Many more have died since COVID-19 became a pandemic on March 11, and the International Monetary Fund warned of “a recession at least as
bad as the Global Financial Crisis.”1 Forecasts on China were further
affected by global supply chain disruptions and the negative global
economic outlook. After March 16, a day dubbed “another Black Monday,”2
China’s 2020 average growth forecast declined from 5 to 2.6 percent.
China encouraged less-affected sectors and manufacturing-heavy provinces to get “back to work,” and areas outside Hubei lifted traffic
restrictions.3 China reported that 71.7 percent of small and
medium-sized businesses resumed normal operations on March 24.4
As provinces gradually resumed work, various sectors saw positive signs. Passenger traffic increased since the second week of February.
The latest March Purchasing Managers’ Indexes (PMI) rebounded to above
50 percent after plunging below 30 percent in February. These suggest
stabilization of domestic production activities.
However, some services face longer disruptions (restaurants, tourism and sports) where infection risks are high due to people gathering in
confined spaces. Recovery rate in tourism and entertainment is thus
lower than in manufacturing. As of March 22, only a third of tier-A
national tourist sites5 and less than 5 percent of cinemas have returned
to normal operations.6
To compensate for economic losses, some provinces plan to boost local tourism in Q2 with initiatives such as longer weekends, cash
coupons and lower ticket prices.7 Other provinces might introduce
stimulus packages for these sectors in the coming weeks. They will be
especially important in today’s context when China’s economic recovery
relies on domestic consumption. But even with supporting policies, the
contribution of such sectors to the economy may be readjusted for a
longer term.
The unprecedented lockdowns in China and other social distancing measures worldwide will impact how businesses, especially in the
services industry, strive to remain as functional as possible during
emergencies. Aside from policy incentives, resilient
infrastructure—including efficient transport logistics, reliable digital
connectivity and accessible social facilities—can help mitigate losses
and facilitate recovery.
There are concerns over the agricultural sector as food production suspension and transport logistics disruptions affect China’s food
security. These factors may have aggravated food inflation in February
nationwide, particularly in Hubei and for fresh meat which is reliant on
efficient logistics. Soybean meal prices rose 9.7 percent in late March
against mid-March (China is a soy bean importer).8 External
factors—such as threats from pests like desert locusts and fall
armyworms, and food export restrictions in other countries—may further
complicate efforts to maintain stable food prices.9
As the outbreak intensifies, countries may further restrict food exports to ensure domestic needs are prioritized. Preventing food prices
from rising and mitigating the potential impact of such increases will
likely be an imminent task for China in the short term.
China needs to watch the overall food situation as this could spread to the rest of the economy affected by COVID-19.10 In general, China is
self-sufficient in terms of securing its basic food need. In 2018, over
95 percent of China’s cereals consumption was supplied domestically.11
For other economies where food supply is dependent on import and
transport connectivity is underdeveloped, disruptions to domestic food
supplies caused by COVID-19 will be more significant.
As of Feb. 29, 2020, offshore investors held RMB2.28 trillion (USD322 billion) in Chinese bonds, a record high.12 February foreign
holdings of Chinese bonds saw a 30-percent year-on-year increase
following a 25-percent increase in January. As central banks worldwide
lower policy rates, interest rates in China (coupled with the reduced
uncertainty as the spread of COVID-19 is curbed) made Chinese assets
attractive to offshore investors. This resulted in yields on China’s
10-year government bond falling to 2.65 percent, lower than the 3.4
percent registered in the aftermath of the 2009 financial crisis and
lower than the 3.2 percent observed in 2019. In Q1 2020, China’s
corporates were also able to raise a record amount of cash (USD274
billion, up 26 percent compared with the same quarter in 2019) through
bond issuances. The resilience of China’s bond and stock markets
continued to point to China’s attractiveness to investors.
