Insights for What’s Ahead:

• Status of China’s Economic Recovery – November’s data showed that China’s economic momentum is rapidly weakening. The rapid rollback of zero-COVID restrictions has led to a surge of new infections across the country which is negatively impacting industrial productions, logistics, and consumption activities, and this is likely to last throughout Q1 2023. A modest recovery in consumer spending is anticipated to start in late Q1 – early Q2. The Central Economic Work Conference in December 2022 pledged to maintain a supportive policy environment for economic growth in 2023, with one of the main priorities being the recovery and expansion of consumption. 
• Investment Trends – Growth in Fixed Asset Investment (FAI) dropped to 0.7 percent y-o-y in November, down from 5 percent in October. While investment in infrastructure continued growing robustly, property investment contracted further and investment in manufacturing decelerated. Given the uncertain outlook for both domestic and external demand, it is expected that investment growth in 2023 will continue seeing downward pressures and remain dependent on policy stimulus. 
• Consumption Trends – Surging COVID cases led to a significant reduction of mobility in urban areas, negatively impacting in-person business services and leading to a -5.9 percent y-o-y drop in retail sales in November. We expect consumer spending to start recovering in early 2023 as this new wave of infections phases out, but the pace of recovery will be affected by the enduring property downturn and labor market weakness. The CPI has remained restrained due to weak demand, but it is likely to increase moderately along with the recovery in spending in 2023. 
• Trade Trends – China’s export growth in November declined more quickly than expected. Annual export growth in 2023 will most likely be negative given the worsening global economy. Facing these headwinds, Chinese authorities are expected to boost supportive measures to expand domestic demand in 2023.