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Coronavirus brought recession to China

UNITED STATES (OBSERVATORY NEWS) — The Chinese economy, according to official statistics, increased by 6.1% in 2019, the slowest growth in thirty years. It should be noted that each year of the last decade was called in China “the slowest since 1990”.

According to Chinese officials, the growth rate of the Middle Kingdom is gradually approaching 6%, since the government prefers high-quality growth, rather than just high numbers.

Given the fact that in 2019, stocks of unsold steel reached a record level, car sales collapsed by 8%, mobile phones by 7%, and exports increased by only 0.5%, it is surprising that the Chinese economy generally grew last year.

Western economists, however, tend to believe that it is growing – the question is how much. Independent analyzes based on satellite observations and other direct measurements show that growth rates range from 3 to 3.5%. Models based on indirect modeling of growth rates give roughly the same figures.

If China entered in 2020 with an increase of 3%, it should not be expected that this figure will remain at the end of the year. Hubei Province, which is at the center of the coronavirus epidemic alone, accounts for more than 4% of China’s GDP. And Hubei is not the only affected region.

Six more provinces confirmed cases of coronavirus (as of February 26), including economic centers in southern China such as Guangdong (1347 cases) and Zhejiang (1205 cases). According to official figures, the spread of the virus has slowed dramatically in these six provinces: only five new cases this week have been reported in Guangdong and not a single one in the others.

But if you believe that in six provinces, where a total of 6762 cases of a fatal disease have been confirmed, there has not been a single new infection for the whole week, then you must also believe in the existence of life on Mars, the Center for Expert writes in The National Interest Independent Studies Salvatore Babones.

In recent days, no province in China, except Hubei, has reported more than one or two new cases per day. This looks more fantastic than China’s official GDP growth rate.

Last weekend, Guangdong, which accounts for almost 11% of the country’s GDP, lowered the official threat level, clearly trying to force people to return to jobs. But the province’s assembly plants cannot open if their employees are stuck in other regions of the Middle Kingdom. Millions of workers still have not returned to Guangdong after the celebration of the Chinese New Year.

Anticipating armageddon, China is desperate to restart the economy. But it is not so simple. The government wanted to resume work in the first week of February, but all that it achieved was the spread of the coronavirus in Guangdong, which led to a larger stoppage of production. In the second week of February, the authorities retried, but with the same result.

In the third week of the month, according to official figures, the number of cases and deaths from coronavirus suddenly ceased to grow rapidly. And this week, less than 100 new infections outside the province of Hubei have already been recorded.

But it is impossible to believe in these statistics. China can manipulate economic numbers, but not a virus. Using false statistics to start a business and move people will only lead to a new wave of disease and closure.

These closures are expensive for the Chinese economy. Industrial production, construction and transport account for approximately 45% of GDP. A fall in activity in these three sectors by one third in one month will cost China about 1.25% of GDP.

A more realistic two-thirds fall in one month, followed by a one-third fall in the second month, will cost China 3.75% of GDP or more than all of its (true) growth in 2019. And this, without taking into account the slowdown in the sector services.

It is difficult to imagine a scenario in which the economy of the Celestial Empire will generally grow this year. In the first half of the year, a recession will certainly occur. China will not be able to avoid a decline in GDP in the first and second quarters of 2020.


This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.

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