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Sectors to benefit from the shrinking Chinese economy

  • April 22, 2020 01:07 AM AEST
  • Team Kalkine
Sectors to benefit from the shrinking Chinese economy

The Chinese economy has suffered its first decline in over 40 years in the first quarter of the year 2020 as a result of the halt in the production, as well as spending due to Covid-19 outbreak in the country. China’s Wuhan has been the epicentre for the disease outbreak, which travelled to other parts of the country.

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GDP Down by 6.8%

The National Bureau of Statistics of China (NBSC) reported a year-on-year (Y-O-Y) decrease of 6.8 per cent at comparable prices in the gross domestic product (GDP) of China. In the first quarter of 2020, the GDP of China was reported at 20,650.4 billion yuan. Major media sources say that a decline noted in the GDP of China prior to the current decline was in the year 1976.

The outbreak of Covid-19 has had a staggering impact on businesses across the globe. People have lost their jobs and are now being conservative in preserving cash for essential purchases. Moreover, the lockdown and social distancing measures have further driven away from the normalcy in the supply chains space for the businesses.

The sharp decline in the GDP growth of China is a reflection of the contraction in consumer spending and productivity in the country. Also, deteriorating investor confidence is another implication of the covid-19 in the Chinese economy as businesses remained shut for a considerable period.

How did other elements move?

The NBSC reported the following value additions across various industries in China:

Moreover, during the first quarter, the country reported:

  • Growth in value-added of agriculture by 3.5 per cent year on year with
  • Favourable climate conditions in key farming areas at present,
  • Smooth spring ploughing and sowing,
  • Better growth of winter wheat than last year and average years.
  • A decline of 8.4 per cent year on year basis in the TVA or total value added of the industrial companies beyond the allocated range.
  • An increase of 13.2 percent and 6.0 percent in the TVA of the information transmission, software, and IT or information technology services and that of fiscal intermediation.
  • A decline of 3.9% points in the Services Production Index, 3.9% points lower than the decline of the initial 2 months period.
  • A decline of 19.0% year on year basis in (total retail sales) of consumer related goods that stood at 7,858.0 bn yuan.
  • Also, the investment in fixed assets (apart from countryside dwellings) stood at 8,414.5 billion yuan, declining by 16.1 percent Y-O-Y basis.
  • During the period, total value of imports and exports of products was down by 6.4% year on year basis and stood at 6,574.2 billion yuan.
  • The producer costs for industrial goods declined by 0.6% Y-O-Y, and the consumer price took a sharp downturn by 4.9 per cent Y-O-Y.
  • The newly risen employed individual in urban regions added up to 2.29 million.
  • The national/capita disposable income of citizens saw a minimal rise, noted at 0.8 % Y-O-Y or year on year basis and stood at 8,561 yuan.

Notwithstanding the headwinds from the outbreak of covid-19, the overall economic and social development in China in the first quarter period is believed to be maintained in a stable position.

Benefit for the Local Manufacturers

However, as the disease has enveloped several nations and turning some into fresh epicentres, there has been unparallel instabilities and uncertainties. China is now under additional strain to avoid further infections, challenges, and difficulties for returning to work, production and progressing economic and social expansion.

On the one hand, China has witnessed a decline in economic growth, while on the other hand, there is a question of this shrink to be a benefit for some sector?

As the coronavirus moves out of China to the various parts of the world, the severe effects of the pandemic begin to surface on the world economy since several nations are in lockdown with no sight of relief to lift the same. However, China has slowly begun to reinstall production operations across several regions of the country as gradual signs of recovery become apparent in the country.

As manufacturing begins in China at a time when the world is a mere spectator behind closed doors, local manufacturing in China is likely to get a boost from the same, especially healthcare equipment manufacturers. Moreover, global manufacturers with operations in China also have a sigh of relief.

Car manufacturers like BMW, Daimler, Fiat Chrysler, Ford, look forward to ramping up their production slowly as people are allowed to go back to work, and the covid-19 curve flattens in the country. Other than this, operations at Foxconn, an imperative production partner for tech giants like Apple and HP, have also started to take shape.

The virus continues to create havoc in countries like Italy, Spain, the US as well as the UK, while employees are returning to their work in China as production lines set to roll and the city of the covid-19 outbreak, Wuhan looks forward to ending its lockdown soon.

In late March, China had inked a 432 million euros deal with Spain to supply medical equipment for fighting the covid-19 outbreak in Spain. The deal indicated the commencement of production units in hard-hit China to manufacture and supply around 550 million masks, 11 million pairs of gloves, 950 respirators as well as 5.5 million test kits.

On the Road Ahead

On Friday, China updated the number of coronavirus related cases reported earlier in the city of Wuhan, where the disease first originated. In the abrupt increase, China raised its official Covid-19 death toll by 50%, representing an addition of 1,290 cases.

China has already been accused of toning down the severity of the virus outbreak across the country; however, nothing concrete has emerged on this front to demystify the situation.

On the road ahead, China looks forward to coordinating efforts to-

  • Fully implement the decisions and arrangements made by the CPC Central Committee and the State Council
  • Advance both epidemic prevention and control as well as improve people’s livelihood
  • Accelerate the full restoration of production as well as economic and social development
  • Enhance policies implementation to resume work, market, and business to build a moderately prosperous society.

China being the lonesome producer across the globe in current times; the local businesses in China have the opportunity to ramp up operations and produce the needful material that is ready to be supplied overseas once the restrictions are lifted. Although the lifting of restrictions remains nowhere in sight, the governments would want to lift the same with utmost safety seeing the increasing burden on the economy.

 

 


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