It has been a most trying four years from 2019 to 2022 for Hong Kong and the Chinese mainland. China was the first country in the world to be hit by the COVID-19 outbreak.

China had to face an all-out containment strategy under then-US president Donald Trump which was further stepped up by President Joe Biden. Burdened by the need to contain the pandemic, weak external demand, and the US’ multipronged and escalating effort to stop China’s rise, 2022 was likely to be the year when China’s growth deviated from the growth target the most. Currently most China watchers believe that China’s growth rate has fallen below 3 percent, compared with the official target of 5.5 percent. Hong Kong’s problems over the last four years are well known, and the local economy is expected to have contracted by over 3 percent last year. 

2023 is the first year following the 20th National Congress of the Communist Party of China and is the midway point of the national 14th Five-Year Plan (2021-25). This is a critical year for the Chinese mainland, as it is on the verge of escaping from the “middle-income trap”. With a per capita GDP at close to $12,000, China needs to make a major effort to join the ranks of developed countries. One Japanese commentary in Nippon.com remarked that, “China’s growth has plateaued as population decline pushes up labor costs and makes exports less competitive.” While there is some truth in this, the full story is that while higher labor costs are making labor-intensive production less competitive, China stays competitive, and its production has shifted to higher value-added innovation-intensive manufacturing. For example, the Commercial Aircraft Corporation of China Ltd received as many as 300 orders from carriers during the Zhuhai airshow last year. Its new plane, the C919, has amassed orders for a total of 815 units from 28 customers including aircraft leasing giant GE Capital Aviation Services. 

The Nippon.com commentary went on to conclude that, “Rather than putting its faith in free-market economics, however, the Xi government is attempting to revert to a planned economy.” But this speculation is entirely rebutted by General Secretary Xi Jinping’s speech and the report to the 20th CPC National Congress. The official report explicitly emphasizes quality over quantity of development and specifically refers to “high standard opening-up”. The report also warns that the Party faces continuing challenges in terms of “governance, reform and opening-up, the market economy, and the external environment.” At the Central Economic Work Conference held in December, President Xi said China will unswervingly continue with its reform to develop the socialist market economy, and consolidate and develop the public sector while encouraging, supporting and guiding the development of the non-public sector. 

Beijing is more concerned with the quality of growth than the quantity. ... (Nippon.com) neglected the fact that the decline in GDP growth is part of the cost that China is willing to pay in order to achieve a better living environment. 

Venture capitalist Eric Li Shimo used to commend the CPC for its ability to keep reinventing itself. It is its pragmatism, combined with humility and a strong commitment to serve the country, which lends the Chinese economy the resilience that has prevailed since the opening-up started in 1979. 

The recent reset of policy on the mainland and in Hong Kong includes efforts to revive confidence. In particular, having recognized the importance of stabilizing the real estate sector, the central government swiftly unveiled a combination of steps including credit, bond issuance and equity financing to bolster the heavyweight property industry. As a result, there was a significant rebound in stock prices of housing developers, which allowed them to raise more capital from the market. 

There are clear signs that the big tech companies are being given more leeway to expand their markets. For example, Tencent Holdings Ltd secured a green light for launching new online games. Finance Minister Liu Kun has promised proactive fiscal policy and supportive policies for enterprises. All this is on the back of a policy reset on China’s anti-COVID-19 strategy. Hong Kong’s stock market rebounded 6,000 points from its recent lows in just two months. Both the Shanghai and Shenzhen stock markets similarly showed a strong, though less spectacular, recovery from their troughs in October. The Caixin China Services Purchasing Managers Index rose to 48.0 in December, up from 46.7 in November, against the market expectation of 46.8 for December. All this indicates that business confidence is fast recovering in both Hong Kong and the mainland. 

Beijing is more concerned with the quality of growth than the quantity. In fact, Nippon.com’s reading of China’s recent subdued growth is wrong. It portrayed the decline in China’s growth in recent years as a result of deteriorating demographics and a decline in competitiveness. Many Western observers also believe and assert that China is facing a notable decline in total factor productivity growth. They neglected the fact that the decline in GDP growth is part of the cost that China is willing to pay in order to achieve a better living environment. China is the leading country in promoting green energy, reforestation and extreme poverty eradication. The Chinese people are now enjoying cleaner air, cleaner water, stronger health and continuing increases in life expectancy. Beijing’s annual average concentration of major airborne fine particulate matter, or PM2.5, declined to 30 micrograms per cubic meter in 2022, the best air quality for the city since 2013. Notwithstanding the serious drought in much of the country, China was able to achieve another record in grain output last year. 

2023 promises to be a year of notable recovery for both Hong Kong and the mainland. China is committed to sustainable development and opening up. Hong Kong will ride on the mainland’s success. It is highly likely that both economies will grow at 5 percent or more. 

The author is the director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.

The views do not necessarily reflect those of China Daily.