amounted to $255bn, according to the Financial Times. As the world’s largest consumer of commodities, the country’s recovery will also give a boost to metal and energy exporters.
And alongside stronger demand, since China supplies 15% of the world’s goods exports, global supply chain pressures are likely to ease further.
Our take
Despite the estimates of improvement for China, there are potential pitfalls.
Inflation could end up being a lot more robust and lead to central banks and governments diverting even more resources to fighting it. And in China this could mean a re-evaluation of aims.
Also, geopolitics and supply driven price pressures could still create significant volatility in the year ahead for several markets. But ultimately the outlook for China looks promising, and hence so do the prospects for the global economy.