Impact of Covid-19 on Chinese Economy
Coronavirus, also known as COVID-19 has been the most unpredictable game-changer of 2020. Starting at the end of 2019, this novel coronavirus quickly snowballed into a pandemic situation that has engulfed over half of the world and has claimed over 100,000 lives, affecting millions more.
Although coronavirus’s epicenter was China’s city Wuhan, the effects that it created rippled across the entire world. January and February saw the worst side of the pandemic in China, with countrywide lockdowns, business shutdowns and trade restrictions. In March, as coronavirus loosens its grip on China, the economic impact of the crisis has made itself known clearly and loudly.
Covid-19 and the Chinese Economy—the Impact
Coronavirus outbreak started at the end of 2019, but its impact was strongly felt in the first two months of 2020. The virus brought devastating impacts on the global economy, but it affected China’s economy first, disrupting its gross domestic product and industrial output.
Some analysts liken the impacts of coronavirus with those of the Great Financial Crisis of 2007-2008—even more so. The pandemic cut China’s growth by half during the first quarter. Industrial output fell by 13.5% during January. This was a worse-than-expected figure, compared to last year’s first quarter. 2019’s first quarter had seen a huge decline in the industrial output but 2020’s figures outnumbered that decline.
Fixed asset investment also dropped by 24.5% on year-on-year estimates. The economic analysts had predicted a slowdown of 2.8% in fixed asset investment. The real numbers outnumbered the predicted estimates by a large margin.
As the industries of China took the impact of the pandemic, investments in the private sector declined sharply by 26.4% and retail sales plunged by 20.5%. As a result, a large population lost their livelihood, and the rate of jobless people increased by a huge 6.2% in February.
Perhaps the greatest effect that the COVID-19 had was on the Chinese GDP. According to Capital Economics, during the first two months, the GDP contracted by 13%. This fall in GDP resulted in overall disruption of the Chinese economy, leading to business shutdowns and losses. These businesses, ranging from retail to manufacturing and service sector were badly affected, and its impact was felt in the international market.
According to National Bureau of Statistics, the impact from coronavirus epidemic is ‘controllable’ and short-term. It is hopeful that the authorities in China would implement policies aimed at improving the economic conditions and indicators post-COVID-19 period, but other analysts do not share this view.
Prior to the worsening of coronavirus outbreak in China, the analysts had assumed rapid recovery for the Chinese economy, similar to the case of SARS outbreak in 2003-2004. However, the outbreak worsened rapidly after January, just as the businesses were getting ready to close down, owing to Chinese New Lunar Year. With the New Year celebrations just around the corner, the pandemic situation worsened in China, forcing businesses to close their shops for an interminable period. Additionally, transport and trade restrictions further dampened the economy, delaying the re-opening of businesses for weeks.
The delay in re-opening of businesses brought with itself a host of other problems—layoffs and low production. Europe and United States, which relied on Chinese-made components and parts were faced with acute shortages, resulting in an overall disruption of the global supply chain.
The global supply chain was already under strain due to high costs—after coronavirus struck China, the supply chain buckled under the weight of low productions and high costs. China’s exports plummeted by 17.2% in the first two months of this year, with demand rapidly slumping—leading to deflation.
The fall in China’s GDP is indicative of just one thing—economic contraction. As businesses across China shut down and closed their doors, the production of goods declined sharply. Combined with the huge number of layoffs, this slowdown in production affected trade of China with other countries, bringing the total exports down.
What’s Next for Chinese Economy?
While it is true that China was at the epicenter of the worst pandemic to hit in the current decade, the road to future recovery is a bumpy one. Although businesses are back to work in China, the underlying problem still persists. The countrywide lockdown has affected more than just the citizens. It has affected consumer demands and hurt business sentiments to the point where it is not possible to recover easily. Due to ‘social distancing’ measures (in place to restrict the spread of the virus), the people residing in villages are finding it hard to return back to cities for work. That would directly affect the business production of China’s industries.
After the coronavirus disrupted life in China, it moved to other countries, affecting the global economic situation. Although analysts in China are positive that it would emerge more quickly than the other countries from coronavirus, the road to recovery of China’s GDP is still a long one. This is because the slowdowns of other economies is bound to create a ripple effect that will strike China back again—not to mention the global recession and trade disruptions.
Back to the Future
The future for Chinese economy is not a weak one. Although the country is still recovering from the huge shocks of COVID-19, analysts are positive that China will rebound to its previous GDP and trade activities. With businesses seeking ways to recover their losses, many of them are coming to the conclusion that reliance on a single market (export, retail or manufacturing market) is unsustainable in recent times. Companies need to diversify their business and product lines as a means to recover the losses and high costs.
The recovery is likely to be quite weak, given the hike in Chinese unemployment. This unemployment is a sure precursor of depressed consumer spending, which in turn will affect the demand and supply cycle. Moreover, the global spread of the virus will certainly affect the export-import cycle, even if factories return to normal work. However, the future is not bleak for the Chinese economy, although it might take more than a year for things to return back to normal.
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