Commentary on Political Economy

Sunday, 22 March 2020

China’s bouncing back from the coronavirus — or is it?

If China eases restrictions on the movement of people and traffic, it could unleash a fresh wave of infection
If China eases restrictions on the movement of people and traffic, it could unleash a fresh wave of infection

While Britain grapples with an economic shutdown, China is talking up how its economy is hurtling back into business.
The evident determination to convey an impression of recovery followed President Xi Jinping’s triumphal stroll around the city of Wuhan, seat of the coronavirus outbreak. The week before last, he declared the disease’s spread had essentially been curbed. The state-controlled media has been pumping out reports of a country getting back to work.
Xin Guobin, a deputy industry and IT minister, said 95% of big businesses were back up and running and 60% of small and medium-sized enterprises had resumed operations. It is also claimed that 90% of state-owned enterprises — about a quarter of the economy — are back on line.
However, the picture on the ground contrasts sharply with claims of an almost miraculous turnaround after a slump that hit the Chinese economy harder than any time since the 1966-76 Cultural Revolution.
What seems to be happening is that although many firms have resumed production, they are some way from returning to normal. Recruitment agency released figures last week from a survey of 7,129 employees, reporting that only 40% of firms were back to where they were before the crisis.
A maker of catering equipment with production facilities in Shenzhen said he was mystified by official reports of China getting back to normal. He relies heavily on migrant workers from other provinces and “most of them have still not come back”, he said.
Then there is the problem of parts: “I have no idea when I’ll get them — they are held up somewhere, I’m not sure where.”
He was cautiously optimistic that these issues can be overcome. His next problem is that he supplies equipment mainly to restaurants in nearby Hong Kong, where business is dire.
His experience is far from unusual. A survey by the American Chamber of Commerce of South China found that half the companies questioned were experiencing supply chain disruption, and 15% had run out of supplies altogether. Almost a quarter were suffering labour shortages.
The American Chamber of Commerce in Shanghai said that 80% of respondents reported labour shortages.
China’s industrial sector is heavily dependent on an army of 130 million migrant workers. China’s Ministry of Human Resources and Social Security says about 60% have returned to work. However, there are difficulties bringing them all back, because the coronavirus outbreak coincided with Chinese New Year at the end of January, when most returned home, often travelling thousands of miles to get there.
Most migrant workers are not counted in China’s official unemployment figures, which rose from 5.3% at the end of last year to 6.2% in February — the highest on record. And industrial output tumbled 13.5% in the first two months of the year, according to the National Bureau of Statistics.
These figures may underestimate the situation. Most years, the sum total of GDP figures from provinces exceed the national total — regional officials are loath to report poor performance.
Nevertheless, the available data suggests a direction of travel. The economy is almost certainly coming back to life, although the extent of the recovery is hard to pin down.
One heavily-used proxy for Chinese economic growth has been electricity consumption. The first government figures for power generation this month were released last week, showing a 9.9% boost from the end of February.
Taiwanese-owned Foxconn, the world’s largest component manufacturer, says normal production in China will resume by the end of the month. Good news for Apple: Foxconn is its primary iPhone assembler.
Big car-makers such as Toyota, Volkswagen, Mercedes-Benz and local brand Geely are pumping up assembly lines again, but none has yet said production matches pre-shutdown levels. Car sales that fell 78% in February have ticked up this month but remain at almost half the level of a year ago.
In Wuhan, home to 11 million people, parts of the severe lockdown have been lifted. The city is a key hub and life is returning to its streets — an impression confirmed by data from AutoNavi, a live traffic app. It reported a 30% increase in traffic in China’s main shopping centres.
Local authorities are torn between caution, fearing that lowering barriers will lead to a new spate of infections, and a desire to comply with the leadership’s emphasis on resuming production.
China is still clinging to its declared target of 6% growth this year. Most countries do not dare look that far ahead, let alone with such optimism.

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