China's economy has struggled throughout 2022 due to headwinds, including the worst outbreaks of Covid-19 and a prolonged property sector crisis. As a result, China's GDP has been expanding well below target this year, with analysts and organizations such as the International Monetary Fund and the World Bank cutting their 2022 GDP growth projections to around 3%. Exports, which used to be a significant driver of China's economic recovery, have slowed or even slipped into negative territory as demand from the US, EU, and Southeast Asia has weakened. Meanwhile, China's stringent Covid controls have choked domestic consumption, with total retail sales dropping 0.1% year-on-year in the first 11 months.
China embarked on a debt-fueled infrastructure investment spree to boost the economy and rolled out measures to aid developers' financing and stimulate consumer demand in the property market. However, investor and homebuyer confidence have yet to see a significant rebound. As a result, policymakers have also turned to fiscal and monetary stimulus measures, including tax cuts, more lending, and more accessible financing conditions. Despite these efforts, consumer spending and business confidence have not been significantly boosted.
With the zero-infection policy rapidly dismantled at the end of the year, China is now pivoting to living with the virus, raising the prospect of a robust economic recovery in 2023. However, local government's fiscal woes have intensified as their land sales, and tax revenues have slumped, and the country will need to address these issues in the coming year. As China heads towards the post-Covid era, it will also need to address challenges such as structural reforms, a declining labour force, and an ageing population.