China is emerging from nearly three years of self-imposed isolation, which has been a drag on the world's second-largest economy.
Earlier this month, Chinese officials reported 3% economic growth in 2022 – the second-lowest in at least four decades.
But now that stringent COVID lockdowns have been lifted, officials say the country is back in business. Analysts, however, say it won't be easy.
Here is why.
"Trust but verify"
China has been trying to woo back foreign investors and businesses after nearly three years of disrupted supply chains, delayed logistics, stringent regulation on sectors ranging from consumer technology to property, and onerous lockdowns that shuttered factories.
"More focus will be placed on expanding domestic demand, keeping supply chains stable, supporting the private sector, reforming the state-owned enterprises, attracting foreign investment and preventing economic and financial risks," Liu He, the country's vice premier and one of its top economic policymakers, reassured business elite gathered at Davos in Switzerland earlier this month.
Understandably, some remain skeptical.
"Trust but verify," advises Nargiza Salidjanova, a China director at the research firm Rhodium Group.
She says China-watchers are still waiting to see more substantial pro-business policy changes, such as giving private and foreign firms equal access in technology and certain industrial sectors and reducing tariffs on imported goods.
"It is not enough to talk about these things," she says. "The message and the practice of it has to really align to strongly encourage foreign investors."
Salidjanova points to the official 3% GDP growth figure for 2022, despite repeated lockdowns and supply chain disruptions. "The market didn't believe the numbers. That's not very encouraging. The first step is to actually start releasing accurate numbers so investors can trust you again."
A quick economic recovery will hinge on domestic consumption
Adding to China's challenges are bigger global economic uncertainties — just as China finally reopens its borders.
China weathered the pandemic well — at first. "In 2020, China was up and running with manufacturing again. Nobody else was. So exports really drove the recovery in China, the first recovery in China," says Bert Hofman, a professor at the National University of Singapore and a former China director for the World Bank.
But 2023 is different, says Hofman. "The world economy is not doing so well and therefore export demand will be lackluster at best," he says.
In the U.S., for example, central bankers are working to put off a recession and cool high inflation.
So, given a weaker global economic outlook, China's recovery will be more reliant on getting its own citizens to spend more.
And that is the tricky bit.
"It really has to come from the consumer in terms of, you know, are people going to be willing to dine out? Are they willing to spend on entertainment and leisure goods? Are they willing to return to China's malls and markets and kind of lend support to the retail environment?" says Nick Marro, a senior analyst with the Economist Intelligence Unit research firm.
Marro believes there will be some pent-up consumer demand as China gets over a massive surge in COVID cases later this year. Chinese consumers plowed their somewhat diminished incomes into savings during the pandemic, and so now they do have a bit more to spend.
However, they're also risk-averse and sensitive to any perception that China could reverse course on public health policy and economic reopening again, Marro says. "We are expecting this consumer recovery to be really drawn out."
COVID remains a potential wild card
Of course, COVID-19 still remains a variable. It's a potential X-factor that could continue to jeopardize China's economic recovery, in addition to its public health system.
"Part of the equation for how long that immunity [to the current COVID strain] lasts is how quickly the virus is evolving," says Lauren Ancel Meyers, a professor at the Center for Pandemic Decision Science at the University of Texas.
She says: "What is the next variant that's going to emerge and spread over the world? How similar does it look to the current spreading variants and the vaccines that they use to vaccinate people?"
China's public health authorities say 80% of the country — more than 1.1 billion people — has already been infected with COVID in this most recent surge.
Such a rapid and wide-scale level of infection may result in a decent amount of natural immunity. But China's economy is far from being immune to further shocks.
