Chinese Economy Struggles To Recover Due To Slowing Economic Growth Pre-Pandemic
China’s intense public health response to curb the coronavirus outbreak stalled the economy and is expected to result in China’s first economic contraction since the Cultural Revolution in 1976, according to South China Morning Post. There is skepticism that the Chinese economy will experience a v-shaped recovery in the second quarter in the year, since not all industries are rebounding equally. Although the construction industry is restarting smoothly, the manufacturing sector is still experiencing a lack of global demand.
Before the coronavirus outbreak in Wuhan, the Chinese economy was already slowing down. The prolonged trade war between the U.S. and China has decreased the growth rate of the Chinese economy. During the fourth quarter in 2019, the economic growth rate had decreased to 6.1% putting it at a 29 year low, according to Reuters.
“It was the receding damage of the trade war that has supported the stabilization of GDP growth in Q4. In consumption, retail sales growth is also stabilizing, showing that the spending momentum is still pretty resilient despite downward pressure on labor market,” said Michelle Lam, Greater China Economist at Societe General.
China’s position as a leading global manufacturer is also threatened as countries around the world deal outbreak within their own borders. Throughout China, factories have opened but are only operating at 50-60% capacity because there is not a global demand for exports, according to the New York Times. Some factories are reopening in order to receive government subsidies but are not producing because of lacking demand.
“Because of the epidemic, all the orders have been canceled,” Shirley Zhuo, who works in China’s manufacturing sector, said. “If the orders are canceled, the production cannot be completed, and the venture is shut down.”
The Chinese government is working to find different initiatives that decrease growing unemployment throughout the country. For examples, while factory capacities are going underutilized, graduate program capacities are being expanded. The National Education Ministry added 180,000 spots to graduate programs in the fall, which will serve as an appealing alternative to young people without a job.
Additionally, China has worked to keep foreign investment within the country. In February, foreign direct investment decreased by 25.6% to $6.7 billion according to the Wall Street Journal. The decrease in foreign direct investment was particular damaging to the economy given that the U.S.-China trade war had already driven some companies to move manufacturing out of China.
“We must implement targeted policies to arrest the slide in foreign trade and foreign investment, to forestall damage to the wider economy,” Premier Li Keqiang told China’s State Council.
As a result, the Chinese government has taken an active role in helping foreign companies restart production and focus on achieving full production capacity. For example, the Chinese government worked with Ford to mitigate supply chain disruptions. The Commerce Ministry has also instructed local governments to reach out to foreign companies and help address any barriers to manufacturing. The efforts have resulted in new commitments to foreign direct investment. Walmart has committed to investing $425 million in Wuhan during the next five years, according to the Wall Street Journal.