China will struggle to regain the economic ground lost to zero-COVID

Rebound will take time to materialize given China’s chaotic reopening

Few businesses were spared the consequences of China’s deceleration in 2022. MNCs were forced to cope with zero-COVID-driven disruptions and underwhelming economic performance. 2023 will look different, as China has ditched zero-COVID and is now refocusing on economic growth. By and large, MNCs can expect a much more normal business environment, with fewer disruptions on the policy front. They may even feel a bit more welcome, as officials once again try to lure foreign businesses back to the country to bolster growth.  

However, this will not happen immediately. The hangover from China’s zero-COVID U-turn will last until at least late March or even April, given the huge scale of the current outbreak and its disruptions to business activities. For manufacturers, staffing will remain a major issue through much of the first quarter, as employees either call in sick themselves or ask for leave to take care of sick family members. For retailers, high infection rates will discourage people from going out and spending. (Although online channels might make up for some of the lost retail sales, delivery could be affected too as fewer drivers will be available during the outbreak.) 

Business prospects should improve substantially around mid-2023, when China’s first and largest COVID exit wave has passed and the whole country gears up for economic recovery. Firms should expect to see increasing demand, as manufacturers face much less uncertainty and retailers see consumers up their spending again. While additional exit waves may emerge during this time, they are likely to be smaller and less disruptive than the one hitting China right now. 

Unfortunately, gauging the timing and impact of this wave and future waves will be incredibly difficult. Market watchers will be forced to rely on anecdotal evidence and personal experiences, rather than transparent and accurate official data. Firms will need to get more accustomed to navigating the market with less readily available numbers. Q1 this year will be particularly tricky because the next set of macroeconomic data—the combined numbers for January and February—will not be released until mid-March. Before that, MNCs will likely operate in a quasi-blind way, with relatively poor visibility into the operational environment. Some of the 2023 projections made in late 2022 may need to be adjusted, but it will be very difficult to determine how and by how much. Until they can gain clarity, MNCs will just have to build greater flexibility into their operations and projections—particularly in Q1—and prepare for the expected acceleration in H2. 


  • China’s economy grew 3% in 2022, its second-worst annual performance in decades, due to the stringent zero-COVID policies imposed for most of the year across the country. Its growth fell far short of the official target of 5.5% that was set at the beginning of the year.
  • In Q4, the quarter when China suddenly scrapped all zero-COVID policies, the economy grew by 2.9% YOY but didn’t grow at all compared to the previous quarter. 
  • Industrial production only grew 1.3% YOY in December. This print, the worst since Shanghai’s lockdown last year, displayed the disruptive impact to manufacturers from China’s rapid reopening.
  • Consumption, on the other hand, fared much better than many expected, contracting only -1.8% YOY in December, sharply up from a contraction of -5.9% YOY a month earlier.

Our View

Taken at face value, China’s 2022 numbers—the second worst in decades—show how badly the economy has been hit by zero-COVID policies. Now that the country has reopened aggressively, MNCs might be tempted to expect a rapid return to normalcy. Unfortunately, this is unlikely. The disruptions caused by the country’s chaotic reopening are likely to last throughout Q1, with a real possibility of a second or even third wave of outbreaks emerging after the Lunar New Year travel period.

Nonetheless, a rapid reopening will ultimately give a much-needed boost to China’s troubled economy. As the government steps up its efforts to inject more capital into infrastructure building, and as ordinary people repair their personal finances and start to spend again, the H2 rebound is likely to be strong, pushing China’s annual growth rate above 5%.

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