China Needs to Fire Up Its Consumers

China’s U-turn on Covid Zero is a big deal. But Beijing needs do more if it wants to push economic growth anywhere near the pre-pandemic rate of 6% a year.

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Xi Jinping and his top economic aides largely brushed the virus to one side when they gathered in Beijing in December to lay plans for the coming year, relegating it to a few lines in the readout of a meeting that focused on boosting consumption and business confidence. “Xi himself is quite determined to bring growth back,” says Yao Yang, dean of the National School of Development, a think tank in Beijing that advises China’s government.

Even though a wave of infections is spreading through the country— hammering economic activity as absenteeism at factories and offices spikes and homebound consumers curtail spending— economists expect the drag effects of the reopening to be short-lived.

The logic is that infections will peak within a couple of months and, as happened last year in Hong Kong and Taiwan, household spending will rebound quickly thereafter. But the real question is the pace.

Among a group of economists regularly polled by Bloomberg, the median forecast is for 4.9% growth in 2023. That falls within the 4.5%-to-5.5% range Chinese government advisers have recommended be adopted as the official target. To push growth to the upper bounds would require consumer spending to increase more than 6%, Yao says. “Is that an easy target? Definitely not,” he says.

One of the positive side effects of China’s stringent Covid Zero policies is that households amassed a huge pile of savings in 2022 because they abstained from travel and other discretionary spending: 13.2 trillion yuan ($1.9 trillion) in bank deposits in the first nine months of 2022 alone, a figure greater than South Korea’s annual gross domestic product.