Home / World Economy / World Economy News / COVID-19 undid 3 years of economic progress in China. Don’t expect a quick rebound, these experts say

COVID-19 undid 3 years of economic progress in China. Don’t expect a quick rebound, these experts say

A quick return to economic normalcy after the body blow of the coronavirus pandemic isn’t in the cards, if China is any indicator, Leland Miller says.

Miller is CEO of the China Beige Book, which attempts to provide a peek into the notoriously veiled economy. Right now, that view is grim.

China Beige Book’s just-released second-quarter report shows “an economy still mired in deep recession,” its analysts noted. Even more problematic, Miller said in an interview, it implies that the government of the world’s second-largest economy is willing to walk back steps toward a more progressive economic model in order to claw out of the deep recession created by the virus that was first identified there in December.

The firm, which uses survey data from over 3,300 Chinese companies and 160 bankers in 34 industries across the country as source material, reports that most measures of business activity are “down massively” compared with a year ago, even if the second quarter shows a modicum of improvement over the previous three-month period.

In fact, second-quarter 2020 data on its own would be the worst in the firms’s decade-long history, if not for Q1.

Among Q2’s highlights: only 22% of all firms borrowed at all, despite the difficult economic conditions, and despite bank interest rates being at the lowest level in nearly a decade. CBB’s analysts take particular note of the lack of borrowing among retailers, who may be “either already bankrupt or sufficiently worried about their prospects that borrowing to stay afloat has no appeal,” they conclude.

CBB also noted regional disparities in the second-quarter results. Export-heavy areas are still in contraction mode, as are profits for Beijing-based firms. “A sharp contraction in foreign orders, (in Shanghai) and nearly everywhere, illustrates just how deeply the global demand shock has roiled the economy,” the analysts wrote. “China cannot return to normal until its powerhouse regions get off the mat.”

Perhaps most worrisome: the only signs of life during the quarter were among transportation construction firms, which reported gains in revenue, profit, and access to credit. For China-watchers, that’s a red flag. As the CBB team asked rhetorically in the report, “Are we about to see a return to the old Beijing playbook of heavy infrastructure stimulus as the solution to flagging growth?”

If so, it would be a step back. The Chinese have recognized for years—in part thanks to Western criticism—that they need to transition their economy to focus on the service sector, Miller explained, and have been managing that transition effectively since at least 2017, refraining from overbuilding even during slowdowns.

“They need to be building more productive investments and they know that,” he said. “Now, for the first time in years, we see a big pickup in transportation construction, which signals that they are now so worried about growth that they’re willing to reverse themselves. Will this be a return to their old playbook of building bridges to nowhere and ghost cities?”
Source: MarketWatch

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping