Coronavirus hits China’s economy twice as financial contagion spreads across the globe

BEIJING — Chinese businesses are getting back to work just as many parts of the world are shutting down, and that could add a second jolt to the world’s second-largest economy.

Mainland China has reported zero new domestically transmitted confirmed coronavirus cases for the last two days, bringing some relief to a country that’s been fighting the disease since it first emerged in late December in the city of Wuhan. More than half the country extended a Lunar New Year holiday by at least a week in an effort to limit the virus’ spread.

Now, data indicates that most of the Chinese businesses that survived the outbreak are back at work. Official and third-party figures say the resumption of work rate is generally 70% or even higher. 

But COVID-19 has now spread globally, and concerns the pandemic will cause an economic recession have roiled global markets. In the last day, the total number of deaths from the virus in Italy topped that of China, where the death toll is above 3,200.

“Even if you do see an extraordinary level of domestic resiliency — which I should point out is not yet evident in any of our data — the global spread of Covid-19 has shut down all of China’s major trading partners at just the wrong time,” Leland Miller, chief executive officer of China Beige Book, said in an email.

“No matter what Beijing engineers domestically, the growth rate will be capped significantly by what’s transpiring across the rest of the world,“ Miller said. His firm publishes a quarterly review of the economy based on a survey of more than 3,300 Chinese businesses.

This week, several economists cut their forecasts for China’s GDP, predicting a sharp contraction in the first quarter and low single-digit growth for the year. Last year, the country’s official, although frequently doubted, GDP growth rate was 6.1%, the slowest since 1990. 

Here are some of the revisions:

• Nomura: to 1.3% from 4.8%
• The Economist Intelligence Unit: to 2.1%, from 5.4%
• China Renaissance: to 3.5% from 5.6%.

The downgrades came after China’s National Bureau of Statistics on Monday reported a dismal picture of the economy in January and February. 

“We were just wondering about the government’s willingness to admit it in the official data (before cutting our forecast),” said Tom Rafferty, principal economist for China at The Economist Intelligence Unit.

Given the global pandemic, if the Chinese government insisted on reaching a higher growth rate for the year, that would now require a dangerous amount of stimulus, Rafferty said. “Our base case is stimulus is coming. It’s not going to be the same level (as it was in) 2009.”

“Next year things should be back to normal in terms of global demand and supply,” Rafferty said.

The International Monetary Fund expects China to contribute more than a quarter of the global growth in the next five years, which means the exporting and manufacturing giant’s ability to resume business is critical for the world economy.

But China also has its hundreds of millions of consumers going for it.

“A key mitigating factor for the overall economic growth of the Chinese economy during the rest of 2020 is that domestic consumption has become the most important growth engine for the economy in recent years,” Rajiv Biswas, APAC chief economist for IHS Markit, said in an email.

“Therefore although China’s export sector will be hit during coming months by the impact of the global recession, a recovery in domestic consumption should help to underpin China’s economic recovery during the remainder of 2020.” 

IHS Markit predicts China’s real GDP will grow 3.9% this year.

Although the resumption of work rates has ticked gradually higher in the last few weeks, underlying problems persist, such as the inability of workers in rural areas to return to their jobs in cities and a slower recovery in consumer demand for eating out.

As of Monday, services businesses relating to daily life have resumed work nationwide at a rate of more than 60%, but there’s a certain gap from the resumption of work of manufacturing, according to the Ministry of Commerce.

Consumer sentiment needs time to recover, resulting in few customers and lower income for businesses, which means the motivation for resuming work is not strong enough, the ministry said Thursday.

“Although China might emerge from the coronavirus before others, it is still a long way from returning to normal, and slowdowns in other economies will ripple back to China and dampen demand,” Stephen Olson, research fellow at the nonprofit Hinrich Foundation, said in an email. “China’s imports are unlikely to return to pre-coronavirus levels any time soon.”

Olson also pointed out that the virus will likely cause other shifts in economic activity away from China. “Business executives are rapidly coming to the conclusion that over-reliance on a single market, either as an export market or as a provider of intermediary or finished goods, is unsustainable,” he said. “Companies will look to make their operations more resilient by diversifying markets and developing alternative sources of supply.”

Here’s a roundup of some resumption of work data for China:

• A “China Economic Recovery Index (CERI)” that analyzes mobile geo-location data rose to almost 81% on Tuesday, versus nearly 74% a week earlier, according to Chinese online bank’s WeBank artificial intelligence team.
• China’s Ministry of Commerce said that as of Tuesday, the resumption-of-work rate for nearly 6,900 key foreign-invested enterprises in China had surpassed 70%.
• Daily power coal consumption by the six major power generation groups as of Thursday was 17% below the same post-Lunar New Year holiday period, unchanged from last week, Morgan Stanley analysts said in a Friday report. 
• Of those who left tier-1 and tier-2 cities for the holiday, 81% have returned as of Thursday, the report said.

Correction: This story has been updated to reflect that China Renaissance cut its GDP forecast from 5.6% to 3.5%. A previous version misstated the figures.