Coronavirus: China’s Xi Jinping promises action as economic growth machine stalls in first quarter of 2020
Contraction of 6.8 per cent in the first quarter of 2020 ends China’s long unbroken official run of economic growth
Politburo meeting chaired by President Xi Jinping vowed to support the economy, amid the biggest crisis in decades
Finbarr Bermingham and Zhou Xin
Even as the surveyed jobless rate – the official measurement of unemployment in China – fell to 5.9 per cent from the record 6.2 per cent in January and February, many economists believe real job losses are more rife.
Chinese President Xi Jinping promised the government would take more aggressive steps to support growth after the economy shrank by 6.8 per cent in the first quarter.
A politburo meeting chaired by Xi on Friday concluded that China would be more aggressive in its economic policies to counter the impact of the coronavirus, after the first contraction since quarterly records began in 1992.
The last official contraction in 1976 had been for the full year, and came as China was coming out of the Cultural Revolution.
In a statement, the decision-making body said it would prioritize boosting domestic demand, encouraging consumer spending and increasing public spending. The 25-member committee said China will raise its fiscal deficit ratio and issue special government bonds. It also urged the central bank to use tools, including interest rate cuts, to support growth.
“We should look at the economic situation in the first quarter with a normal heart, we cannot simply compare the economy this year with the previous ordinary years,” said Mao Shengyong, spokesman for the National Bureau of Statistics, alluding to the extraordinary challenges of the year so far.
The 6.8 per cent shrinkage in China’s economy was deeper than many expected, although economists were divided on how deep the contraction would be, and how honestly it would be reported.The figures also showed that in March, as China’s lockdown was easing, severe headwinds remained. Retail sales, a key part of consumer spending, had not recovered nearly as much as was hoped, falling by 15.8 per cent last month after an all-time low of minus 20.5 per cent in combined data for January and February.
Disposable income has collapsed, a huge problem for a V-shaped recoveryAlicia Garcia Herrero
Scarred from the shutdown, with real fears over long-term unemployment and income, people are not spending money. The new figures detailed the problem: disposable income in China fell by 3.9 per cent over the first quarter, while earlier in the week job openings fell 27 per cent over the same period.Even as the surveyed jobless rate – the official measurement of unemployment in China – fell to 5.9 per cent from the record 6.2 per cent in January and February, many economists believe real job losses are more rife, given the data only measures long-term urban unemployed and not the nation’s vast army of migrant workers.
It all means that even as the government money ploughed into construction projects starts to bear fruit, consumer confidence will take more time to heal.“If you wonder why Chinese people have stopped consuming, do not think it is only panic saving. Disposable income has collapsed, a huge problem for a V-shaped recovery. Infrastructure-led stimulus will not work; only one boosting income will make it. But can China provide helicopter money?” said Alicia Garcia Herrero, chief Asia economist at Natixis, referring to proposals to give direct payment to citizens to help them pay their bills.
Liang Zhonghua, chief macro analyst at Zhongtai Securities, added that these insecurities have ensured that hopes of a quick recovery in China have all but vanished.
“The decline in individual income, the rise of unemployment, and the closure of many companies and self-employed businesses will all weigh on the total demand over a longer period of time,” Liang said. “The economy can be quick to pause, but slow in getting back to normal.”Beijing is likely to have to abandon its economic growth targets for the year and focus on ensuring people keep their jobs, analysts said. Next year is the 100th anniversary of the founding of the Chinese Communist Party, an occasion which was set to be marked by a doubling of the Chinese economy’s size from its 2010 level – a target which also may have to be abandoned.
Because as well as the domestic challenges, which Beijing can at least take steps to address, there are external challenges it can do little about. With large parts of the world now in coronavirus containment mode, China’s exporters are frozen out of their marketplaces.
What is gross domestic product (GDP)?
It means the modest recovery in the industrial economy, in the form of a better-than-expected 1.1 per cent slump in March, is unlikely to last.The severe downturns in the Eurozone and American economies, meanwhile, mean analysts at TS Lombard are now expecting Chinese exports to drop by 40 per cent in the second quarter – a mind-boggling figure by any standards, but even more so by those of the world’s biggest trading nation.
“We believe hopes of a quick recovery are dimming, as China still faces two dire challenges,” said Lu Ting, chief China economist at Nomura. “Collapsing external demand due to the pandemic and the rising threat of a second wave of Covid-19 infections. We expect year-on-year real [gross domestic product] growth to remain negative at minus 0.5 per cent in the second quarter.”
The importance of preventing a second wave of infections is also front and centre in the thinking of policymakers.