New coronavirus outbreaks in China’s rust belt spark fears for struggling provincial economies

Clusters of new coronavirus cases have sprung up in the provinces of Heilongjiang, Jilin and Liaoning, emphasising the risk facing the wider Chinese economy
Heilongjiang and Liaoning contracted by 8.3 per cent and 7.7 per cent respectively in the first quarter of 2020, the third and fourth worst among all China’s 31 provinces

Coronavirus pandemic

Orange Wang

Published: 8:15am, 14 May 2020

Why you can trust SCMP

New lockdowns imposed to contain coronavirus outbreaks in China’s north-easterly rust belt region have sparked fears for the economic well-being of some of the country’s poorest provinces.

Clusters of new coronavirus cases have sprang up in the provinces of Heilongjiang, Jilin and Liaoning, emphasising the risk facing the wider Chinese economy as Beijing continues its efforts to kick-start the US$14 trillion juggernaut after nationwide shutdowns in the early months of the year.

The spate of new cases also offer a potential lesson for other parts of the world, which are starting to reopen their economies despite public health experts warning against relaxing containment measures too early.

Already, all three provinces were among China’s worst performing economies of 2020 and while Liaoning is a mid-ranked provincial economy, Heilongjiang and Jilin are among the country’s poorest.

Heilongjiang and Liaoning contracted by 8.3 per cent and 7.7 per cent respectively in the first quarter of this year, the third and fourth worst performance among all China’s 31 provinces. Jilin fared a little better than its two neighbours, but still shrunk by 6.6 per cent, according to government data, slightly ahead of the nationwide contraction of 6.8 per cent.

Profits of industrial companies in the three northeastern provinces – once the pride and birthplace of China’s industrial development – dropped by 63 per cent from a year ago in the first three months of the year, while regional retail sales fell by 29 per cent and per capita consumer spending fell by 11 per cent, calculations based on government data showed.

“Economic growth in northeastern China has continued to weaken over recent years, and will get even worse under the impact of the epidemic,” wrote Ren Zeping, chief economist at the Evergrande Research Institute, a think-tank run by the major property developer of the same name, in a note.

Authorities in Jilin city, the second largest city in the province of the same name, enforced a partial lockdown on Wednesday, placing restrictions on transport and gatherings, after seven new cases were confirmed on Tuesday, bringing the total to 21 community cases in a week.

All are stemming from a new cluster in the nearby smaller city of Shulan, designated as a high-risk zone for coronavirus on Sunday, just three days after the entire country had been declared “low risk” by the central government.

In April, new clusters of infections were also located in Harbin, the capital of neighbouring Heilongjiang province. To stop the spread, Harbin authorities announced on Wednesday that they would quarantine all visitors from Shulan for four weeks.

“Due to the Heilongjiang outbreak in early-April, it is expected that the economic growth rate of the province in the second quarter will be limited,” Ren wrote.

The Shulan cluster of infections has also spread across the provincial border to Shenyang, the capital of neighbouring Liaoning province, according to the health commission of Liaoning.

By the end of March, the three northeastern provinces of Heilongjiang, Jilin and Liaoning, known as China’s “rust belt”, only reported 722 confirmed cases with 16 deaths in total, among the fewest across all 31 provincial jurisdictions. Despite this, economic growth was weak across all three.

Despite recoveries in some sectors, the Chinese economy is still facing strong downward pressure due to an incoming slump in export growth and the risk of a rebound in new Covid-19 cases

Lu Ting, Nomura

As of Tuesday, however, the number of cases in China’s most fragile economic region had risen to 1,225, National Health Commission data showed.

Other cases have sprang up in the Dongxihu district of Wuhan, forcing the central Chinese city, where the virus first detected, to order nucleic testing for all 11 million residents.

The new wave of confirmed cases – months after China appeared to have the virus under control – has highlighted the danger that comes with loosening social distancing rules, reopening businesses and permitting more travel, analysts said.

“Despite recoveries in some sectors, the Chinese economy is still facing strong downward pressure due to an incoming slump in export growth and the risk of a rebound in new Covid-19 cases,” said Lu Ting, chief China economist at Nomura Bank, in a note published on Monday.

Wang Xiugang, an analyst at Huaxi Securities, added that the need for epidemic control measures will “continue for the long term, as will higher costs caused by preventive measures”.

But analysts at Beijing-based consultancy Trivium China said regional outbreaks were not likely to halt the broader national trend toward economic normalisation. The firm’s National Business Activity Index, which tracks China’s efforts to reopen, found that in all three rust belt provinces, more than 99 per cent of businesses had reported resumption in activity.

However, all three provinces are part of the nationwide struggle to reach full capacity – an objective which will not be helped by such outbreaks. “Our National Business Activity Index has remained stuck between 80 per cent and 90 per cent since April 13. That’s not good,” read a note from Trivium, implying that while the lights are mostly on, few businesses are running at full speed.

The outbreaks in China’s northeast is also bad news for neighbouring North Korea, which relies heavily on food supplies from China’s.

North Korea’s imports from China dropped by 79.3 per cent in the first quarter of this year, according to Chinese customs data. The reclusive nation closed its borders to all foreign tourists in January but has yet to confirm any coronavirus cases.

Chinese President Xi Jinping warned local officials of the risks of a domestic resurgence during a visit to Shanxi province this week.

Post