Coronavirus strikes Chinese economy but new trends to emerge

Image: NYT

From the short to mid-term outlook, the Chinese economy will take a devastating blow. February has turned into a lost month as the Central Government has imposed strict quarantine measures and travel restrictions nationwide. Major metropolitan areas of the country had turned into ghost towns while many public places, shops and restaurants all over the country were ordered shut down until further notice.

Chinese schools will remain closed at least until March, China’s annual ‘Two Sessions’ when the Chinese People’s Political Consultative Conference (CPPCC) and the National People’s Congress (NPC), which are regularly scheduled to convene in Beijing on March 3rdand 5th respectively, has been postponed. Meanwhile, as of Thursday – Feb. 20 – businesses, public transportation and government offices are slowly getting back to normal.

Yet the country has not entered an economic catastrophe stage and starting in March, we will witness the country going into a rebound after overcoming its “black swan” event, when a national economy gets severely disrupted by challenges beyond their control, such as confronting natural disasters, wars and deadly epidemics. In recent days, the number of newly-reported confirmed COVID-19 cases in mainland China have been declining and we can anticipate that pattern to continue.

China’s Central Bank the People’s Bank of China (PBoC) has done its part to stabilize the economy by pledging to spend over 1.2 trillion yuan (US$170bn) to spur growth in the domestic economy. Experts are forecasting the PBoC to pour in over $300bn into the financial markets while slashing the benchmark prime loan rate.

Beijing is expected to announce more tax cuts and plans to boost public spending for the year. Perhaps these measures alone will not salvage the economy and for China to strike an annual gross domestic product (GDP) growth rate of 6% or higher this year. We could be overly optimistic to anticipate China’s economy would hit a 5% growth rate as well.

But that’s not so disastrous for the country either. No nation can maintain soaring GDP annual growth rates on a permanent basis, while boom and bust cycles are necessary to restore equilibrium in the markets. China’s property was surging too high, especially in the cities. Chinese factories were reconverting into automated manufacturing and that was going to result into robots replacing millions of human labourers on assembly lines. The COVID-19 outbreak has served as a shock to the system but has generated the right conditions for the national economy to undergo a dramatic transformation. 

The E-commerce, healthcare, agriculture, science & technology industries will prosper as the Chinese adapt to the ‘new normal’ quarantines and public health scares. Look to see new growth opportunities in China’s rural regions, since many small businesses will struggle under a huge wave of bankruptcies and job, due to many shops and restaurants getting shuttered amid the outbreak. People directly impacted could choose to stay in their rural hometowns to start their lives all over and to open up new shops and other businesses there.

Additionally, companies including Hangzhou-based Alibaba Group, China’s largest e-retailer, could witness much brighter days on the horizon as they cash in big-time on Chinese consumers who are required to stay at home to wait out the COVID-19 outbreak. Hence, home-bound consumers will be making all their purchases and that will include buying food and daily necessities. For example, Alibaba’s chain of offline retail grocery stores, Hema, stands primed for much greater success by allowing Chinese customers to order goods from the store through a mobile app.

Image: SCMP

The Hangzhou-based retailer has also upgraded their offerings of food delivery services by hiring many restaurant cooks who had been unemployed during the quarantine. They were hired to cook up pre-ordered meals for online customers and it’s become a trendy dining service in Shanghai and elsewhere in the country.

The Shenzhen Municipality has been communicating with local manufacturers that were facing hard times and supply chain disruptions during the quarantine. Local officials are offering more state subsidies and assistance for them to reconvert manufacturing equipment if they agree to produce more face masks and other medical devices that can be used for the prevention and treatment of the COVID-19.

Chinese schools remain shut down, but parents are still eager to provide a good education for their children. Many families are paying for subscriptions to sign up for new teaching apps and online education resources. A number of teachers are going back to the classrooms by teaching their students from their homes, via live-streaming videos.

More people will be working at home even after the virus dies down. Employers and employees are already discovering that workers don’t require offices space to keep staff productive and to meet their workload expectations. Hence, meetings will just be a simple teleconference call. Software development firms should rush ahead to integrate computers and mobile devices with more upgrades and faster WiFi connection speeds to improve the quality of video conference calls. The best strategy would be to tap into China’s 5G telecom networks.

In other words, the COVID-19 outbreak won’t wipe out China’s economic prospects but it will lead to dramatic structural changes. Those who succeed under the rapidly changing circumstances will be the companies and people who move forward to adapt into a more hi-tech, innovative and online-oriented marketplace. You will also witness the rise of rural China in the long-term.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team

Thomas Weir Pauken II

Thomas Weir Pauken II. is the author of the book, US vs. China: From Trade War to Reciprocal Deal and commentator on Asia-Pacific affairs based in Beijing. He could be reached at tmcgregorchina@yahoo.com

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  1. 3rd May 2020

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