Housing market will weigh on China’s recovery

CHINA’S transition towards “living with Covid-19” is happening faster than local health experts anticipated when the phased easing of restrictions started in November. It brings forward the onset of a recovery phase to as early as March. The number of infections peaked in January, based on Peking University estimates. The consequent higher immunity levels among the general population mean that secondary waves should have a lesser hit in terms of the number of severe cases, as was the experience elsewhere.

China has made domestic demand expansion – including consumption – the top policy goal this year, whereas last year government officials prioritised containing the virus. The consumption rebound in China will be real, albeit moderate relative to the Covid-19 consumer “boom” in developed economies like the US. The readiness of households for “revenge spending” as curbs are lifted is evident in rebounding cinema ticket sales in January and increased spending on tourism over the lunar new year, both domestically and overseas.

The revival of consumption should help China’s gross domestic product return to potential growth this year of around 5 per cent, after official growth of 3 per cent last year. This will boost global growth, but be significantly inflationary, given that China’s consumption revival will be real but not explosive.