China, the emerging ground of the COVID-19 pandemic, seems to be going back to its normal routine as the number of cases is affixed at zero. However, the fact of the matter is that the economy of the country was locked down for a good two months which has managed to cause drastic damage to the finances of the country. The current scenario delineates the acute losses China’s economy has undergone, and this may foretell what is going to happen in the countries that are present in the initial stages of the outbreak.
The economic crisis due to coronavirus is substantially going to impact the growth of GDP as there have been dual hits because of domestic slowdown and upcoming fall in demand of the global market. The governing authorities will now have to go through difficult choices whether to keep afloat its employment and meet the targets of annual-growth through spending that could endanger long-term stability of the economy.
Current economic scenario
The area that received the maximum jolt was the export-oriented industries along with travel and consumer spending during a major holiday season. The economic shock has been worse than the expectation with industrial production reduced to 13.5%, retail sales reduced to 20.5% and fixed asset investment came down to 24.5%.
During these months, a minimum of 5 million workers became unemployed resulting in a massive decline in the unemployment rate to 6.2%- the highest in decades. China was already facing economic slowdown even before the emergence of COVID-19 with 6.1% in 2019 against 10% in 2010. Economists are compelled to revise their growth projections downwards and it will continue to get revised as the blow of COVID-19 has now reached Europe, the U.S. and other major countries jeopardizing the demand of the global consumer. The weak demand would be another blow to the economy of China since 20% of total China’s exports go to the U.S., 9.2 % to Italy, France, Germany, and Spain with 10.6% to Japan and South Korea.
How the Chinese Government is tackling the Situation?
The sudden mount in unemployment and slowdown in growth rate has sabotaged the goal of China becoming a ‘moderately prosperous society’ soon. As of now, the government is stressing on recovering and returning to normal by the second quarter of this year. In mid-March, the government declared that 90% of the state-owned enterprises have continued operations as well as 60% of SMEs outside of the Hubei province.
Unlike the governments of other countries who are rapidly making plans to reshape their economies through fiscal and monetary policies, China’s government has moved stagnantly so far. Till now, the central government of China has put emphasis on tax relief and expanding liquidity. The People’s Bank of China has reduced the reserve ratio requirement to 1 % and lent $78.8 billion through banks to small businesses majorly affected by COVID-19.
Persistent crisis in Demand
Now that COVID-19 has become a global issue, the demand crisis is only going to get worse which would be followed by more decisions taken through the sessions of the National People’s Congress, China’s legislature and the Chinese People’s Political Consultative Conference. However, through sources, it has been deduced that there would be a massive increase in 2020 government budget deficit from 3% to 3.5% in Beijing due to spending around $ 390 billion which includes funds for infrastructure, local government bonds, emergency materials, public health, 5G and data centers.
Conclusion
As China has still not completely recovered from the global financial crisis of 2008, and there is a persistent structural slowdown, the increased budget would only lead to increased borrowings and crumbled economic stability.
Places such as Qian’an are known for having some of the largest mills in Tangshan where 10 percent of the total country’s steel is produced and holds extreme importance for the global markets that import metal. Through swiftly raising the production process in such mills, the impact of a pandemic can be relieved implying that the short, spiky shock to the second-largest economy of the world can expect a quick recovery – ‘V-shaped recovery’, but only if things go according to the plan keeping uncertainties aside.
Nevertheless, being the world’s second-largest economy, China would go forth with calculated measures and take certain risks to bring back political and economic stability.