China’s zero-COVID policy and a contraction in the real estate sector have been significant drags on growth in 2022. We forecast GDP growth to end 2022 around 3%, well below the historical average and the official “around 5.5%” target. For 2023, we foresee GDP growth accelerating to around 4.5%, driven by a modest loosening in the zero-COVID policy and a stabilizing real estate sector.
“COVID is one of the factors that’s going to dominate the economy in the coming months,” said Qian Wang, Vanguard Asia-Pacific chief economist. “The Chinese exit from zero-COVID is going to be bumpy, as witnessed by the recent lockdowns in big cities like Chongqing, Guangzhou, and Beijing. China needs to prepare for reopening by promoting vaccine and drug development, improving hospital facilities, and changing the mass perception of COVID. It cannot afford to abolish its zero-COVID policy outright, and it could be several months before it can relax it meaningfully.”
Meanwhile, we expect a protracted downturn in housing investment over the next five to 10 years.
“Declining affordability, an aging population, reduced urbanization, and a policy stance that ‘housing is for living in, not for speculation’ will push real estate demand structurally lower,” Wang said. Supportive fiscal and monetary policy will help boost demand, she said, but “even as the government relaxes regulations on the housing market, we don’t expect a rebound to be sharp.”