The trouble that Zhang Zhongzhou’s shoe shop in downtown Beijing is experiencing is a small, but an equally telling example of the massive damage that the coronavirus pandemic is doing to China’s economy. The full extent of the damage that almost three months of lockdowns and business closures has done will be revealed on Friday morning, when China releases its first quarter gross domestic product (GDP) data. Zhang has managed his shop in the nation’s capital for over a decade, but he now sees no future for his business after the coronavirus outbreak. “I’m thinking about quitting the business after the contract expires in June,” said the 65-year-old from Anhui, a rural province around 1,000km south of the Chinese capital city. Yellow clearance sales signs offer every pair of shoes at 100 yuan (US$14), but like many struggling merchants with much of Beijing still under lockdown, there are few potential customers. “I didn’t sell a single pair of shoes in the morning,” added Zhang, who is struggling to cover an annual rent of 140,000 yuan (US$19,800). “Few people wander the streets nowadays.” The Chinese government has tried to play down the long-term economic impact of Covid-19, and President Xi Jinping had repeatedly said that China is still committed to its grand goal of building up a comprehensively well-off society this year. But the pandemic’s damage on China’s service sector and small businesses, the foundation of employment and prosperity, is unprecedented. China’s headline economic growth rate has, up to now, been extremely stable in every quarter over the last five years by fluctuating within a narrow range between 6 and 7 per cent. But the first quarter of 2020 has become a guessing game for economists, with predictions ranging from a deep contraction of 16 per cent to a modest expansion of 3.6 per cent, according to the results of a survey of analysts’ forecasts by Bloomberg. The generally accepted view, as indicated by the median estimate from the survey for a fall of 6 per cent, means that China will report an official economic contraction in the first three months of the year. This would be the first contraction since 1976, which was the last year of the decade-long Cultural Revolution when the then tiny Chinese economy “was on edge of collapse”. It would be a hard fact to swallow for Beijing, even though much of the blame can be placed on the coronavirus, since 2020 was supposed to be remembered as a milestone of China’s wealth and prosperity. In the blueprint of the ruling Communist Party, 2020 was intended to be recorded as a critical moment when China had successfully built up a moderately rich society by having doubled the size of the economy compared to 2010. This would be a stepping stone for China to achieve the even grander goal of a “rejuvenation of the Chinese nation”. But a contraction at the start of the year could dent Beijing’s historic endeavour, as analysts believe China needs a minimum 5.6 per cent growth rate to double its GDP size over the past decade. Liu Shijin, a former deputy head at the Development Research Centre, said this week that China should forgo its earlier perceived plan to achieve a 6 per cent growth in 2020, and aim instead for a moderate growth rate of 3 per cent. Given the growth rates of other major economies are likely to be slower, if they grow at all, China could use international comparisons to declare victory. “The world economy’s growth was 2.9 per cent in 2019 and China’s growth rate was 6.1 per cent, resulting in a ‘relative growth rate’ of 3.2 per cent,” Liu wrote. “But if the world economy contacts by 2.5 per cent while China can achieve a 3 per cent growth, the relative growth rate would be 5.5 per cent, better than last year.” The global weakness will slow China’s recovery … and this would be the first annual contraction since 1976 Mark Williams In its latest World Economic Outlook released on Tuesday, the International Monetary Fund forecast that China’s 2020 growth could slow to 1.2 per cent. This forecast, though, was much better than those for a vast majority of countries, including a 5.9 per cent fall in the United States and a 7.5 per cent decline for the Eurozone. Capital Economics, a London-based research group, has the most pessimistic estimate for the Chinese economy, predicting a 16 per cent contraction in the first quarter and a full-year drop of 5 per cent. “The global weakness will slow China’s recovery … and this would be the first annual contraction since 1976,” according to the research led by its chief Asia economist, Mark Williams. China is stepping up stimulus efforts to help growth, however, it is largely relying on its traditional approach of providing money to local governments to speed up infrastructure investment instead of direct handout to households or conducting broad-based tax cuts for small businesses and individuals. The Financial Stability and Development Commission, led by Vice-Premier Liu He, the top economic adviser to President Xi, concluded during a meeting on Wednesday that companies in China, in general, are gradually improving. “External risks are bigger than internal ones, while risks to large firms are bigger than risks to micro entities,” according to a statement on the government’s website. This conclusion, however, does not apply to Zhang’s business. He said he has not received any help from the government so far, and the option of returning to his rural hometown in Anhui is unlikely to bring him prosperity either.