Why China’s potential economic rebound could boost the US

China could bounce back from its pandemic reopening swoon both stronger and sooner than expected, offering a rare source of optimism for the U.S. economy amid rising recession fears.

The Chinese economy grew just 3 percent in 2022 and rose at an annual rate of 2.9 percent in the fourth quarter, according to statistics released Monday by Beijing. While that’s sharply down from its 8.1 percent expansion in 2021, both the annual and quarterly growth rates beat expectations and offered hope for a swift 2023 recovery.

China still faces several obstacles as it crawls out of a pandemic-induced slump, including issues within its real estate markets and the country’s ongoing refusal to approve Western COVID-19 vaccines with greater efficacy. The country’s population also shrank last year for the first time since the 1960s, which is bad sign for longer-term economic growth.

But economists are hopeful that a recovering Chinese economy could keep up demand for U.S. products and reduce pressure on supply chains as Americans face a potential recession this year.

“China’s reopening — uneven or not — is well underway and may be a catalyst for supply chain fixes and more global demand,” wrote Jeffrey Buchbinder and Thomas Shipp of LPL Research in a Tuesday analysis.

China spent the end of 2022 roiled by protests over its strict coronavirus containment policies and a surge in cases following the relaxation of those restrictions. Both took a serious toll on the economy as millions of Chinese fell ill and businesses struggled to operate.

“Data in December surprised broadly to the upside, but remains weak, particularly across demand-side segments such as retail spending,” explained Louise Loo, an economist at Oxford Economics.

“The good news is that there are now signs of stabilization,” she continued.

Loo said that while economic indicators from China may not catch up for a while, other more timely data tracking foot and automobile traffic are showing “signs of a tentative rebound.”

Other experts, such as economist Andrew Tilton of Goldman Sachs, have expressed optimism that the worst of the reopening COVID-19 surge is over for the Chinese economy.

“It appears the peak in daily cases is already past, based on news reports as well as related information such as Internet search frequency for virus-related topics, and there is evidence that mobility is beginning to recover,” Tilton wrote in an analysis earlier this month.

“This adds to our conviction that economic activity should rebound in coming months. Policymakers also look to be very focused on reviving economic activity in 2023,” he added.

While the U.S. is seeking to limit China’s economic influence and dominance over crucial raw materials, the American economy needs for the Chinese one to avoid another serious setback.

U.S. businesses and consumers could face another round of rising prices and shipping delays if a resurgence of COVID-19 disrupts supply chains in China. A weaker Chinese economy could reduce demand for energy and bring down oil prices, but could still push inflation higher if accompanied by factory shutdowns and shipping snarls.

“Weaker output in China will push down on commodity prices, but it could interfere with supply chains ultimately. And that could push inflation up in the West. It’s very hard to say, you know, how much — how those two will offset each other,” warned Federal Reserve Chair Jerome Powell during a December press conference.

“Waves of COVID all around the world can interfere with economic activity. China [is] a very critical place for manufacturing,” he continued.

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