Coronavirus: Will the Chinese consumer lose or save the Chinese economy?

Audio 04:07

By: Dominique Baillard Follow

The coronavirus epidemic forced the Chinese authorities to put their economy under cover. Can we already assess the extent of the losses caused by this paralysis? What are the ways to avoid the crisis?

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All the expenses expected for the Chinese New Year are already to be entered as a liability in the economy of China as well as those of countries or industries highly dependent on the Chinese consumer. Over the past five years, this Chinese consumer has become a major economic player, the engine of growth for the Middle Kingdom, and also that of the foreign luxury industries, with a market share of 30%, or tourist destinations, China. has become the first emitting country of visitors (the reactions of this new homo economicus were at the center of a debate organized yesterday by Coface during its annual day on country risks).

If the coronavirus parenthesis had closed with the New Year's holiday, this shortfall would only be a mishap, but the main centers of economic life, Wuhan, Shanghai, Chongking, have all extended the holidays until at the end of the week. And we don't know how long this confinement will last.

How long will Chinese companies endure this confinement?

According to a survey of small businesses, 68% will be forced to shut down if hibernation lasts more than 15 days.

Agatha Kratz, expert analyst for China at Rhodium (present at the Coface conference), stresses that it is no longer only activities directly linked to consumption that are affected, but also industry and construction. In addition there is a big question mark on the return of employees who left with their families for the holidays. Will they really want to come back and resume their work? This phase is critical according to Agatha Kratz, if it lasts too long, growth could be cut by almost 1% for the year 2020, an absolutely frightening figure for the authorities. Because Xi Jinping needs 6% of annual growth, to succeed in doubling the volume of the GDP of his country between 2010 and 2020. This macro-economic performance which could mean the elimination of poverty, he wants to present it at all costs to his fellow citizens and to the rest of the world in 2021, the year of the centenary of the creation of the Chinese Communist Party, believes Alicia Garcia Herrero, Asia Pacific economist chief, Natixis.

How can government limit or repair damage to the economy?

He will have no choice but to raise, according to Alicia Garcia Herrero. A massive recovery, we saw that the liquidity injected Sunday by the central bank did not help much, Monday the Asian markets all plunged. In 2008, the government launched major infrastructure projects to support the economy affected by the American financial crisis. His priority this time will be to target this famous consumer, the one who buys cars, who travels and who spends more and more on the internet. But for this plan to work, there must be substantial resources. This is where the shoe pinches. Local governments and businesses are over-indebted, neither has cleaned up their accounts as a result of loans taken out in previous crises. Households are also crippled with debt, they have borrowed a lot to buy an apartment. It is because of this over-indebtedness that the stimulus launched last year to limit the effects of the trade war did not work very well. The coronavirus is therefore severely testing the economic choices of the Beijing government.

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