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How China’s economy can dodge rising inflation to reclaim high growth

Beijing will have to be very targeted in expanding fiscal and monetary policy to boost investment, especially in infrastructure, while ensuring price stability

But ultimately, policy expansion cannot fix the economy’s structural problems; it can only buy space for reforms

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Sunrise at the Jingtang port area at Tangshan Port in northern China’s Hebei province on January 17. Given the grim global outlook, exports cannot be expected to be a major driver of China’s growth this year, despite making an important contribution in 2022. Photo: Xinhua

Yu Yongding, a former president of the China Society of World Economics and director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, served on the Monetary Policy Committee of the People’s Bank of China from 2004 to 2006.

Published: 3:45pm, 14 Feb 2023

Last March, the Chinese government set a growth target of 5-5.5 per cent for gross domestic product for 2022. At the time, such growth levels appeared perfectly attainable. But within a month, the Omicron variant had arrived, triggering strict lockdowns that, while stemming the spread of the coronavirus, caused serious damage to the supply and demand sides of the economy. China’s growth rate for 2022 was just 3 per cent.

But things are looking up for China’s economy. After the government’s rapid shift away from its zero-Covid policy last December – and especially since the middle of last month – the economy has sprung back to life.

This renewed vitality was on display during the Spring Festival holiday in late January, with more than 300 million trips taken, up 23 per cent from last year.