China is restarting its economy

Rolf Bax

Rolf Bax

May 12, 2020 - 18:18

China is trying to jump-start its huge economy without triggering a second wave of coronavirus cases. It's a high-stakes experiment that could provide clues for countries agonizing over how long to keep their shutdowns in place as a global recession begins and millions of jobs are lost. 

But the lockdown also brought activity in much of the world's second biggest economy to a standstill for weeks on end, and is likely to result in China's first contraction in decades. Analysts at Goldman Sachs recently forecast that China's GDP may fall by 9% in the first quarter of the year, compared to the same period in 2019. The Chinese government knows that its actions to contain the virus came at the expense of the country's economic health. Now authorities are trying to ensure that those consequences are short lived. "The economic losses have become intolerable," 

Western nations are also weighing these enormous tradeoffs while the virus remains a global threat. In the United States — where unlike China, cases have yet to peak —Beijing, meanwhile, has embarked on a campaign — backed by state-media — to persuade companies that life is returning to normal. But restarting factories and returning to work puts China on a precarious path. The pandemic is still wreaking havoc on the rest of the world, raising fears of a potential second wave of infections as people return from overseas and bring the virus with them. Add to that the risk of another outbreak if the virus hasn't been totally eradicated in local communities.

"In our view, the risk of a second wave of Covid-19 in China is rising. China's plan to save the economy rests on a slew of policies and campaigns meant to push people back to work, encourage business confidence at home and abroad, and protect as many companies from failing as possible.

In addition to the billions of dollars Beijing is spending on medical supplies and treatment, the government has pumped money into infrastructure projects to create jobs. It has also reduced taxes on small businesses and required banks to defer loan payments for troubled households orcompanies as a way to help them survive the economic fallout. Chinese state media is amplifying the message that the country can bounce back strongly and that foreign companies and investors shouldn't be scared off, either. China's official news agency Xinhua in late February called Tesla (TSLA) a symbol of "foreign business confidence in China" after the US electric automaker reopened its massive Shanghai factory and announced plans to expand production capacity.

Now that the number of infections has slowed, many parts of the country are lifting their lockdowns, removing road blockades and allowing people to travel more freely in areas where the virus appears to have run its course — as long as they have documented proof that they are healthy. In some cases, the government is making special arrangements for workers. For example, Beijing has ordered railway and airline companies to organize special trains and flights to carry migrant workers from "the door of their house to the gate of the factory," according to the Ministry of Human Resources and Social Security. China's 290 million migrant workers, who perform low paying but vital work, are critical drivers of the economy. And authorities in Hubei province, where the virus first broke out, said Tuesday that healthy migrant workers can be taken back to their places of work beginning later this week.

China factory workers

Beijing says its campaign is already working. More than 90% of industrial companies in most provinces are up and running. to the National. Smaller companies are finding it harder, though — only 60% of small and medium-sized enterprises were open by the middle of March, according to government data.

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