This article first appeared on the website of China Daily on January 17, 2023.

Xu Hongcai, Deputy director of the Economic Policy Commission.

The global economy, according to many economists, will grow at a moderate rate, inflationary pressure will ease and the effects of monetary policy in major economies will diminish in 2023.

In the first three quarters of 2022, the "troika" of consumption, investment and exports contributed 41.3 percent, 26.7 percent and 32.0 percent respectively to China's GDP growth. But as global economic growth declines, external demand will provide significantly less tailwind for economic growth, with the negative growth of imports and exports in the past two months bearing this out.

On the other hand, inflation continues to be high in the European Union and the EU economy is likely to slip into recession. True, China-US trade and China-EU trade contributed about 80 percent to China's trade surplus, but China's services trade deficit will widen significantly as outbound tourism resumes in 2023. This means Chinese policymakers need to boost domestic demand so it can act as a strong driver of growth.

But despite the short-term blow or the initial shock wave of the easing of the pandemic prevention and control measures, the Chinese economy is expected to rebound in the second quarter of 2023, with GDP growth expected to reach 4.7 percent this year and 5.0 percent in 2024.

While imported inflationary pressure is likely to subside this year and prices may remain stable, the consumer price index is expected to hover around 3 percent and the producer price index could trend higher from a low basis to 4 percent throughout the year.

Besides, the employment situation will improve significantly, because the economy is gaining momentum, demand for labor is rising and large numbers of job vacancies are being created as the "baby boomers" generation born in the early 1960s has already retired or will soon retire. Also, the yuan will continue to fluctuate against the US dollar, while the basic equilibrium in balance of payments will likely be maintained.

Furthermore, since the Central Economic Work Conference held recently accorded priority to the expansion of domestic demand, investment in fixed assets will increase faster in 2023, possibly growing more than 8 percent for the whole year. In the real estate sector, investment will move from negative to positive territory due to the rising confidence of private and foreign investors, which will contribute to the faster growth of high-tech industries and social sectors.

As for the investment structure, it will be significantly optimized in 2023, since the odds are that the real estate sector will gather steam over time even though its recovery will be range-bound. Consumption, too, will gain momentum, especially from the second quarter onward, with a strong recovery in domestic tourism, which in turn will spur the growth of the transportation, entertainment and catering sectors. The stock market will gain traction as well.

Moreover, China will continue to uphold the economic policy of pursuing progress while maintaining stability, and implement a proactive fiscal policy and a prudent monetary policy while strengthening policy coordination.

First, proactive fiscal policy will be more effective and targeted, maintaining sufficient intensity in terms of fiscal spending, optimizing the mix of deficits, special bonds, interest subsidies and other tools, and increasing transfer of payments to local governments.

Second, China's prudent monetary policy will be more targeted. The country may also see a reasonable growth of M2, with the government urging financial institutions to increase support for, among other things, small and micro-sized enterprises, scientific and technological innovation and green development, and take measures to maintain the basic stability of the yuan's exchange rate.

Third, China will also boost the transformation and upgrading of traditional industries, cultivate strategic emerging industries, strengthen the weak links in the industrial chain, and continue to take measures to ensure its carbon emissions peak before 2030 and the country achieves carbon neutrality before 2060.

Fourth, the science and technology policy will focus on making the country self-reliant and achieve excellence.

And fifth, the goal of social policies will be to improve people's livelihoods. As such, the government will continue to create new jobs, including for young people, especially college graduates.

The central government's emphasis this year will be on stabilizing growth and prices, and increasing employment. The emphasis has shifted from stability on six fronts to only three. The government's other priorities will be to spur domestic demand and consumption.

But while an increase in investments will deliver quick results, measures to boost consumption will take time to bear fruit. The key is to increase the incomes of urban and rural residents, and the right way to do so is to increase employment and shore up small and medium-sized enterprises and household entrepreneurs, because it is necessary to create an enabling business environment for the 160 million market players.

It is also necessary for the government to improve income distribution and strengthen the social security system. Spending on daily necessities, food, housing and transportation — especially for housing and cars — accounts for almost 50 percent of household budgets. Hence, the goal of government policies should be to provide better housing facilities and new-energy vehicles.

Moreover, given China's fast rising aging population, the demand for eldercare is increasing, which will spur economic growth.

In addition, the government's policy incentives will attract private investment in major national projects, helping strengthen the weak links. And the increase in government investments will catalyze private (including foreign) investment, rallying all available resources to boost China's economic growth.

All in all, we can expect China to return to sustainable economic growth in 2023.