Coronavirus: China’s economy may suffer more than Beijing hoped as manufacturing, service sectors plunge

Purchasing managers’ indices for both manufacturing and service sectors drop to all-time lows

Steep falls raise questions over extent of damage epidemic has caused to China’s economy and how long it will take the country to recover

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Many Chinese factories have faced a labour shortage as migrants have been unable to return to work because of the coronavirus outbreak. Photo: AFP

Published: 7:00pm, 29 Feb 2020Updated: 2:14pm, 16 Mar 2020

The damage caused by the coronavirus outbreak to China’s US$14 trillion economy could be much worse than Beijing feared, as official measures for the country’s factory and service activity indicated on Saturday, threatening President Xi Jinping’s vision for 2020 and underscoring his urgent appeal to get production back to normal.

Monthly economic indicators for February sank to all-time lows as the coronavirus halted China’s manufacturing machine and froze activity in the service sector – from retailing to recycling – painting a bleak picture of the world’s second-largest economy and challenging Beijing’s repeated assurance that the impact would be manageable and short-lived.

The coronavirus was first reported in Wuhan at the end of December, and since Since then it has spread to more than 50 countries and more than 85,000 people have been infected. The outbreak has disrupted travel and cargo shipments, and caused stock markets to slump.

China’s official February purchasing managers’ indices (PMI) for both manufacturing and services, released by the National Bureau of Statistics on Saturday, confirmed fears that China’s economy was in bad shape and fanned speculation that it may even contract in the first quarter.

Larry Hu, chief China economist at Macquarie Capital in Hong Kong, said that Beijing might report negative growth for “the first time since the Cultural Revolution”.

The manufacturing PMI, which measures factory activity, dropped to 35.7 in February – below the previous all-time low of 38.8 set in November 2008 during the global financial crisis – from 50.0 in January when the impact of the epidemic was not apparent. A reading below 50 indicates a contraction in activity.

All of the sub-indices of the PMI pointed to the difficult situation facing Chinese factories. Output plummeted, new orders vanished, exports and imports stopped, and logistics were badly disrupted. Input prices, which reflects the costs factories must pay, was the only sub-index that remained above 50.