China has hit the reboot button, and the world is watching. But you could call it a soft relaunch as Beijing continues to impose restrictions on the movement of people, companies are yet to reach full capacity, and many employers are unable to pay their employees. Since China got a head start on the Wuhan Coronavirus – outbreak and containment – the nation may give us a glimpse into a future when the first round of COVID-19 peaks and the second or third wave occurs. Can China, and the world, survive subsequent waves?
China: The Reboot
The roads are busy. The restaurants are crowded. The economy is gradually returning to normalcy. Life in China is attempting to revert to the way it was before Coronavirus from a wet market paralyzed the nation. The country has a long way to go before it operates at full-speed ahead, but that has not prevented the central government and the People's Bank of China (PBoC) from facilitating a national restart.
President Xi Jinping has mostly concentrated on tax relief as part of any stimulus, though experts say it is inevitable that his administration launches an aggressive public-works scheme. Reports revealed that China could announce as early as next month a 3.5% increase in the budget deficit to finance local government bond purchases and a $394 billion infrastructure investment into 5G technology, health care, and emergency materials. For a country that is already deeply indebted, this is concerning news.
In the meantime, officials are concentrating more on monetary policy to lift the nation from the doldrums of economic misery. The PBoC has implemented a series of actions during and after the pandemic, including a cut to interest rates, a reduction in the reserve requirement ratio (RRR), and an injection of billions of dollars of liquidity into the financial system.
The government may need to shore up the world's second-largest economy until global demand is resuscitated. The main issue had been that manufacturing and industry output hit rock bottom since the nation was on lockdown, and everything was brought to a standstill. The next problem the country needs to contend with is the demand. Now that the rest of the world is mirroring China from a month ago, nearly every industry is purchasing fewer goods and services from Beijing, and it is unclear how long this could last.
Banks may be approving small business loans and workers may be returning to factories, but if there are no customers around, then it is all for naught.
What's in the Data?
The early data of its economic recovery is slowly coming in, and this is what we know so far:
The government's official February manufacturing and non-manufacturing purchased managers' indexes (PMI) fell way short of expectations with readings of 35.7 and 29.6, respectively. Industrial output contracted 13.5%, while retail sales slumped 20.5%. Industrial profits crashed by 38.3%. The January-February exports plummeted 17.2% and imports slipped 4%. New motor vehicle sales cratered 79%. New yuan loans and total social financing growth fell more than 50%. Liabilities at industrial firms climbed 5.3% last month.
Even if China were to operate at full capacity, one-third of manufacturers warn they are facing shortages in supplies and equipment needed for production. Because of supply chain disruptions, about one-fifth of crucial inventories are empty. Then there is the issue of manpower compensation. A recent Capital Economics study found that a quarter of companies stopped paying wages last week, and 47% of respondents said they have cut or delayed compensation to their workers. For the year, economic growth is forecast to range between 1.3% and 3%
Before the outbreak, China's gross domestic product (GDP) was expected to be around 6% in the first quarter. Forecasts now anticipate as low as -11%, according to China's Beige Book report, which noted:
"The China recovery story is no longer just about domestic resilience, but also factors beyond Beijing's control. Admitting unprecedented Q1 figures is more sensitive because China may also have to admit to poor Q2 numbers on global weakness. Investors may, therefore, be severely overestimating the extent of China's recovery and hence the extent to which China can cushion a global downturn."
Making Waves
Benjamin Cowling, an epidemiologist at Hong Kong University, recently told Reuters:
"Because most of China hasn't really had a significant number of infections in the first wave … there's still enormous vulnerability of the population to being infected and to having a large epidemic. A second wave is inevitable, sooner or later. Totally inevitable. There's no question."
Cowling explained that there could be a threat of a so-called silent spread. This is when people with mild or no symptoms go undetected for a period until a spike in new cases becomes too hard to contain. At a time when health care workers are reportedly not counting asymptomatic infections as cases, the rise of silent carriers could become another pandemic in the making a few months from now.
China might be in the infancy stage of a second wave. The country has a total of approximately 500 cases that authorities say are all imported, though the infections are of Chinese citizens. While the government assured the world that it remains vigilant, there is no telling how bad the situation could get.
Hong Kong, meanwhile, is quickly serving as a cautionary tale for the rest of the world as it endures its second wave. Millions of residents had been in lockdown since January, until the government incrementally lifted the restrictions. Unfortunately, within just one week, the number of Coronavirus cases surged 50%. Local experts say that the progress Hong Kong made had been wiped out due to the easing of restrictions and the growing number of people returning.
President Donald Trump initially hoped to reopen America by Easter, but he has already been forced to extend the period of "social distancing" until April 30. While he evidently hopes to loosen the guidelines as soon as possible, Trump may need to first look at what happens when you are a tad premature in this war against COVID-19.
In Xi We Trust?
The consensus is that the United States and other infected countries will go through second and third waves of COVID-19. This typically happens when new cases take place following a sustained period with either little or no new infections. China's first wave peaked, but it is beginning to report dozens of new cases every day that central authorities say are imported. With China facing a public relations nightmare in the global economy and trying to blame the U.S. for the virus, President Xi Jinping and his fellow communists will inevitably be more clandestine than before the pandemic. In other words, nobody knows what information coming out of China is accurate and if it should be trusted.
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Read more from Andrew Moran.
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