Economic recovery (growth) will be the top priority for China's new government in 2023

The new government has a mountain to climb while trying to steady the ship of recovery

2023, no doubt, will be a year of economic recovery for China, but the landscape will be vastly different from pre-pandemic years. Firms will need some time to reorganize their operations and readjust their financial goals in order to better capture opportunities from the recovery. The relatively conservative growth target set for this year, coupled with a stringent debt ceiling limit, means MNCs should not bet on a robust boom in new infrastructure and construction. Paradoxically, this also means that input costs, such as those of raw materials and energy, for many B2B MNCs’ China-based operations will also remain subdued in 2023 compared to those in Europe and the US. The result is much less pressure for price hikes. 

For B2C MNCs, 2023 will be a year of marked improvement. Once COVID is finally left behind, firms will have a lot more opportunities to engage with customers offline in physical stores as consumers venture out and spend again. “Revenge spending” is possible too, particularly from those living in big cities. However, amid this frenzy of spending, a large chunk will be spent on services, such as dining out, drinking in bars, traveling, and taking holidays—activities categorized as the “experience economy.” As a result, firms selling durable goods or serving those that produce durable goods will need to carefully manage their expectations.  

Overall, MNCs are facing a very different business environment in China. Despite Premier Li Qiang’s efforts to sound business friendly in his first press conference since taking the position, MNCs should not forget that it is President Xi Jinping who has the final say in almost every policy area in China, and for him, economic growth no longer takes precedence. Other considerations—whether political, social, or geopolitical—will be much more influential in his decisions. MNCs will need to adjust expectations to better deal with a much more centralized government and prepare for more irregularities in policymaking.


  • The annual Two Sessions was held in Beijing on March 4–13. At the gathering, China announced a growth target of “around 5%” for 2023, its lowest target for more than three decades. 
  • At the same time, China announced a fiscal deficit goal of 3% for this year, slightly higher than the 2.8% of last year. 
  • This is the first meeting of the National People’s Congress since the 20th Party Congress, and it handed Xi Jinping an unprecedented third term as China’s president. 
  • Xi used his speech at the congress to pledge to better balance development and security in the future, stressing how critical safety and stability are to economic growth and prosperity.
  • Li Qiang, a long-time ally of President Xi, was promoted to premier at the congress and will be in charge of China’s de facto cabinet in the next five years. 
  • Most of the ministerial heads were replaced, but in a surprise move, China kept a number of important economic officials, including the governor of the central bank and the finance and commerce ministers.

Our View

The GDP growth goal of 5% YOY came in at the lower end of the range of many forecasts. It signals that, after missing the goal last year, leaders wanted to play safe by setting a more conservative goal, so that it would be easier for the new premier and his economic team to hit the target. This is important because 2023 is the first year since the end of zero-COVID, and economic recovery is vital. Being able to achieve the target will be critical to the new government, which also partly explains why Xi has decided to retain some of the more experienced officials overseeing monetary and fiscal policies.

However, a goal of 3% for the fiscal deficit suggests that China is unlikely to stimulate the economy very aggressively this year. In previous decades, governments, mostly local governments, borrowed heavily to fund the building of infrastructure on a vast scale as a key measure to boost growth. Yet, three years of strict zero-COVID policies have literally depleted the coffers of local governments, who are now unable to spend as much as before on infrastructure. This will be a drag on China’s economic recovery and means Beijing will have to find growth from somewhere else (likely consumption) this year. Therefore, we can expect some pro-growth policies to be rolled out in the next few months, although some of them may be temporary. The real estate sector, while unable to return to its golden era of double-digit growth, at least will bottom out and start to stabilize. 

Despite the new premier’s best efforts, however, China’s age of rip-roaring growth is over. As President Xi, who has now completely consolidated his power, focuses increasingly on national security and geopolitical tensions in the next few years, we could see more instances where growth is sacrificed for other political considerations. Decision-making processes could become more volatile and unpredictable (as demonstrated by the removal of zero-COVID), more regulations could be introduced to bring more businesses under control, and the state will play a bigger role in overall economic activities.

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