Year in Review: China’s Struggle to Contain Covid Hits the Economy Hard

China’s economy has had a bumpy ride throughout 2022. More than two years into the Covid-19 pandemic, headwinds including the worst outbreaks and a prolonged property sector crisis continued to put a brake on growth.

Faced with faltering demand at home and abroad, China’s GDP has been expanding well below target this year. While policymakers, desperate to boost growth, have launched an array of fiscal and monetary stimulus, the measures have not done much to prop up sagging consumer spending or business confidence. Meanwhile, local governments’ fiscal woes have intensified as their land sales and tax revenues have slumped.

Left with few options, China embarked on a debt-fueled infrastructure investment spree to boost the economy. Meanwhile, its latest property rescue package has temporarily given the market a respite. More critically, with the zero-infection policy rapidly dismantled at the year-end, the country’s pivot to living with the virus is raising the prospect of a strong economic recovery in 2023.