Survivors. How Chinese economy is recovering from epidemic
China's coronavirus action is one of the best examples to date. Its fight against economic consequences is at a level.
In China, they say, "Ant bone sharpens" (蚂蚁 啃骨头). Recovering from the economic shocks, the Chinese began to systematically and seriously fight the coronavirus: now the peak of the epidemic in China has passed, all major industrial areas of the country restored the enterprises, and the yuan and the stock market were supported by the government.
And the economic crisis was significant. Compared to the same month last year, consumer goods sales showed a minus 20.5% (or 23.7% with inflation), and categories such as clothing (-30%) and furniture (-33%) were hit hardest.
According to the latest Chinese statistics, in February, the PMI business activity index dropped from 50 to 37.5%, export orders - from 48.7 to 28.7% and services - from 54.1 to 29.6%, fell sharply.
Separately, the 25.6% drop in direct foreign direct investment in China, which totaled $ 6.69 billion, was also worth mentioning. In comparison, in December 2019, there was more than $ 19 billion in FDI. Investments in fixed assets also fell by 24.5%, among them the reduction of infrastructure investments by 30.3% deserves special attention!
Foreign trade in the Middle Kingdom was also on the decline, as indicated by Chinese customs figures: compared to the same month of the previous year, trade in goods in the first two months of 2020 decreased by 11% to $ 592 billion, with exports losing 17.2%. declining to 292.5 billion and imports up 4% to $ 299.5 billion, which is the second time in two years China has a negative trade balance of $ 7 billion (the first time was in March 2018 in time of beginning of trade war with the USA - about 5 billion).
The main items in the drop in exports were electronics and parts, furniture, toys and steel. The volume of their deliveries abroad has fallen by more than 20%. Due to the fact that many airlines have now canceled flights, the cargo is first delivered to Frankfurt and then by trucks to its destination.
Considering that the Chinese authorities need to maintain the food safety and performance of the factories, in February 2020, the following import categories sharply increased: meat (+ 69.6%), coal (+ 33%), microcircuits (+ 26%), cellulose (+21 %), soybean (+ 14.2%) and cereals (+ 7.4%). As a result, there will be negative growth in the first quarter of 2020 in China. Goldman Sachs estimates that the fall will be 9%.
The main reasons for the economic decline of such depth are the following:
1. For March, it will not be possible to restore all production stopped in January-February.
2. The industry startup factor will not correlate with the capacity load factor, meaning the industry will not operate at full strength.
Chinese media have been criticized for resuming production. After all, the main criterion for production control is the level of electricity consumption, which is why some enterprises, such as in Zhejiang Province, started idle - the equipment was switched on but without workers. And the electricity bills became the basis for informing Beijing and the public about getting started.
3. Uncertainty with sales due to the outbreak of the virus in the US and EU - the main consumers of Chinese exports. It is unlikely that these markets will be able to generate the demand needed to accelerate Chinese industries in the near future.
4. Implementation of infrastructure projects has not been initiated. And the real estate market cannot be a driver because of market regulations (there are 482 in total). According to Chinese law, housing is built in order to "live, not for speculation", that is, the buyer needs to prove that he will live in this apartment, as well as have a higher education, work in the same city where the purchased square meters are , and pay taxes.
Desert concrete giants are somberly awaiting potential tenants who are not particularly in a hurry to invest in real estate amid the crisis. Thus, an unfulfilled offer in the real estate market is increasing: ghost cities such as Ordos in Inner Mongolia are emerging - entire neighborhoods in the middle of a desert with no inhabitants.
5. Consumption has not supported economic growth due to mounting uncertainty (unemployment has risen to 6.2%, Chinese are in no hurry to spend savings, and inflation is 5.2% in February). At the moment, traditional Chinese consumerism has not become a "plan B" that would mitigate the economic downturn.
Naturally, the central authority has to soften the blows. In February, the Central Bank of China poured $ 173 billion into the economy and another $ 79 billion in March. In both cases, the goal of quantitative easing was to increase domestic liquidity. According to research by The Economist, this allowed the Chinese stock market to remain afloat, unlike other countries' stock markets.
The economy is also supported by other fiscal methods - tax exemptions for micro, small and medium-sized businesses. Especially it concerns the enterprises producing medical goods.
China, in contrast to a number of countries, has the advantage of using financial means of economic recovery in times of crisis due to the coronavirus - a peculiarity of its economic model in which the government plays a fundamental role. Accordingly, Beijing has more room for maneuver than developed countries, which has allowed the Chinese to reduce the negative for their markets and businesses.
The Chinese government has set a "political goal" to achieve 5.6% economic growth in 2020. Most likely, given that Beijing does not currently have high hopes for exports, the main driver of economic growth this year will be proven (in 2008 experience) infrastructure investments. They are funded by local government bonds. China's eight most industrialized provinces have already submitted $ 391 billion in investment plans.
For example, in Chongqing alone, 1,136 projects worth about $ 50 billion are planned to be implemented. According to a study by Chinese students in the US, local governments tend to exaggerate real economic data to reach central government figures.
Where will the funds be directed? In addition to traditional infrastructure, such as buildings, transport communications (high-speed trains and highways), nuclear power, hydropower, the spheres of the fourth industrial revolution will be enormous: 5G, big data centers, smart cities, the Internet of Things, artificial intelligence. One of the goals of the Chinese government is to overtake the West in 5G users by 2025 (600 million Chinese).
From China's point of view, it is precisely the advantage of know-how that will help him to win the "technological confrontation" with the US that emerged after the "tariff war" and to succeed in implementing the national program "made in China 2025" - the production of quality products with high added value .