How will China Recover?

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May 1, 2020

The world as we know it has undergone drastic changes in the last three months. The way we access basic necessities, exercise, educate and socialise amongst countless other nuances that we as individuals once took for granted are now limited. The magnitude and speed of collapse to our usual freedom has been unlike anything most of us have experienced in living memory.

The virus is impartial to its victims, infiltrating nations and taking our loved ones with seeming impunity. The immediate effects are obvious, we’re living with them as this is being written – but it’s the long-lasting consequences of economies grinding to a halt that we will, as a global community, have to confront. Will I still have a job? How long will containment laws be in place? How will we as a society interact with one another, once we’re allowed to? How will we support the most financially vulnerable? How will our nation recover economically?

The answers to these questions can possibly be sought by turning our gaze to China. President Xi Jinping has sent the clear message that his nation is back and has now offered aid in the form of doctors, masks and ventilators to Europe, Africa and even the USA. This is a small display of power that could hasten a tipping of the geopolitical scales in its favour; however, business is proving to be very different since coronavirus took a stronghold in Wuhan. Foreign visitors are still banned from entering and locals are undergoing airport style security checks to use even the metro. These simple measures will restrict and slow the economic resurgence, but for good reason; to minimise the chances of a spike in reinfection.

Commodity market analyst He Tianyu said factories in China are now coming back online and aiming for an increase in demand again. However, the population is being cautious, not only with venturing outside, but also due to large numbers of personal bankruptcies and soaring prices for basic goods. Reports have been made that the poorer citizens are pooling their money together for a discount on buying food in bulk; it would seem the confidence of the nation has been shaken. A notion supported by the findings of a survey conducted by a financial firm in Beijing that found 65% of those who responded said they would be wary and restrained with their future spending.

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As the outbreak has spread to all of China’s key trading partners the economic downturn will be doubly damning. Global demand has fallen and consumer confidence for Chinese products may well take a knock, possibly resulting in each nation concentrating on producing their own goods. Stepehen Olsen of the Hinrich Foundation has said “Business executives are rapidly coming to the conclusion that over-reliance on a single market, either as an export market or as a provider of intermediary or finished goods, is unsustainable,” he said. “Companies will look to make their operations more resilient by diversifying markets and developing alternative sources of supply.”

According to ANZ Research, a resumption of economic activities “does not guarantee a sharp V-shaped economic rebound,” referring to economic cycles that see a steep fall before recovering sharply. 

Without a speedy recovery, economists are predicting China’s GDP to shrink drastically in the first quarter of 2020 – something that hasn’t been seen since Chairman Mao’s era in the 1970’s. “No matter what Beijing engineers domestically, the growth rate will be capped significantly by what’s transpiring across the rest of the world“ said Leland Miller, chief executive officer of China Beige Book. Miller went on to say “Even if you do see an extraordinary level of domestic resiliency — which I should point out is not yet evident in any of our data — the global spread of Covid-19 has shut down all of China’s major trading partners at just the wrong time”. The timing, in short, is tough for a recovery in China.

Amidst a wave of economic stimulus packages across the world, China has sought a different approach. The USA has given all but the wealthiest adults a $1,200 cash cheque, despite Trump denouncing socialist acts, whilst the U.K. has offered a furlough scheme to those unable to work. Prominent Chinese economists have called for their government to encourage consumer spending again, resulting in a voucher system. This soon to be nationwide system will give each citizen a short-term voucher that must be spent quickly or will soon become worthless, with the argument that a cash injection does not guarantee spending.

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The variety of methods being implemented world-wide shows that there isn’t one tried and tested answer for social or economic recovery. This is a live test that we’ll have to surpass together. There will likely be a shift in global power, with those who have managed and successfully navigated this pandemic at the forefront. However, the battle to contain COVID-19 has made one thing abundantly clear; claiming triumph too soon can be costly to the economy and is potentially lethal for their populace. Many lessons can be learned from each other at this time, and international support will be key for us to all move past this hurdle as one global village.

“Freedom means the opportunity to be what we never thought we would be.” —Daniel J. Boorstin


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