Adam Tooze: Signs of Economic Rebound in China

COVID-19 infections are surging, but China’s economic growth rate could top 5 percent this year.

By , a deputy editor at Foreign Policy.
Travelers wait for trains at the Shanghai Hongqiao Railway Station.
Travelers wait for trains at the Shanghai Hongqiao Railway Station.
Travelers crowd at the gates to wait for trains at the Shanghai Hongqiao Railway Station during the peak travel rush for the upcoming Chinese New Year holiday in Shanghai on Jan. 15. Kevin Frayer/Getty Images

One month after China put an end to its zero-COVID policy—and three years after it announced that a new pandemic was underway—infections are spreading rapidly across the country. The surge poses new economic problems for China and the rest of the word, threatening production and international supply chains. But the easing of travel restrictions also heralds new economic opportunities, including in international tourism.

What’s the outlook for China’s economy this year amid the outbreak? How has China’s role in the global economy changed as a result of the pandemic? And will COVID-19 ever really end? Those are a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity.

For the full conversation, look for Ones and Tooze wherever you get your podcasts.

One month after China put an end to its zero-COVID policy—and three years after it announced that a new pandemic was underway—infections are spreading rapidly across the country. The surge poses new economic problems for China and the rest of the word, threatening production and international supply chains. But the easing of travel restrictions also heralds new economic opportunities, including in international tourism.

What’s the outlook for China’s economy this year amid the outbreak? How has China’s role in the global economy changed as a result of the pandemic? And will COVID-19 ever really end? Those are a few of the questions that came up in my recent conversation with FP economics columnist Adam Tooze on the podcast we co-host, Ones and Tooze. What follows is an excerpt, edited for length and clarity.

For the full conversation, look for Ones and Tooze wherever you get your podcasts.

Cameron Abadi: Plenty of time has passed since China reversed its zero-COVID policy. Can we safely say now that the policy was a mistake?

Adam Tooze: I think its easy to conclude that because I think this sudden retreat from zero-COVID in the last month is the most severe and the most shambolic turn in Chinese policy since the beginning of the reform period. Its really catastrophic from that point of view. But I think if you look back, thats really not a fair judgment. Or rather, its just not a very precise judgment because zero-COVID was obviously the way to go early on. And with the first variants of the disease, they were not so infectious that shutdowns, lockdowns, social distancing, all of that didnt actually work. And the Chinese demonstrated that it could work. And the tragedy for them is that the rest of the world failed.

And out of that then came the omicron variant in the fall of 2021 out of South Africa and Botswana. And that’s where they run into serious trouble because it’s just so infectious that it will overrun any potential effort to contain it through social distancing. And I think thats really where you have to say the failure sets in because at that point, the Chinese should clearly have pivoted towards recognizing zero-COVID through social distancing, and social discipline was not going to work against omicron. And they should have doubled down on vaccination. And the disaster is that, as recently as the spring of 2022, only 20 percent of [people] over 80 had had two jabs and a booster, which is what you need with the Chinese vaccines. The Chinese vaccines are not going to prevent you getting sick, but they will keep you out of hospital and will keep you alive if youve had two [vaccinations] plus a booster, a recent one. And they just failed to provide that to the most vulnerable group.

And even now, theyre only up to 40 percent of over-80s. Only 40 percent of over-80s actually have anything remotely like full vaccination cover, and their ambitious target is to reach 90 percent by the end of January, which you could say is well overdue. So thats, I think, where the real failure lies.

CA: As China now deals with outbreaks across the country, what is the outlook for the Chinese economy? Will they be able to do stimulus? And how does this crisis line up with Chinas broader economic struggles, including with its real estate sector?

AT: What we are certainly beginning to see is a softening of the so-called three red lines policy on the property sector. So these were the limits on financial leverage that were introduced in 2020 in a rather aggressive effort to prick the property bubble, the idea being that unless Beijing did this, it would lose control of the flywheel on the Chinese economy and it would get caught in a kind of boom-bust cycle, which the regime would find difficult to control. So the effort to stabilize made sense, but it came at a terribly bad moment because essentially, it intersected with the collapse of the zero-COVID policy and the escalation of tension with the United States. So it made for a very toxic combination. And I think we are seeing a distinct softening. This isnt going to be enough to save the most prominent victim of the crackdown, Evergrande, which is indebted to the tune of about $300 billion. But overall, that seems to be a distinct weakening of the tough line that the administration had previously taken. And the upshot of all of this is that we expect a pretty serious rebound in growth. What were expecting in 2023 is a return to growth rates [in China] of between 4 and 5.5 percent.

CA: What are the implications of that kind of economic recovery for the global economy? It sounds like good news for the West?

AT: I think so. I mean, it certainly adds further doubt to the forecasts of a global recession that many of us were worried about a few months ago. China comes back. It will ease bottlenecks in supply chains because zero-COVID was creating a huge amount of uncertainty.

