COVID-19: China May Lose Its Place in the Global Economy

COVID-19: China May Lose Its Place in the Global Economy

Chinese economy continues to plunge amidst the scourge of coronavirus. The Asian giant has had a handful from business to life losses, and it is threatening to cripple its economic power, setting the country up for a future full of uncertainties.

From tourism to manufacturing, China is helplessly watching unprecedented decline in its economy, instigating concern that the South Asia country may lose its status as world leading economy.

The National Bureau of Statistics (NBS) reported the recent decline in the manufacturing sector that has added to the woes that the country is putting on a fierce battle to contain.

According to the report, China’s official manufacturing Purchasing Managers’ Index (PMI) dropped to 35.7 in February from 50.0 in January, below the 38.8 figure reported in November 2008.

The non-manufacturing PMI – a gauge of sentiment in the services and construction sectors, also dropped to 29.6 from 54.1 in January, the lowest since November 2011.

The figures are scary because the scourge is still much at large and there is no solution in the coming weeks. Experts had predicted 45.0 for the month of February which ended up a bit higher and sent a warning of expectation for the worst.

Ren Zeping, chief economist at Evergrande Research Institute said the movement of the negative impact should be monitored as a step to curtail its escalation.

“The economy experienced huge negative growth in February, the trough has been reached, the duration of the impact should be monitored in the next step,” he explained “It is the time to call for new infrastructure to turn the crisis into an opportunity.”

The index shows a worrisome decline in export, import and employment. China’s export order sub-index dropped to 28.7 from 48.7 in January while import fell to 31.9 from 49.0. In the manufacturing industry, production plunged 27.8 in February from January’s 51.3, reading for new orders nosedived to 29.3 from 51.4 in January.

Within the manufacturing industry, employment went down also following the steps of others. There was a decline of 15.7 points from January’s 47.5, an indication of slowed activities in the import and export space. Though experts said the situation is partly due to manufacturers finding it hard to recruit the exact workforce they need for specific roles, the high input price hub attributed it to high cost of manufacturing spurred by the disruption in the supply chain and distribution of logistics as a result of coronavirus.

“The pressure of imports and exports mounted over the manufacturing sector… some surveyed companies said that they had faced more order cancellations and delayed delivery,” Zhao Qinghe, senior statistician at the NBS said.

But he also expressed confidence that the coming month of March will yield positive results: “PMIs are expected to improve in March. The work resumption is ramping up and the market confidence is steadily recovering,” he said.

While focus has been on the manufacturing industry, other sectors of the Chinese economy are suffering greatly. The NBS said the automotive and specialized equipment industry were hit hard.

“There was a plunge in demand for consumer industries involving gatherings of people, such as transportation, accommodation, catering, tourism and resident services.

“Although the new coronavirus pneumonia epidemic has caused a larger impact on production and operations of Chinese enterprises… currently, the epidemic has come under initial containment, and the negative impact on production is gradually weakening,” the statement from NBS said.

Traditionally, companies in China close for the Lunar New Year celebration at this time of the year, but the period has been extended due COVID-19. Chinese businesses have found it hard to resume and it is having a negative bearing on the economy. The business activity expectation index was 39.7, from 58.7 that it was in January.

The economy is expected to show a weak growth in the first quarter of 2020 from the 6.0 percent where it was in the fourth quarter of 2019, the lowest growth in almost 30 years, mainly due to the trade war between China and the United States.

China has been noted to be defiant about the situation of its economy as a result of coronavirus impact. The country said the impact of COVID-19 will not affect its 2020 social economic goals. But Liang Zhonghua, chief macro analyst at the Research Institute of Zhongtai said the economy has been in trouble long before the outbreak of coronavirus and its impact will likely go beyond the disease.

“Looking forward, there is still a lot of economic loss that can never be remedied, even if the epidemic has passed. The mid and long-term impact of the epidemic cannot be ignored,” he said.

While the Chinese government appears to be downplaying the effects of the epidemic, private data is reporting a situation bleaker than what the government’s projection is saying.

February’s business conditions index compiled on Wednesday last week by Cheung Kong Graduate School of Business (CKGSB) in Beijing, showed an all-time low drop of 37.3 from 56.2 in January, a massive decline in a short period which tells of futuristic misfortune for China.

While China battles to bring its economy back to track, a whole lot of factors are at play stymieing the efforts. The inability of workers to get back to work, the country’s debt pile that is at $34 trillion as of 2019, and may likely incur a heavy increase at the end of coronavirus.

Though the Chinese government has rolled out a series of financial measures to keep the economy afloat, which includes lowering borrowing rate, loan extensions, tax reductions and waivers, and an injection of RMB 200 million, it will only minimize the impact. The gap that coronavirus has created in the manufacturing industry and other sectors of the economy will need quite some time to be bridged.

Experts said that if the “recovery time” lasts longer than it should, it may create room for another country to take China’s place in the global economy. A little more push and the EU or Japan will find their places above the once south Asia bubbling giants, that’s, if these countries are spared the uncontaminated oxygen to make the needed push since they are all fighting to survive the coronavirus epidemic.

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