China forecasts 2023: Don’t expect too much from China’s re-engagement

Strong domestic pressures on Xi and the CCP mean tensions with the West won’t disappear, says MERICS Senior Analyst Roderick Kefferpütz, surveying forecasts from five key sources.

2023 is a year of great expectations for China. Having abandoned its zero-Covid policy and international isolation, there’s hope that an economic rebound could stave off a global recession and optimism that better relations with the United States and Europe might bring greater stability to the international system.

2023 forecasts from five organizations – Eurasia Group, The Economist, Control Risks, The China Project, and our annual MERICS China Forecast – indicate, however, that these hopes are likely to be dashed. Nearly all predict an uncertain China that will put Xi’s governance approach to the test. Two determinants will be key to watch.

Xi put to the test

First, Covid-19 and the impact the spread of the virus will have on China. While Eurasia Group sees many unnecessary deaths because of low elderly vaccination rates and the lifting of all restrictions, the China Project believes that thanks to masking, self-isolation and a stepped-up vaccination campaign, the death toll will not be as gloomy as many predict. Eurasia Group also highlights the possibility of a more deadly Covid-19 variant emerging in China, which will spread undetected given an overwhelmed health system, reduced testing and sequencing, and the highly controlled information environment.

The uncertainty surrounding China’s Covid situation is expected to last at least into the summer. High death rates and resulting family grief and anger could aggravate social dissatisfaction.

Second, the strength of China’s economic recovery. There are great expectations that China’s economy, fueled by consumer revenge spending, will rebound, boosting global growth. But there is also great uncertainty about the size of this rebound. MERICS Senior Fellow Alicia García-Herrero has highlighted that “there’s an overestimation on the splash of Chinese consumers.” In line with this, The Economist has stressed that “China faces slowing economic growth,” Eurasia Group sees “China’s economy in a fragile state, (with) uncertainty in China’s economic rebound,” while the China Project predicts an economic recovery in the second half of the year, but says “there will not be a return to the optimistic vitality” of previous years.

The economy is likely to recover, but a one-time consumer spending rebound will not solve the long-term structural difficulties China’s economy faces, ranging from its real estate sector to debt levels.

These uncertain Covid and economic developments put pressure on China and Xi Jinping. All forecasters foresee these domestic pressures testing Xi and the CCP. The Economist argues that “Xi’s approach to governance – a power-hoarding, micro-managing style of rule – will be put to the test.” The China Project believes the “Communist Party is going to be tested in ways it has not experienced since 1989.” And Eurasia Group notes that “arbitrary decisions, policy volatility, and elevated uncertainty will be endemic in Xi’s China.”

Strong on Russia, weak on the West

The forecasts see China’s new charm offensive as much ado about nothing. According to all forecasters, China’s relations with the West will remain tense this year.  

Eurasia Group argues that China’s “wolf warrior diplomacy will intensify,” The Economist predicts “limited prospects” for warming ties with the West, while Control Risks in its RiskMap 2023 sees US-China competition and confrontation moving “into the military domain,” although actual conflict with the use of force remains unlikely. Respondents of the MERICS China Forecast 2023 also predict deteriorating ties between China and the West – particularly the US and UK – this year.

The China Project, Control Risks, and the MERICS China Forecast, also predict further economic disintegration between China and the West. Control Risks sees “selective decoupling” with companies facing a range of “regulatory and compliance dilemmas.” This is backed by the China Project arguing that the “US and EU will enact further sanctions and rules about supply chains.”

Ties with Moscow will stay strong

The Eurasia Group, the China Project and our MERICS China Forecast, foresee Sino-Russian relations remaining as they are. Eurasia Group believes that “Xi’s personal affinity for Putin will limit how closely China is willing to align with the developed world”. The China Project says the “bromance between Vladimir Putin and Xi Jinping will remain strong,” while our MERICS forecast participants see China sticking with a policy of pro-Russian neutrality on Ukraine and deepening Sino-Russian economic ties.