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There's more to China's virus story than its statistics.

Date: 25-05-2020
Subject: There's more to China's virus story than its statistics
NEW DELHI: Chinese information clamp down on Coronavirus early this year is in sharp contrast to this week's surprising admission by the top leadership that China has taken an economic hit because of the virus.

Chinese Premier Li Keqiang admitted at the on-going National People's Congress in Beijing: "At present and for some time to come, China will face challenges like never before."

“The horizons for China’s development are full of promise,” Li said, to quote the new York Times, but if the 3000-odd delegates to the country's annual meeting of its legislature were impressed, they did not show it. For, they must have realised that their leaders broke away from tradition and did not set any growth target for 2020.

Global economics monitoring agencies suggest that China, along with India, may just about survive recessionary trends in 2020 but the rest of the world will not. However, that brings no cheers to China which realises that statistics don't tell the real story. The size tells the real story: Its size, its massive population, the need for massive production, the need for more massive production in order to export, the gigantic material unloading and storage facilities, the loading areas and transpo ..

That is the task China faces as it limps out of the impact of Coronavirus which, incidentally, returned for a brief second wave even as the lock down was lifted to restart the economy.

There was some good news in April, when exports that month rose 3.5%, but it later became clear the spike owed it to demand for health care equipment like PPEs and face masks from abroad. There are reports of large shipments awaiting export clearance in Chinese godowns, but where are the orders? Exports actually dipped 6.6% in March though they were better than the +15% dip in January and February, 2020.

Debt propelled China's economic stimulus programs at the turn of the century. Various factors helped surge growth, but the fact remained China was badly debt-ridden. As of this month, Chinese debt is roughly 48% of its GDP.

Post-Coronavirus, the Institute of International Finance (IFF) estimates that "China’s total debt hit 317 per cent of gross domestic product (GDP) in the first quarter of 2020". In the previous year, the corresponding figure was 245.4 per cent of GDP. On the other hand, China’s foreign debt stood at $2.05 trillion last year.

Not so easy to dispose off this debt. Most of the country's domestic debt is held in financial bodies controlled or owned by the government. There are hardly any foreign investor presence in domestic financial or wealth schemes. Now, with its growth slowed thanks to Coronavirus, China fears possible default on debt repayments that can cripple its financial scenario.

In April, China resumed production as the lock down was lifted. Workers started returning to factories, but the capacity utilisation is said to be much below 100 per cent. The primary reason is two-fold: Lack of foreign orders and a depleted domestic demand.

Retail spending has plunged. Remember, it had alone contributed to 80 per cent of the country's economic growth in 2019. Investments in factories halted too. They in fact went down by more than 15 per cent.

Unemployment may soon be touching the 20 per cent mark. People are withdrawn cash from banks and sitting on it. They are not spending, contrary to expectations that consumer spending will revive after the lifting of lock down. There is no shopping spree as the businessmen anticipated. People hardly go out to eat.

The people are worried that they may lose their jobs at any time. Thousands have already suffered that fate. The government has been promising sops to factory owners and businessmen provided they pay regular salaries to their staff. But that is not stopping the flood of bankruptcies. On top of it, a second Coronavirus scare has forced people to shut themselves indoors.

Local institutions, companies and governments are in a financial mire as well, leading to fears of default on loans. As it is, consumer loan repayments have taken a hit. The bond markets, facing a run through defaults since last year, are braced for worse in 2020. According to one newspaper, "in May 2020, listed oil and gas firm MIE Holdings failed to make a US$17 million interest payment on its US$248 million bond''. On the other hand, the local governments and other bodies are not confident of ..

Aware of its unhealthy situation, the Chinese leadership appeared uncharacteristically humble at the National Congress meet. It admitted “many weak links have been exposed in public health emergency management'' it said, in an indirect reference to the global criticism of Coronavirus cover-up, adding that “...the people have expressed their views and suggestions, which deserve our attention''.

Premier Li also told the US that China remains committed to the phase 1 trade agreement. Under this, China can once again import American farm products including pork. The US, in return, can continue its tariffs on specified Chinese goods. There is an expression of Chinese concern in this reference to the agreement: The agreement has set targets to be met but after Coronavirus, China has not been able to import targeted quantities from the US. It needs to placate the US in order to improve its e ..

Faced with such an unprecedented economic crisis, if one expects China to discontinue its bullying tactics or expansionist programmes, one expects wrong. Amid the economic alarm bells, the National Congress heard the leadership announce stricter laws to quell the Hong Kong protests, so much so that the Hong Kong stock market nose dived after the announcement.

China's expansionist priorities have not taken a back seat either. India has reported about increased tension at its borders because of bullying tactics by Chinese troops. It continues its belligerent attitude towards Taiwan. It continues to back its Belt and Road Initiative (BRI) in spite of lock downs in several BRI partner-countries stalling projects, disrupting supply chains and availability of labour and possible reneging of Chinese loans to these countries.

The budget proposals to be announced before the conclusion of the National Congress will indicate if China is willing to learn from its mistakes or it will simply over-burden its debt-ridden public sector with an unrealistic growth target in face of the troika of troubles – shrinking exports, tumbling private investments and drowning consumption levels.

Source:- economictimes.indiatimes.com

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