From Zero Covid to Economic Recovery: What to Watch in China in 2023

Editor’s note: A version of this story appeared in CNN’s Meanwhile in China newsletter, a three-weekly update exploring what you need to know about the country’s rise and how it’s affecting the world. Register here.

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After a stormy ending to an important and challenging yearChina heads into 2023 with a great deal of uncertainty – and potentially a glimmer of light at the end of the pandemic tunnel.

The chaos unleashed by leader Xi Jinping is sudden and ill-prepared exit from zero-Covid is carried into the new year as large parts of the country face an unprecedented Covid wave.

But the fortuitous reopening also offers a glimmer of hope for many: after three years of suffocating Covid restrictions and self-imposed global isolationlife in China may finally be returning to normal as the nation joins the rest of the world in learning to live with the virus.

“We have now entered a new phase of the Covid response, where tough challenges remain,” Xi said in a nationally televised speech on New Year’s Eve. “Everyone is holding on with great fortitude and the light of hope is right in front of us. Let’s go the extra mile to get through it, because persistence and solidarity mean victory.”

Xi had previously staked his political legitimacy on zero-Covid. Now, as his costly strategy unravels in a sharp U-turn following national protests against it, many remain questioning his wisdom. The protests, which are rare in some places demands that Xi and the Communist Party “withdraw,” may be over, but the overwhelming sense of disappointment still hasn’t gone away.

His New Year’s speech comes as China’s economy faces a lockdown more immediate tension from a spiraling epidemic that has hit factories and businesses, ahead of what is likely to be a long and difficult road to economic recovery.

Its tightly closed borders are gradually opens upand Chinese tourists are impatient to explore the world again, but some countries appear wary of accepting them, imposing new requirements for a negative Covid test before travel. How quickly – or strongly – visitors from around the world will return to China is another question.

Xi, who recently re-emerged on the world stage after securing a third term in power, has signaled that he hopes to mend damaged relations with the West, but his nationalist agenda and “no-holds-barred friendship” with Russia are likely to complicate matters.

As 2023 begins, CNN takes a look at what to watch in China next year.

The most pressing and daunting task facing China in the new year is how to deal with the fallout from its failed exit from zero Covid, amid an outbreak which threatens to claim hundreds of thousands of lives and undermine confidence in Xi and his Communist Party.

The sudden removal of restrictions last month led to an explosion of cases, with little preparation to deal with the growing number of patients and deaths.

The country’s fragile health system is struggling to cope: fever and cold medicines are hard to come by, hospitals are overburdened, doctors and nurses are stretched to the limit, while crematoria are struggling to deal with the influx of bodies.

And experts warn that the worst is yet to come. While some major metropolises like Beijing may have the peak of the epidemic is observedless developed cities and vast rural areas are still bracing for more infections.

As the travel rush for the Lunar New Year – China’s most important family gathering festival – begins this week, hundreds of millions of people are expected to return to their hometowns from major cities, bringing the virus to vulnerable provinces where vaccination levels are lower and medical resources even more scarce.

The outlook is bleak. According to some studies, the number of deaths may exceed millionif China fails to release booster vaccines and antiviral drugs quickly enough.

The government launched a campaign for the booster for the elderly, but many remain reluctant to take it due to concerns about side effects. Combating vaccine hesitancy will require significant time and effort when the country’s health workers are already exhausted.

From Zero Covid to Economic Recovery: What to Watch in China in 2023

Beijing’s Covid restrictions have thrown China out of sync with the rest of the world. Three years of blockades and border restrictions have disrupted supply chains, damaged international business and harmed trade and investment flows between China and other countries.

As China joins the rest of the world in living with Covid, the implications for the global economy are potentially huge.

Any kind a pick-up in China’s growth will provide a vital boost to economies that rely on Chinese demand. There will be more international travel and production. But rising demand will also raise energy and commodity prices, putting upward pressure on global inflation.

