How has coronavirus hurt China’s economy?

How has coronavirus hurt China’s economy?
Source: Reuters

With the world’s largest economies projecting downturns for the rest of this year and likely into the future, it’s clear that the coronavirus pandemic has affected the economy on a global scale.

China, the country where COVID-19 was first reported, suffered significant damage to its economy before it managed to get the virus under control within its borders.


The outbreak of the novel coronavirus, SARS-CoV-2, was first reported in the Chinese city of Wuhan, Hubei. The city of 11 million people was sealed off on January 23 for a total of 11 weeks in an effort to keep the virus from spreading through the rest of the country.

The lockdown of Wuhan has since been replicated in cities and countries across the world.

For the first quarter of 2020, during which the pandemic was at its height in China and was not yet recognized as a severe threat in other parts of the world, China’s gross domestic product reportedly plummeted some 6.8%.

As cities were put under lockdown and citizens were told to remain home, industrial production, investments and retail sales all fell.

China also suffered reductions in its exports, upon which it has traditionally relied, as a result of lower industrial production and factory closures. In May, exports were projected to contract by 7% on a year-by-year basis, with imports also dropping around 9.7%.

One exporter, Deng Jingling, stated at the height of the pandemic that “the orders are all gone. I’ve been in the industry for 15 years and this year is so extraordinary.”

China’s economy was already slowing before the pandemic arrived. Over the last decade, China’s GDP growth has fallen from double to single digit figures, as China’s leaders have attempted to make the country less reliant on exports and boost domestic consumption and living standards.

Yet, according to Ding Shuang, head of greater China economic research at Standard Chartered, COVID-19 has presented “the biggest challenge to the Chinese and the world economy during peacetime in modern history.”

The coronavirus presented a “sudden hit of the pause button” for China’s and the world’s economy, according to Shuang, at a time when China’s President Xi Jinping has pledged to eradicate poverty in the country in 2020.

China is not only the world’s second largest economy, in terms of what it produces, but it is also the world’s largest exporter. Crucially, it is with these exports that China possesses ties to the US.

In 2017, China exported some US$2.15 trillion of its production, ahead of both the European Union and the US, which placed second and third. Of these trillions, at least US$479.7 billion worth of goods were exported to the US in 2018, making America the single largest market for Chinese exports.

As a result, China’s economy is intimately tied to the US. What China produces tends to largely be bought in the US.

The coronavirus pandemic has altered this relationship significantly, however, and arguably to the benefit of neither side.

Trade during COVID

China’s economy suffered greatly at the beginning of the pandemic, but it may now be facing a boom instead of a contraction.

Although China’s authorities chose not to implement an annual growth target in May of this year, as has been traditional in years past, the country looks as if it will buck global trends and experience growth for the remainder of this year, possibly growing even further in 2021.

In Q2 2020, following its contraction the previous quarter, China’s economy grew 3.2%. This meant that the country effectively avoided a recession, which is defined as two consecutive quarters of GDP contraction.

China’s success in containing the virus domestically, aided by strict lockdown measures and government stimulus, has meant that while the country suffered initially at the beginning of the year it now faces the potential of a “V-shaped recovery” for the rest of the year, with brighter prospects than many of the world’s largest economies, the US included.

Meanwhile, as debate has continued over the next round of stimulus for the US economy and cases continue surging in parts of the country due to haphazard reopening measures in some states, the US economy does not appear to be on track for any comeback yet.

According to Nariman Behravesh, chief economist at research firm IHS Markit, “the U.S. won’t be the locomotive” to pull the world out of its pandemic-induced economic troubles, given that it has yet to resolve its own crisis.

If the US response to the pandemic had been better, Behravesh continued, “the rebound would have been stronger” and possibly have equaled the resurgence seen in China.

However, the economic and pandemic woes of the US is not good news for China. Although it is the US and not China that is facing contraction, China still remains dependent on the American market for exports.

The American market dominates the rest of the world in soaking up Chinese exports, accounting for 19.2% in 2018, far ahead of Hong Kong’s 12.1% and Japan’s 5.9%.

China’s business community is also wary of the economic contraction facing the US.

David Hu, manager of Yiwu Sinohood Bags Factory, which exports 40% of its products to the US, spoke to The Associated Press about the difficulties facing the two enjoined economies.

“The US market is important for us, and I am not confident about finding a replacement,” Hu said.

Although locked in an ongoing geopolitical conflict, neither China nor the US can afford to rejoice at the economic woes suffered by the other amid the pandemic.

Although China is currently seeing an economic resurgence after the contraction its economy suffered earlier this year, it is still dependent on exports for economic health and growth, despite the efforts of leaders to change this pattern.

The Chinese economy’s future success depends on its intimate ties to the US and the capability of US business and consumers to continue buying Chinese products.

The US, meanwhile, faces economic uncertainty over its pandemic response and a potentially lasting recession.

With the ongoing pandemic and no economic stimulus yet agreed upon by the US Congress, Americans may simply not have money to spend on products from China, further hampering China’s own comeback from the pandemic and hurting both economies.

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