Will China’s reopening help stave off a global recession?

Heavyweights of global finance, economy, and trade gathered at the Asian Financial Forum in Hong Kong on Thursday sounded overly upbeat as they pondered how the reopening of China after nearly three years of Covid lockdown would stimulate world economic growth.

As one third of the world economy braces for recession in 2023, as per the International Monetary Fund, the reopening of the world’s biggest growth engine is the best thing to happen at the most critical time, they said.

“China will continue to be a locomotive of global economic growth, and stand as a contributing and stabilising force for regional and global political and economic development,” Hong Kong’s Financial Secretary Paul Chan said. “Particularly so as the centre of global economic gravity is gradually shifting eastwards, with Asia playing a much more important role now and in the years to come,” Chan said in his address at the AFF 2023. He stressed China’s fundamental policy of opening to the outside world, as well as fostering positive interplay between domestic and international economic flows.

As the world’s second largest consumer market, second largest source of foreign investment and a major trading partner of over 130 countries and regions, accounting for 30 per cent of the global growth, China’s rebound, given the resilience and potential of its economy, is a silver lining in the gathering economic gloom when advanced economies are slowing as a result of rising interest rates and high energy costs, economists and analysts believe.

The immediate fallout of China’s reopening will be felt on global supply chain and travel and tourism sectors. Participants at AFF believe that lifting of restrictions would help resolve blockages in supply chains that have caused long delays for a wide range of products, and help ease inflation.

China’s reopening raises hopes of a rebound for the global tourism sector, which accounts for over 10 per cent of global GDP. Before the pandemic, some 155 million Chinese tourists accounted for almost 20 per cent of international tourism spending, or $255 billion in 2019. While international travel may not return immediately to pre-pandemic levels, companies, industries and countries that rely on Chinese tourists will get a boost in 2023, according to analysts.

China averaged about 12 million outbound air passengers per month in 2019, but those numbers fell 95 per cent during the Covid years, according to Steve Saxon, a partner in McKinsey’s Shenzhen office. He predicts that figure will recover to about six million per month by the summer. Eased cross-border travel is a boon for the operations and investment of multinationals.

“We estimate that Hong Kong, Thailand, Vietnam, and Singapore would benefit the most if China’s travel service imports were to return to 2019 levels,” said Goldman Sachs analysts.

However, the most immediate impact of reopening will be the revival of the Chinese consumer. Consumer confidence hit record lows in 2022, but it has already picked up significantly since reopening began, making Chinese consumers the most confident in the world, according to the latest survey by Ipsos.

Financial and business leaders explored prospects for the global economy at various sessions of the AFF. “Speaking about 2023, I think there will be three factors, which will determine the global outlook. The first one is the Central Bank’s policy with inflation, which starts to decrease. The second one, the energy crisis and the way the European governments will go on managing them, and the third one is of course the Chinese reopening, which will be very important for global growth,” Valerie Baudson, CEO of Amundi, said.

Gu Shu, chairman of Agricultural Bank China, said the world economy is facing multiple challenges, but it is in better shape compared to that of the last few years. “We have experienced sluggish trade and investment, high inflation, and disrupted global supply chains. This year downward pressure remains, but we believe inflation in major economies will start to come down. Growth rate may not be fast, but still in positive territory. We see opportunities coming from green transition and digitization. We call for countries to make concerted efforts to normalise the global economy.”

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