Editor's note: Wang Dan is chief economist of Hang Seng Bank China. The article reflects the author's opinion and not necessarily the views of CGTN.

The reopening of China is the biggest economic event this year. It will no doubt boost global growth. In November 2022, economists from the U.S. Federal Reserve wrote a working paper titled "What happens in China does not stay in China." Their research concluded that China is an important driver of the global financial cycle. An expansion in China's GDP by 1 percent adds 0.25 percent to the rest of the world's GDP one or two years later. If China can realize its official GDP target of 5 percent this year (last year it was 3 percent), the spillover effects may be 0.5 percent increase of the growth for the rest of the world.

China’s economy was off a good start since the beginning of the year. Every month, the economic performance has been better than the previous one. In the first quarter, domestic flights increased by 20 percent from a year earlier. International flights have tripled. According to Ctrip, as of April 6, domestic travel orders for the May Day holidays were on par with the same period of 2019, up by 7 times year on year. Box office revenues recovered to 85 percent of 2019 levels.

The new energy supply chain remains a bright spot. In 2022 the full new energy chain, including new energy vehicles (NEVs), charging posts, wind turbines, lithium batteries etc., accounted for 7 percent of the manufacturing value added and 1.8 percent of GDP, the fastest growing segment in the industrial sector. NEVs have become a major driver for car exports. In contrast to the exports of combustion engine cars, which mostly targeted developing nations, China's NEV exports mostly go to European countries, such as Belgium, the UK and Norway.

Domestic sales of the NEVs have also held up strongly. In the first quarter, according to data from the China Passenger Car Association, traditional fuel engine vehicles decreased by 23 percent (down by around 890,000 units) while NEVs increased by 23 percent (up by around 250,000 units). Currently NEVs account for less than one third of the total car sales, yet with the present momentum in growth and China's goal of carbon reduction, they are expected to become mainstream in the decades to come.

Can this pace of recovery be sustained? Despite the rapid revival of sightseeing and catering, the slowdown in income growth has put a damper on consumer appetite to splurge on goods and services. The real disposable income per person rose by 5.8 percent in 2019 year on year, but grew only 2.9 percent year on year in 2022, lower than China's GDP growth. Since consumption is a function of income, strong rebound requires more policy support, such as cash transfers to vulnerable groups.

One upside is that Chinese households are extremely liquid, with bank deposits now exceeding 127 trillion yuan ($18.5 trillion), about 106 percent of last year's GDP. Much of those funds were aiming to buy homes but due to concerns over the potential rollout of property tax as well as job security, households tend to hold off their buying decisions for durable goods and housing investment. Yet as the economy stabilizes, many may gain confidence again to buy assets that are more rewarding than bank deposits. This will lift the stock market and boost property.

According to the latest IMF's report, China's growth will likely contribute about one third of the global growth this year. Foreign direct investment inflow remains strong. Two parallel trends in investment and trade are deepening. One is the localization of many foreign businesses in China, taking advantage of the vast consumer market. The other one is the diversification of supply chains away from China to broader Asia. The process is partly pushed by China's rising labor costs and partly pulled by the geopolitical tensions. Nonetheless, even the alternative supply chain will rely on China for intermediate industrial goods. China as a manufacturing center is deeply integrated with its Asian neighbors.

While much of the developed world is combating with high inflation, China's inflationary environment is benign. In fact, the March inflation was only 0.7 percent, running the risk of slipping into deflation. There is more room for monetary expansion in the coming months.

The relatively weak housing market will remain a constraint for domestic demand. In recent weeks, housing transactions have picked up. However, the market is carefully managed. Policymakers have no appetite to blow up the housing bubble again. The focus will be on the construction of affordable housing while stabilizing housing prices. Aggressive policies to stimulate the housing market remain unlikely.

China has been a stabilizing factor for the global economy in the past, be it the 1997 Asian financial crisis or the global financial crisis in 2008. Its economic cycle and macro policies are usually not in sync with the West, and thus a useful hedge for investors. The market believes in the long-term growth prospects and fundamental strength in China's economy. But for this year, the top priority is still to restore market confidence. Sustained growth in China will be the ultimate balancing power for the global economy.

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