Since emerging from the COVID-19 pandemic, China has embarked on a steady path toward economic recovery. With the lifting of restrictions in late 2022, the country has achieved a rebound in economic activity across a variety of sectors, as well as a near-complete recovery in domestic tourism and a modest increase in international travel.
At the same time, uneven growth across the first five months of 2023 has led the government to roll out and contemplate various measures to support businesses and boost consumption, while tweaking fiscal policy to control market liquidity.
The return of international travel has also enabled new milestones in the country’s foreign relations, with a busy diplomatic calendar seeing scores of new agreements signed to facilitate international business and trade.
In this article, we look at how the country has developed since the lifting of COVID-19 restrictions, from economic recovery to developments in domestic policy and international diplomacy.
Economic recovery after China’s reopening in 2023
China’s economy has been on a trajectory of steady but uneven recovery since the lifting of COVID-19 restrictions. GDP grew by 4.5 percent in the first quarter of 2023, a robust figure that exceeded the 2022 annual GDP growth rate of 3 percent, but was lower than the target of “around 5 percent” set for 2023 in the Government Work Report.
Various economic indicators have shown a steady increase since the end of 2022, including manufacturing, services, and consumption.
Change in Key Economic Indicators Since Reopening
Year-on-year growth
Recovery of consumption and services
Services have experienced one of the fastest recoveries of any sector since the end of 2022, in large part because it was one of the industries worst impacted by COVID-19 restrictions. On a year-on-year basis, the sale of consumer goods went from a 1.8 percent contraction in December 2022 to a 5.5 percent expansion in the first two months of 2023, before peaking at 13.5 percent growth in April. Growth in retail sales decelerated slightly in May in a trend seen across multiple economic sectors.
The high April and May figures are in part due to the low base effect, as consumption and services figures were very low in the same period in 2022 due to COVID-19 restrictions. Although there has undoubtedly been a rebound in consumption from 2022, overall, domestic demand has been relatively weak, as shown by the low levels of imports and low inflation. Consumer price index (CPI) in May rose by just 0.2 percent year-on-year, missing forecasts by 0.1 percentage points. Boosting demand has therefore become one of the government’s key goals to spur economic growth.
Rebound in travel
During the 2023 Labor Day Holiday, which took place from April 29 to May 3, the number of domestic trips and the revenue from the domestic tourism industry both exceeded 2019 figures.
Domestic flights have also returned to full capacity. However, flight ticket prices were significantly higher than before the pandemic, increasing by 39 percent from 2019 to an average of RMB 1,211 (US$167) for a one-way domestic flight ticket during the Labor Day Holiday.
China’s Dragon Boat Festival holiday, which in 2023 fell from June 22 to June 24, has shown similarly high levels of travel. There were a total of 106 million domestic trips over the course of the three days, a 32.2 percent year-on-year increase and equivalent to 112.8 percent of 2019 levels. Tourism revenue reached RMB 37.3 billion (US$5.2 billion), up 44.5 percent year-on-year and equivalent to 94.9 percent of 2019 levels. Outbound travel has also increased significantly but remains below pre-pandemic levels. Data from the Civil Aviation Administration of China (CAAC) shows that, by the end of May 2023, 9.98 billion ton-kilometers of international flights had been completed since the beginning of the year. This is up 12.1 percent from the same period in 2022, but still only accounts for 53.9 percent of the distance covered over the same period in 2019.
In addition, although the number of international flight routes has gradually risen, they still haven’t returned to pre-pandemic levels, partly explaining the sluggish recovery of outbound travel. For instance, less than 6 percent of flights between the US and China that existed prior to the pandemic had resumed by the end of May. The low number of flights available is keeping the cost of tickets high, further slowing the recovery of travel and personnel exchange.
The US and China have recently agreed to work on increasing the number of flight routes, which are currently limited to just 12 round trips per week for each country’s airlines.
Manufacturing and industrial output
The industrial output of companies above a designated size (those with a main business income of over RMB 20 million (approx. US$2.9 million), a key indicator of the country’s manufacturing industry, has increased steadily since the beginning of the year. In the first quarter it was up 3 percent year-on-year in the first quarter, 0.3 percentage points higher than that in the fourth quarter of 2022. In March, the value-add of these industrial enterprises was up 3.9 percent year-on-year, 1.5 percentage points higher than that in the first two months, but slightly lower than Reuter’s forecast of 4 percent.
Industrial output continued to accelerate in April, growing 5.6 percent year-on-year, but slowed to 3.5 percent year-on-year in May.
Trade and foreign investment
International trade has remained relatively low since late 2022, with spikes in March and April. In March, the total value of imports and exports increased by 15.5 percent year-on-year, among which exports grew 23.4 percent and imports grew 6.1 percent. This growth rate slowed to 8.9 percent in April and slid further to just 0.5 percent year-on-year in May.
Exports, a key contributor to China’s economic growth, have been particularly impacted by high inflation and an economic recession in key overseas markets, such as the EU and North America. As overseas consumers tighten their belts, they are spending less on Chinese goods. Import volume, meanwhile, has remained consistently low due to weak domestic demand.
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