Coronavirus: China’s economy faces tough time as epidemic set to weigh on exports
- Despite efforts to get domestic production back on track, the global spread of the deadly disease is likely to cause a sharp decline in demand for Chinese products
- First quarter contraction remains on the cards as measures to contain outbreak at home bite into consumer spending
The road ahead for China’s foreign trade will remain difficult as the full impact of the coronavirus outbreak now spreading around the world has yet to be felt, analysts said after the country recorded its first trade deficit in eight years in the January-February period.
While the Chinese economy has started to recover, progress has been slow, reducing the amount of goods able to be shipped to foreign markets. As the virus spreads overseas, China faces the risk that foreign demand for its goods will weaken sharply.
Although Beijing did not begin publishing quarterly growth figures until the 1990s it has not reported a full-year economic contraction since 1976, the year of Mao Zedong’s death and the end of the Cultural Revolution.
Another problem facing China is that consumer spending is now a larger contributor to the economy than exports. So while Beijing is hoping for a quick rebound in shipments, even that might not be enough to compensate for the expected dip in consumption caused by the restrictions introduced to contain the virus, which not only stopped people from returning to work after the Lunar New Year holiday – leaving them with no wages – but also closed restaurants and entertainment venues.
The combination left the country with a trade deficit of US$7.09 billion for the two-month period, its first since 2012, according to data released by China’s customs agency on Saturday.
“The sharp drop in exports to the US … was the main drag [on overall shipments],” Liang Zhonghua, chief macro analyst at the Research Institute of Zhongtai Securities, said.
However, China’s purchases of American goods rose 2.5 per cent to US$17.59 billion in the January-February period, resulting in an overall dip in imports that was much lower than the 16 per cent forecast by analysts.
Beijing stepped up its foreign purchases of agricultural goods, protective medical gear and other key products to offset the supply shortages caused by a slump in domestic production.
Saturday’s figures showed that China’s imports of meat products in the first two months of the year jumped 120.7 per cent year on year to US$4.64 billion, while imports of soybeans in the period rose 14.2 per cent from a year earlier to 13.51 million tonnes.
Liang said the full effect of the coronavirus outbreak on China’s imports had yet to be seen.
“The impact of the epidemic [on imports] will be clearer in March,” he said.
Shen Xinfeng, chief macroeconomy analyst at Northeast Securities, said that as the coronavirus spread around the world – as of Saturday there had been more than 101,000 confirmed cases in more than 90 countries – China was likely to see a major decline in overseas demand for its products.
“Foreign import and export restrictions, as well as bans on Chinese goods will not be lifted any time soon, and as the epidemic spreads, the blockage of supply chains will only escalate,” she said.
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