“In the short term, I believe China’s economy is likely to experience chaos rather than progress for a simple reason: China is ill-prepared to deal with Covid,” said Bo Zhuang, senior sovereign analyst at Loomis, Sayles & Company, an investment firm with headquarters in Boston.

Analysts at Capital Economics expect China’s economy to contract by 0.8% in the first quarter of 2023 before recovering in the second quarter.

Other experts also expect the economy to recover after March. In a recent research report, HSBC economists forecast a contraction of 0.5% in the first quarter but 5% growth in 2023.

Despite all this uncertainty, Chinese citizens are celebrating the partial reopening of the border after the end of the quarantine for international arrivals and the resumption of outbound travel.

While some residents have expressed concern online about the rapid easing of restrictions amid the outbreak, many others are eagerly planning trips abroad — travel websites saw huge spikes in traffic within minutes of the Dec. 26 announcement.

Several Chinese nationals abroad told CNN they have been unable or unwilling to return home in the past few years while the lengthy quarantine is still in place. That stretch meant big life moments missed and spent apart: graduations, weddings, births, deaths.

Some countries have offered a warm welcome back with foreign embassies and tourism departments invitations for Chinese travelers on Chinese social media sites. But others are more cautious, with many countries imposing new testing requirements for travelers coming from China and its territories.

Officials from those countries have pointed to the risk of new variants of the epidemic emerging in China — although many health experts have criticized the targeted travel restrictions as scientifically ineffective and worrisome, with the risk of inciting further racism and xenophobia.

Travelers walk with their luggage at Beijing Capital International Airport in Beijing, China, 27 December 2022.

As China emerges from its self-imposed isolation, all eyes are on whether it will be able to repair its reputation and relations that have soured during the pandemic.

China’s relations with the West and many of its neighbors have soured significantly over the origins of the coronavirus, trade, territorial claims, Beijing’s respect for human rights and its close partnership with Russia despite the devastating war in Ukraine.

The lack of face-to-face diplomacy at the highest level certainly didn’t help, nor did the freeze on personal exchanges between political advisers, business groups and the general public.

At the G-20 and ATIS summits, Xi signaled his readiness to restoration of relations with the United States and its allies in a flurry of bilateral meetings.

Lines of communication are back open and more high-level exchanges are in the works, with US Secretary of State Anthony Blinken, French President Emmanuel Macron, Dutch Prime Minister Mark Rutte and Italian Prime Minister-elect Giorgia Meloni expected to visit Beijing this year.

But Xi also made clear his ambition to repel American influence in the region and there is no illusion that the two world superpowers will be able to overcome their fundamental differences and put aside the intensifying rivalry.

In the new year, tensions could flare up again over Taiwan, technological containment, as well as China’s support for Russia – which Xi highlighted during a virtual meeting with Russian President Vladimir Putin on December 30.

Both leaders expressed a message of unity, with Xi saying the two countries should “strengthen strategic coordination” and “bring more stability to the world,” according to Chinese state media Xinhua.

Russian President Vladimir Putin made his own New Year's address.

China is “ready to work” with Russia to “stand against hegemony and power politics” and oppose unilateralism, protectionism and “bullying,” Xi said. Meanwhile, Putin has invited Xi to visit Moscow in the spring of 2023.

Beijing has long refused to condemn Russia’s invasion of Ukraine, or even to call it such. Instead, he denounced Western sanctions and reinforced the Kremlin’s talking points, blaming the US and NATO for the conflict.

As Russia suffered humiliating military setbacks in Ukraine in recent months, Chinese state media appeared to tone down its pro-Russian rhetoric somewhat, while Xi agreed to oppose the use of nuclear weapons in Ukraine in meetings with Western leaders.

But few experts believe China will distance itself from Russia, with several telling CNN that the two countries’ mutual reliance and geopolitical alignment remain strong — including their shared vision of “new world order.

“(The war) has been an embarrassment for China over the past year and has affected China’s interest in Europe,” said Yun Sun, director of the China Program at the Washington-based think tank Stimson Center. “But the damage is not so significant that China will abandon Russia.”

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