Weak demand now stands in the way of China’s economic recovery from the coronavirus crisis

With supply disruptions stabilising after the initial plunge in economic activity, China has entered the third phase of its battle to recover from the Covid-19 shock

Other countries that are starting to ease their own lockdowns should heed China’s ‘first in, first out’ experience, and expect recovery to be uneven and drawn-out

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Masked visitors at a shopping centre in Beijing on May 15. Without a full recovery in consumer spending, China’s economy will struggle as consumption has become a major engine of growth in recent years. Photo: AP

Published: 5:00am, 21 May 2020Updated: 5:56am, 21 May 2020

There are three phases in China’s economic evolution as it weathers the Covid-19 pandemic. The first was the initial “plunge”, reflected in the economic paralysis caused by the rapid spread of the virus and Beijing’s draconian measures to contain it.

Gross domestic product contracted by a record-setting 6.8 per cent in the first quarter of this year, making the peak-to-trough decline – from growth of 6 per cent in the fourth quarter of 2019 to the current contraction – almost three times the size of the decline during the global financial crisis.

Thanks to Beijing’s aggressive actions and precautions taken by the Chinese public, the virus situation has quickly improved since mid-February. A gradual relaxation of lockdowns then allowed the economy to enter the second phase – “supply normalisation”.

This normalisation was, however, uneven across different sectors of the economy. For large, state-owned industrial firms, a resumption of work was rather swift after the reset button was pressed. Over 90 per cent of industrial firms above a designated size had resumed operations, to varying degrees, by late March.

However, for small, privately owned, labour-intensive enterprises, resuming work has been a struggle in light of the slow return of migrant workers and a lack of consumer demand. Even today, many small and medium-sized companies are still operating at sub-par capacity and face real risks to their survival.

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