Launching engines: how the revival of production in China after the end of the COVID-19 epidemic will affect the global economy

The growth of business activity in the manufacturing sector of China has accelerated to a maximum over the past 2.5 years. According to the State Statistical Office of the PRC, in March, the corresponding PMI rose to 52 points. The value has become the highest since September 2017.

Traditionally, the PMI reflects the real state of a particular industry. A value above 50 points indicates a positive economic situation, below 50 points - the stagnation of the sector.

Industrial activity in China is recovering after a sharp weakening a month earlier. In February, amid the introduction of quarantine measures and the massive closure of enterprises due to the coronavirus pandemic, China’s PMI production index fell to its lowest level during the entire observation period - 35.7 points.

Interviewed RT analysts explain the apparent improvement in dynamics with the practically stopped spread of coronavirus infection COVID-19 in China. On March 29, Mi Feng, the official representative of the State Committee on Health Care of the PRC, announced the end of the epidemic in the country. According to him, the number of infected fell below 3 thousand, and the bulk of the recorded cases of infection are imported.

Chinese investors and business reacted positively to reports of the resumption of domestic passenger traffic and the removal of quarantine in Hubei Province, which became the focus of the spread of coronavirus. About this RT told the chief analyst of TeleTrade Peter Pushkaryov.

“Due to tough, decisive administrative measures, China has managed to take control of the further development of the epidemic. The number of new cases of infection has significantly decreased, which allowed the authorities to decide to remove quarantine from April 8 from the first outbreak of COVID-19 - the city of Wuhan. In addition, in other provinces, transport links are gradually resuming, production is restarted and shops are opening, ”Pushkaryov said.

According to the Ministry of Industry and Information Technology of the PRC, almost 72% of small and medium-sized enterprises have returned to work at the moment. A quick recovery was made possible thanks to government measures to support business, said Alexei Maslov, head of the School of Oriental Studies at the Higher School of Economics at the Higher School of Economics.

As the expert said in an interview with RT, in order to save enterprises from possible bankruptcy, the authorities began to pay compensation to the business in the amount of declared profits. In addition, entrepreneurs were given installments for tax payments and at the same time returned insurance premiums.

“Also, enterprises were granted loans at preferential interest rates with the possibility of deferring payments on them until the end of 2020. For banks, the government continued to lower lending rates. At the same time, in order to support domestic demand, the authorities continue to pay standard salaries to civil servants who, due to infection, cannot go to work yet, ”Maslov added.

According to him, an additional driver for the restoration of the Chinese economy may be low oil prices. Recall that as a result of the outbreak of the coronavirus and the collapse of the OPEC + transaction since the beginning of March, the cost of Brent energy in the world market has more than doubled and is currently trading near the minimum levels since 2002 - $ 22-23 per barrel.

“Due to record low energy prices, the Chinese economy can get out of recession and begin to grow in the second half of 2020. In addition, by mid-April, China will launch all its plants, which by the end of the month will be fully operational, which will provide an additional incentive for the development of the country's production capabilities, ”said Alexey Maslov.

To some extent, the rapid economic recovery is associated with high consumer activity of the local population. As noted by Peter Pushkarev, the share of the services sector in China's GDP is more than 52%.

“Due to the growth in the well-being of Chinese citizens, their daily expenses have increased significantly over the past 10 years. At the same time, the outbreak of coronavirus only spurred the demand for products that can be bought in online stores. After the final removal of quarantine in all provinces, the Chinese will begin to satisfy pent-up demand at offline points of sale. As a result, due to domestic consumption alone, China can reach positive growth rates in 2020, ”the expert believes.

"Island of stability"

According to analysts, the recovery of the Chinese economy will mitigate the effects of the global recession. According to the forecast of the Institute of International Finance (IIF), in 2020 the volume of world GDP may decrease by 1.5%. In particular, the US economy risks falling by 2.8%, and the EU - by 4.7%.

“However, in the eurozone countries, the restoration of trade relations with China can help them smooth out the negative effect of the pandemic. Germany will experience a certain positive effect, since exports to China account for a significant share of the state’s GDP. Do not forget that it was China that became the main reason for the EU’s recovery from the 2008 crisis, ”said Gennady Nikolaev, an expert at the Academy of Financial and Investment Management, in an interview with RT.

According to Alexei Maslov, after the end of the coronavirus epidemic, China becomes an "island of economic stability." According to the expert, now Chinese investors are ready to invest money, buy up assets and enterprises at low prices in falling markets.

“Everyone is looking at China, which at least acts as a guarantor for the global economy to exit the recession. Having seriously suffered, Beijing is ready to help other countries. Having defeated the infection, the state was in a winning position, which allows it to quickly increase its export opportunities after the expected recession of the virus pandemic in the world, ”the expert concluded.