China is Struggling as Economic Reopening Disappoints Investors

China is Struggling as Economic Reopening Disappoints Investors

By:Ilya Spivak

Hopeful markets cheered as China scrapped restrictive 'zero-Covid' policies, fueling hopes for a rapid rebound. It now looks more like a headwind for global economic growth.

  • China slowing down as domestic demand struggles to sustain momentum
  • ‘Zero-Covid’ reopening came too late for the globalization-linked economy
  • Supply chain diversification has cost China some trade flow market-share

China’s economy seems to be losing steam

Investors cheered at the start of 2023 as China scrapped restrictive “zero-Covid” policies, fueling hopes for a rapid rebound in the world's second-largest economy.

The optimism seemed sensible. First, doing away with strict lockdowns keeping a sea of consumers behind closed doors promised to deliver a meaty boost to global growth. Second, allowing the army of workers powering China’s export engine to return to their posts would help unclog supply chains disrupted by the pandemic. That would have the twin benefits of stoking economic activity and lowering inflation.

What has transpired in the six months since reopening began in early December 2022 has turned out far less rosy.

A burst of domestic demand materialized as expected. Official and private-sector PMI surveys show a strong pickup in service-sector activity powering brisk catch-up growth as restrictions are lifted. The all-important manufacturing sector – reflective of China’s critical role as a value-add intermediate trade hub – barely managed to get off the ground before slinking back into contraction mode (in the logic of PMIs, the dividing line between growth and retrenchment is set at 50).

Data source: Bloomberg

Scrapping ‘Zero-Covid’ policy: too little, too late

Now, activity across sectors looks to be in retreat as the premium from unleashing pent-up demand at home wanes while externally focused industry continues to struggle. This is because – predictably enough – the world did not just stand still and wait for Beijing to rethink its Covid containment plans.

By the time China scrapped the “zero-Covid” regime, its largest rich-world customers in the US and the Eurozone saw the peak in their catch-up bursts of reopening activity a year and a half prior. Fading support from pandemic-era fiscal stimulus coupled with brisk Fed-led monetary tightening to rein in inflation were already slowing demand that Chinese suppliers hoped to rely on.

Furthermore, China’s self-isolation stocked supply chain diversification elsewhere. Its share of global trade turnover has fallen by nearly 3 percent while volumes have fallen far more dramatically than the global average. Cumulative import and export activity worldwide fell 1.2 percent year-on-year as of the end of 2022 as central banks cranked up financing costs. In China, it fell by a staggering 14.9 percent over the same period.

Frustratingly for China bulls, the East Asian giant looks to have gone from hope to headwind for global growth.

Data source: Bloomberg

Ilya Spivak is the Head of Global Macro at tastylive, where he hosts Macro Money every week, Monday-Thursday.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.