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Don’t Write Off China’s Economic Recovery

While China's post-pandemic economic recovery has so far lagged well behind expectations, a supportive policy package can go a long way toward changing that. Even economic headwinds rooted in external geopolitical conditions can be overcome in the medium to long term.

SHANGHAI – The strong growth rebound that was widely expected to follow the end of China’s zero-COVID policy has yet to materialize. This is both less surprising and easier to understand than many observers seem to think.

The end of COVID-19 lockdowns was supposed to unleash a powerful wave of pent-up demand. Instead, aggregate demand, which had been slowing before the pandemic, has returned to its previous trajectory. Though Chinese have been traveling, socializing, and dining out more, consumer-spending growth by households has been limited. Fixed-asset investment has not recovered.

With a few exceptions, such as the new-energy-vehicle (NEV) sector, economic activity has remained subdued. As a result, growth has been much weaker than expected. Though real GDP growth reached 4.5% in the first quarter, it is expected to slow in the second. Core inflation is hovering around zero, and the producer price index is in negative territory.

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