The sector which most directly benefits and [is] on a giant scale is tourism because what Chinese have not been able to do is travel. Since Jan. 8, they have been able to, and they are by far and away the most important driver of global tourism. In 2019, 150 million travelers went abroad from China. They spent over $255 billion. Thats twice the amount that American tourists spend, who are the second-largest group of spenders in foreign tourism. A lot of that is to Asia. It doesnt come to the West. Not very much of it comes to the United States at all. But it does tend to go to Europe on a large scale. And in 2022, those figures were down 95 percent. And by the summer of this year, it could be back up to about 50 percent of its pre-crisis levels. So that will deliver a huge boost to the tourism sectors in places like Cambodia, for instance, or Laos or Hong Kong or indeed the obvious destinations in Europe and the luxury brands that do so much business there.

Were also seeing the rebound effect in commodity markets. Both copper and steel are off their lows, which they hit in the summer of 2022 in the aftermath of the Shanghai lockdown. Iron ore is up 50 percent since the summer, a really dramatic rise. And that, I think, points to the ambiguity of this story because as the Chinese economy rebounds, what this does is surge energy demand. And then all of a sudden, the Chinese appear in the gas market. So if China reenters the East Asian [liquefied natural gas] LNG market, that is extremely bad news for Europe because it was the missing Chinese demand for LNG in 2022 that created the space for the Europeans to buy LNG and fill up their storage tanks.

CA: Looking back over these past three years, Im curious how Chinas role in the global economy has changed, if at all, as a result of its response to the pandemic. You mentioned the kind of problems that were introduced into supply chains by the zero-COVID policy, how that played a role in producing inflation. Its also been accused of hoarding information and data throughout the pandemic. Is China overall a less trusted economic and political partner than it was before all this?

AT: I dont think theres much doubt that its been terrible for Chinas reputation abroad—and notably in the bloc thats gathered around the United States, which includes Australia, South Korea, Japan, Europe. And really starting from the face mask diplomacy of 2020, Chinas stock has sunk very, very dramatically across global public opinion, that segment of it. If you ask in Latin America and Africa, its a rather different story. But its also not just simply a matter of what you think of China but what the American authorities think of China. And if the American authorities engage in quite aggressive sanctioning actions against China, then like it or not, you have a hard time thinking about making investments or engaging in contact with China. I mean, from my university [Columbia University], I get an email now periodically, quite regularly, listing essentially all of the major Chinese universities. And I am required to notify the general counsel of the university if I engage in any kind of intellectual contact—let alone joint research with all of Chinas major universities. So this, of course, has a chilling effect. Theres no doubt at all.

And if you look at financial flows into China, so-called portfolio investment purchases of Chinese assets, they went negative for a time in the first quarter or so of 2022. So there was actually money coming out of China. But whats very interesting is if you contrast portfolio investment, you get a very, very different picture. And thats essentially just a continuous increase from record to record. Its coming from lots of different directions. But Germany has been particularly notable in this respect. Its quite hard, in fact, to think of a single German industrial company which in the last 12 months has not made an announcement of further large-scale investment in China. So theres a real kind of counter flow here and in certain key markets. And as China recovers from COVID, this tension will get more and more pronounced because the politics are going in one way and the foreign direct investment is going in another direction.

CA: Back in September, [U.S.] President Joe Biden declared outright that the pandemic was over. Was he right?

AT: I think clearly not. And its not a matter of scoring cheap points. I think many of us feel its over because we want it to be over and we want to get on with our lives. And in many respects, you could say that it is over, as far as the vast majority of the population of the United States and Europe is concerned. We carry on as though its not really an issue. But if theres one thing this pandemic has taught us, you cant move away from China. If tens of millions of people are getting infected every single day with a disease in China, and furthermore, all travel restrictions have been lifted, it really, really matters.

I just have a sense that folks in Western Europe and the United States are not taking seriously enough this drama. I think the rate of infection in China in December [2022] was probably the most rapid spread of a disease ever in history because you had 1.4 billion people densely packed, tightly linked together, essentially immunonaive in the face of omicron, which was really ready to go. And it just ripped through Chinese society. I mean, so the upside from their point of view is that it will indeed pass through in a matter of two to three months. But the risk of that, of course, is some sort of dangerous new variant. And we also know at the same time that a new variant of COVID incubated in the West. The so-called XBB.1.5 or kraken variant is spreading very, very rapidly in the West right now. So there are just short of 500 deaths per day in the United States as of Jan. 10, and the hospitalization rate [has] increased by 17 percent over the last two weeks. And thats in the face of this new variant, which is super infectious by all accounts and overwhelms any kind of immunity that we currently have because it has mutated to such an extent. It may, in its symptoms, be more like a cold than flu. But what this is telling us is that this disease is not done with us yet and is continuing to mutate.

Cameron Abadi is a deputy editor at Foreign Policy. Twitter: @CameronAbadi

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