How Much Will Coronavirus Damage China's Economy?

June 20, 2020 Topic: Security Region: Asia Blog Brand: Coronavirus Tags: ChinaCoronavirusPublic HealthPandemicGDPChina Economy

How Much Will Coronavirus Damage China's Economy?

Can Beijing bounce back?

The coronavirus crisis is getting out of hand across the world, with many countries already struggling to avert the catastrophic economic realities that the outbreak has caused. The deadly viral pneumonia has been worsening by the hour, prompting countries such as Italy, Spain, France, and Germany to lock down some of their urban centers. People all over the world are being advised to self-quarantine for at least a month and that has adversely affected consumer behavior. Manufacturing, supply chains, and service delivery is paralyzed in most leading economies.

But even as the world grapples with the possibilities of international trade crashing, there is one economic superpower that has been hit by coronavirus more than any other in the world: China. 

Almost every country has restricted travel to and from China, Wuhan and other provinces have been locked down, and business across the country is seriously threatened as a result. These new developments are undercutting the stabilization China had seen in December 2019. Financial experts are predicting that if the virus continues spreading, the country’s GDP will contract not just in the first quarter of 2020 but in the second and third quarters compared to 2019. This will be a major concern for China particularly because that hasn’t happened in thirty years.

Possible Layoffs

More often than not, economic downtime is characterized by massive job losses. Following the sudden and dramatic economic downturn in China, workers’ layoff is inevitable. In fact, only a few, well-structured businesses will avoid shutting down operations altogether if this pandemic persists. Most companies in Wuhan, where the virus was first identified, have already sent more than 75 percent of their workforce packing. It is practically impossible to run a business when the government has ordered people to self-quarantine. Experts say that even if the pandemic is countered by the end of March, at least 5 million jobs will still have been lost. This number is likely to rise if the virus extends April and subsequent months.

The only shred of hope for the Chinese workforce right now is that about 30 percent of Chinese SMEs are almost back to normal operations, thanks to speedy intervention by the Chinese government. In an effort to prevent unemployment to rise in the coming months, the government is offering employers subsidies just to help them retain as many of their employees as possible. The government is also lending credit to companies, just to help keep employment stable. But even with the recovering job market, labor productivity in the country remains low because of self-quarantine. On the other hand, supply chains in and out of China are deteriorating day by day, which will most likely harm foreign investment. If you intend to set up a company in China after the pandemic, you are likely to have a better chance of getting the best Chinese talent thanks to the ongoing layoffs.

5G is Still Strong in China

China is still the leading country in the adoption of 5G wireless network, despite the hard-hitting coronavirus outbreak. This has been achieved through the Chinese state-owned mobile operators, coupled with the fact that middle-class Chinese are very enthusiastic about next-generation 5G wireless networks.

Mobile operators in China are keen on diversifying their 5G offerings one year after the technology rolled out in the country. The rollout of 5G networks will play a key role in China’s digital infrastructure going forward, and the increased connectivity for private citizens and commercial entities will be instrumental in the revival of the economy across the country.

Which Industries Have Been Upset the Most by the Lockdown in China? 

The Automotive Industry  

Automotive manufacturers, especially in Hubei province, have lowered their auto parts production by almost half. Some manufacturing plants have shut down, consequently upending global automotive supply chains. We can expect an acute shortage of auto parts in the coming months. 

The Smartphone Market 

Tech factories’ shutdown is dampening the production of smartphones and other high-tech devices. China-made phones might be out of the market soon. 

The Travel & Tourism Business

Airlines and everyone in the hospitality sector are already feeling the heat of travel restrictions on the busy China sector.  

The Gainers

There are industries that are reaping big from the spread of coronavirus. Online retailing, for example, is on the rise. Shoppers are opting to order essential supplies online as opposed to going to offline stores. Online food delivery service, among other contactless delivery services, is also flourishing at the moment. Other products that have not been affected negatively by the Chinese lockdown include pharmaceuticals, biotech devices, and face masks, among other medical supplies.

Clare Merrithew is a business development professional. She enjoys using what she has learned from seven years of studying business to help others achieve business growth through identifying new business opportunities—including new markets, growth areas, trends, customers, products, and services.

Image: Reuters.