On 7 December, the National Health Commission issued a set of 10 measures that effectively ended China’s zero-covid strategy, removing previous requirements such as mandatory centralised quarantine, compulsory testing, and sweeping lockdowns.
Below we outline the good, the bad, and the uncertain of China’s opening and recap the steps Swedish companies should take to continue to succeed in the post-pandemic Chinese market.
Business travel is (almost) back to normal
For international business travel to China, the easing of restrictions is great news. From 8 January, Beijing has implemented the following changes:
- Abolished the centralised quarantine requirements for inbound travellers.
- Scrapped the limitations on the number of international passenger flights and passenger limits (although actual flight numbers will likely increase slowly).
- Resumed the issuance of ordinary visas and residence permits for foreigners (including tourist visa exemptions for short-term travellers).*
With these developments, traveling to China is in theory back to the “ease” of its pre-Covid days. This means that foreign businesses that have had difficulties with their cross-border communication during the pandemic now have a chance to rebuild their relationships with their China teams and business partners through visits in person. And for companies who are looking to enter the Chinese market, getting a good look at conditions on the ground is now possible again.
Beijing looks to boost growth in 2023
Beyond business travel, overall economic conditions are set to improve in 2023. As China moves from its stringent Covid controls to a less restricted business and living environment, the central government is looking to get the economic wheels turning and return growth to its pre-pandemic pace.
Indeed, for some businesses, the economic outlook seems promising. In the short-term, pent-up demand will give a boost to sectors such as retail, catering, and tourism. Health and pharmaceutical companies as well as consumer companies in general are also set to benefit from the policy easing.
Looking a little bit down the line, other sectors could also get a boost in 2023. According to the readout from the Central Economic Work Conference (the Party’s most important economic meeting, during which the top leadership lays out the economic policy agenda for the coming year) China will be more focused on economic growth in 2023 than ever before. To facilitate this growth, the government will focus on:
- Expanding domestic consumption
- Attracting and utilising foreign capital (especially in the modern services industry)
- Stabilising the property market
- Continuing a “prudent” and “proactive” monetary and fiscal policy
- Cutting the tech sector some slack
The conference also underlined the need for China to expand imports of advanced tech, key equipment, and energy resources and to boost R&D in high-tech areas, such as new energy, AI, biomanufacturing, and quantum computing.
These developments are still in the planning stage, and more detailed policies will likely be released in the weeks and months to come, not least during the Two Sessions in March.**
It is also worth remembering that industries supporting Beijing’s overarching priorities, e.g., reducing carbon emissions, improving healthcare, expanding the domestic consumer market, and upgrading industrial production, will continue to benefit from policy decisions throughout 2023 and beyond.
Despite the plethora of positives, Beijing’s sudden switch to living with the virus also poses its own challenges, some of which could negatively impact economic recovery in the near term.
The unprecedented surge in infections China is currently experiencing could cause manufacturing and supply chain disruptions in the short term. According to some of China’s top domestic epidemiologists, the first wave of infections currently sweeping the nation is likely to peak in February or March and to subside nationwide by June. With this timeline in mind, businesses should prepare for disruptions and formulate plans to mitigate such risks (as well as risks to employee health and workplace safety) until at least mid-year.
There are a lot of hot takes on the outlook for China’s economy in 2023.
Several global investment banks and advisory institutions predict a more-than solid GDP growth of around 5 per cent in 2023. While we are not in the growth-predicting business and would love nothing more than a strong Chinese economy in 2023, we have noticed that most such economic forecasts seem to be based largely on pent-up household demand – demand that may or may not materialise. According to a quarterly survey by China’s central bank, consumer confidence was at record low levels in Q4 with 61.8 per cent of survey respondents saying they planned to save more over the next three months (options were to save, consume, or invest more).*** With this in mind, the most optimistic forecasts relying on pent-up household demand should be read with some caution.
Beyond soft demand, there are structural headwinds to China’s economic recovery that have little or nothing to do with the pandemic. These include a property sector in crisis, a quickly aging population and a diminishing workforce, climate change as well as an increasingly complex global environment. While some of these issues could be handled with short-term solutions to secure a good headline GDP growth figure in 2023, it is worth remembering that these measures will have negative knock-on effects on China's economic outlook at some point in the future.
PREPARING POST-PANDEMIC STRATEGIES
Under these circumstances, it is imperative that Swedish companies are aware of the challenges facing the Chinese economy as well as the changes happening in the country’s business environment. Due to the changing reality, China strategies that were set in place before 2020 are likely no longer valid. Companies not only need to rethink how they view their operations in China and how they engage with Chinese customers and partners, but they also need to consider the role of China – and their China operations – in an APAC context, given regional geopolitical tensions and economic uncertainty.
Read more about the three concrete steps that companies and management teams can take to recalibrate their strategies to be better prepared for the new environment and succeed in the China market in our report Navigating Uncertainty – Building resilience and agility into your China strategy.
In the meantime, do not hesitate to reach out to us at Business Sweden to learn more about the latest developments in China’s reopening, the economic outlook and what they will mean for your business going into 2023.
* Depending on the pandemic situation and bilateral concerns, visa issuance between China and other countries can still be restricted.
** The Two Sessions are usually held in early March, but there is still no date announced for the 2023 meetings.
*** Before the onset of the pandemic, in Q4 2019, the share of respondents who choose the save more option stood at 45.7%.