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China’s economic activities will continue to accelerate despite external headwinds

DuckerFrontier, April 15, 2020

As the COVID-19 pandemic continues to spread, Chinese authorities’ draconian containment measures have brought the coronavirus’ domestic spread largely under control. As a result, policymakers around China are shifting their attention to shoring up the economy just as external headwinds start to ripple through. Most of the economic shock from COVID-19 will be concentrated in Q1 and gradually dissipate in the following quarters, though expect bifurcation in the economy as domestic demand improves amid sluggish exports. Overall, we project a V-shape recovery for China.

Despite a gradual pickup in domestic demand and resumption of factory activities, consumer demand remains lackluster, and an expected decline in export orders will put further pressure on China’s economy. During the first two months of 2020, China’s industrial production contracted by 13.5% YOY, retail sales fell 20.5% YOY, and fixed asset investment dropped by 24.5% YOY. These numbers, on the back of slow production normalization in the industrial sector, point to a bleak economic outlook for the whole quarter. Despite the potential upside for the economy during H2 amid an expected global recovery, we have revised down our annual GDP forecast to 2.6% YOY. Chinese authorities are likely to ramp up additional fiscal stimulus in the coming weeks to support growth and employment.

DuckerFrontier’s market experts are constantly monitoring the Chinese economy and key developments that could impact your business in the coming months. Below are three major developments for executives to watch:

  • Firms should expect business activities to gradually normalize in China’s Hubei province in Q2, following the Chinese government’s announcement to ease the lockdown in Hubei, the epicenter of COVID-19. While Hubei only accounts for roughly 5% of China’s GDP, the two-month-long lockdown disrupted several industries in which Hubei’s industrial clusters play a critical role.
  • Firms should expect consumer demand in China to recover, albeit at a slow pace, as local authorities around the country have lowered their emergency response alert level in recent weeks. Despite continued social distancing, travel and movement restrictions were loosened in March in most parts of the country, and domestic tourism will likely pick up in April.
  • China’s industrial production continued to normalize in March, as more workers returned to work amid loosened travel restrictions. However, the rate of work resumption varies in different types of companies; while the rate for listed companies and SOEs reached over 98% at the end of March, only 71.7% of SMEs nationwide have managed to resume production year to date.

Stay tuned for Part 2 of this series doing a deep dive with DuckerFrontier’s industry expert in Shanghai on specific industry implications.

Our team of experts are closely monitoring COVID-19’s impact on the global economy and business environment. View our up-to-date coverage on DuckerFrontier’s COVID-19 Resource Hub and subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business.

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