From the unwinding of zero-Covid to economic recovery: What to watch in China in 2023

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Editor’s Note: A version of this story appeared in CNN’s Meanwhile in China newsletter, a three-times-a-week update exploring what you need to know about the country’s rise and how it impacts the world. Sign up here.

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After a tumultuous end to a momentous and challenging year, China heads into 2023 with a great deal of uncertainty – and potentially a glimpse of light at the end of the pandemic tunnel.

The chaos unleashed by leader Xi Jinping’s abrupt and ill-prepared exit from zero-Covid is spilling over into the new year, as large swathes of the country face an unprecedented Covid wave.

But the haphazard reopening also offers a glimmer of hope for many: after three years of stifling Covid restrictions and self-imposed global isolation, life in China may finally return to normal as the nation joins the rest of the world in learning to live with the virus.

“We have now entered a new phase of Covid response where tough challenges remain,” Xi said in a nationally televised New Year’s Eve speech. “Everyone is holding on with great fortitude, and the light of hope is right in front of us. Let’s make an extra effort to pull through, as perseverance and solidarity mean victory.”

Xi had previously staked his political legitimacy on zero-Covid. Now, as his costly strategy gets dismantled in an abrupt U-turn following nationwide protests against it, many are left questioning his wisdom. The protests, which in some places saw rare demands for Xi and the Communist Party to “step down,” may have ended, but the overriding sense of frustration has yet to dissipate.

In this photo released by Xinhua News Agency, Chinese leader Xi Jinping delivers a New Year address in Beijing, Saturday, Dec. 31, 2022.

His New Year speech comes as China’s lockdown-battered economy faces more immediate strain from a spiraling outbreak that has hit factories and businesses, ahead of what is likely to be a long and complicated road to economic recovery.

Its tightly-sealed borders are gradually opening up, and Chinese tourists are eager to explore the world again, but some countries appear cautious to receive them, imposing new requirements for a negative Covid test before travel. And just how quickly – or keenly – global visitors will return to China is another question.

Xi, who recently reemerged on the world stage after securing a third term in power, has signaled he hopes to mend frayed relations with the West, but his nationalist agenda and “no-limits friendship” with Russia is likely to complicate matters.

As 2023 begins, CNN takes a look at what to watch in China in the year ahead.

The most urgent and daunting task facing China in the new year is how to handle the fallout from its botched exit from zero-Covid, amid an outbreak that threatens to claim hundreds of thousands of lives and undermine the credibility of Xi and his Communist Party.

The sudden lifting of restrictions last month led to an explosion of cases, with little preparation in place to deal with the surging numbers of patients and deaths.

The country’s fragile heath system is scrambling to cope: fever and cold medicines are hard to find, hospitals are overwhelmed, doctors and nurses are stretched to the limit, while crematoriums are struggling to keep up with an influx of bodies.

And experts warn the worst is yet to come. While some major metropolises like Beijing may have seen the peak of the outbreak, less-developed cities and the vast rural hinterland are still bracing for more infections.

As the travel rush for the Lunar New Year – the most important festival for family reunion in China – begins this week, hundreds of millions of people are expected to return to their hometowns from big cities, bringing the virus to the vulnerable countryside where vaccination rates are lower and medical resources even scarcer.

The outlook is grim. Some studies estimate the death toll could be in excess of a million, if China fails to roll out booster shots and antiviral drugs fast enough.

The government has launched a booster campaign for the elderly, but many remain reluctant to take it due to concerns about side effects. Fighting vaccine hesitancy will require significant time and effort, when the country’s medical workers are already stretched thin.

Travellers wait for trains at Hongqiao Railway Station ahead of Chinese New Year, the Year of the Rabbit, on December 30, 2022 in Shanghai, China.

Beijing’s Covid restrictions have put China out of sync with the rest of the world. Three years of lockdowns and border curbs have disrupted supply chains, damaged international businesses, and hurt flows of trade and investment between China and other countries.

As China joins the rest of the world in living with Covid, the implications for the global economy are potentially huge.

Any uptick in China’s growth will provide a vital boost to economies that rely on Chinese demand. There will be more international travel and production. But rising demand will also drive up prices of energy and raw materials, putting upward pressure on global inflation.

“In the short run, I believe China’s economy is likely to experience chaos rather than progress for a simple reason: China is poorly prepared to deal with Covid,” said Bo Zhuang, senior sovereign analyst at Loomis, Sayles & Company, an investment firm based in Boston.

Analysts from Capital Economics expect China’s economy to contract by 0.8% in the first quarter of 2023, before rebounding in the second quarter.

Other experts also expect the economy to recover after March. In a recent research report, HSBC economists projected a 0.5% contraction in the first quarter, but 5% growth for 2023.

Despite all this uncertainty, Chinese citizens are celebrating the partial reopening of the border after the end of quarantine for international arrivals and the resumption of outbound travel.

Though some residents voiced concern online about the rapid loosening of restrictions during the outbreak, many more are eagerly planning trips abroad – travel websites recorded massive spikes in traffic within minutes of the announcement on December 26.

Several Chinese nationals overseas told CNN they had been unable or unwilling to return home for the last few years while the lengthy quarantine was still in place. That stretch meant major life moments missed and spent apart: graduations, weddings, childbirths, deaths.

Some countries have offered a warm welcome back, with foreign embassies and tourism departments posting invitations to Chinese travelers on Chinese social media sites. But others are more cautious, with many countries imposing new testing requirements for travelers coming from China and its territories.

Officials from these countries have pointed to the risk of new variants emerging from China’s outbreak – though numerous health experts have criticized the targeted travel restrictions as scientifically ineffective and alarmist, with the risk of inciting further racism and xenophobia.

Travellers walk with their luggage at Beijing Capital International Airport in Beijing, China December 27, 2022.

As China emerges from its self-imposed isolation, all eyes are on whether it will be able to repair its reputation and relations that soured during the pandemic.

China’s ties with the West and many of its neighbors plummeted significantly over the origins of the coronavirus, trade, territorial claims, Beijing’s human rights record and its close partnership with Russia despite the devastating war in Ukraine.

The lack of top-level face-to-face diplomacy certainly didn’t help, neither did the freeze on in-person exchanges among policy advisers, business groups and the wider public.

At the G20 and APEC summits, Xi signaled his willingness to repair relations with the United States and its allies in a flurry of bilateral meetings.

Communication lines are back open and more high-level exchanges are in the pipeline – with US Secretary of State Antony Blinken, French President Emmanuel Macron, Dutch Prime Minister Mark Rutte and Italy’s newly elected Prime Minister Giorgia Meloni all expected to visit Beijing this year.

But Xi also made clear his ambition to push back at American influence in the region, and there is no illusion that the world’s two superpowers will be able to work out their fundamental differences and cast aside their intensifying rivalry.

In the new year, tensions may again flare over Taiwan, technological containment, as well as China’s support for Russia – which Xi underlined during a virtual meeting with Russian President Vladimir Putin on December 30.

Both leaders expressed a message of unity, with Xi saying the two countries should “strengthen strategic coordination” and “inject more stability into the world,” according to Chinese state media Xinhua.

Russian President Vladimir Putin gave his own New Year's address.

China is “ready to work” with Russia to “stand against hegemonism and power politics,” and to oppose unilateralism, protectionism and “bullying,” said Xi. Putin, meanwhile, invited Xi to visit Moscow in the spring of 2023.

Beijing has long refused to condemn Russia’s invasion of Ukraine, or even refer to it as such. It has instead decried Western sanctions and amplified Kremlin talking points blaming the US and NATO for the conflict.

As Russia suffered humiliating military setbacks in Ukraine in recent months, Chinese state media appeared to have somewhat dialed back its pro-Russia rhetoric, while Xi has agreed to oppose the use of nuclear weapons in Ukraine in meetings with Western leaders.

But few experts believe China will distance itself from Russia, with several telling CNN the two countries’ mutual reliance and geopolitical alignment remains strong – including their shared vision for a “new world order.

“(The war) has been a nuisance for China this past year and has affected China’s interest in Europe,” said Yun Sun, director of the China Program at the Washington-based think tank Stimson Center. “But the damage is not significant enough that China will abandon Russia.”

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