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ECONOMY: Rebound of the Economy
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Rebound of the Economy
By Morgan Brady

BT 202005 ECONOMY 02China's economy is showing some signs of recovery from the devastation caused by the novel coronavirus pandemic. The impact of the pandemic on China’s economy is generally controllable and the fundamentals remain resilient. However, growth could be entirely wiped out in 2020, putting millions of jobs at risk.

For the first time since 1976, China is expected to suffer a first-quarter contraction, albeit that China’s economic growth is expected to bounce back in the second quarter. The period from April to June will be very hard and crucial for the government to get the economy to where it used to be and achieve its goal of doubling the size of gross domestic product (GDP) between 2010 and 2020 – a target that analysts estimate would require a minimum growth rate of 5.6% for the full year.

GDP growth this year in the world's second-largest economy could fall to around 1% or 2%, down from 6.1% in 2019, according to recent estimates by analysts. In a worst-case scenario, the $14 trillion economy may not grow at all, the World Bank warned earlier this week. Many analysts said that the headline economic growth rate in the third and fourth quarters could return to the normal track of 6% or higher, but this remains to be seen.


Supporting the economy

People wear protective face masks following an outbreak of the novel coronavirus disease COVID 19 at Lujiazui financial district in Shanghai China March 19 2020China is planning to provide more support for its economy such as investing in regional development and infrastructure projects while maintaining a prudent monetary policy with reasonably ample liquidity.

The economy is going through its biggest recession in decades. The State Council said the government aimed to better integrate fiscal, financial and monetary policies, deepen capital market reforms and further open up the financial sector.

Economists truly believe that the shutdown has doomed untold numbers of jobs and small businesses. Beijing city has tried to boost lending and protect jobs, but it may have to do more to get its huge, damaged and incredibly complex economy back on track and returning to normal.

China is still recovering from the last surge in the coronavirus pandemic. In addition to the increased spending, Beijing released $2 trillion in new lending and made other moves that released still more credit into the financial system. As a result, China became one of the world’s most indebted economies in less than a decade, which is not a positive sign. Economists from all over the country have warned that the debt could hold back long-term growth and disrupt the financial system. Even if China strengthens its economy internally, it must cope with a lack of demand for its goods from abroad.



Fewer businesses opening

A worker makes face masks at the workshop of a company in Changyuan central Chinas Henan ProvinceA worker makes face masks at the workshop of a company in Changyuan, central China's Henan Province

Lots of Chinese businesses are struggling with the economic fallout of the novel coronavirus. The pace of new firms being established has slowed significantly; around 3.2 million businesses were set up in the first quarter, which is 29% lower than a year earlier.

Factories are not at their full capacity

Employees work on the assembly line of Audi Q3 at a whole vehicle manufacturing base of the Sino German joint venture FAW Volkswagen Automotive Co Ltd on Dec. 5 2019 in TianjinEmployees work on the assembly line of Audi Q3 at a whole-vehicle manufacturing base of the Sino-German joint venture FAW-Volkswagen Automotive Co Ltd on Dec. 5, 2019 in Tianjin

Factories are now struggling to get back to full capacity given the shortages of labour and essential parts. More than 460,000 Chinese firms closed permanently between January and March as the coronavirus pandemic battered Asia’s largest economy, with more than half of them having operated for less than three years, corporate registration data shows.



Industrial production falls

BT 202005 ECONOMY 03Industrial production fell by 13.5% and sales shrank to 42% in January and February. Beijing’s focus is to try to revive the automotive industry. The government will extend tax breaks and subsidies on electric vehicles by two years, while cutting sales tax on used cars from May through to the end of 2023.

The Caixin/Markit manufacturing Purchasing Managers' Index rose to 50.1 last month from a record low of 40.3 in February. A reading above 50 indicates expansion, whereas a reading below 50 indicates contraction. Analysts estimate that the virus will likely increase poverty rates as a consequence of lost jobs. Caixin activity in China's services industry accounts for roughly 60% of the gross domestic product (GDP).




temThe Chinese government has to provide more help for the economy. At this point, it would be reasonable to lower the GDP growth target significantly and halt the poverty increase, support the labour market in addition to cutting interest rates and taxes, and announce more support for individuals and health care systems.

The International Monetary Fund expects China to contribute more than a quarter of the global growth in the next five years, which means the exporting and manufacturing giant’s ability to resume business is critical for the world economy. Thus, the actions of the Chinese government are relevant to other economies, not just its own.

Optimistic forecasts indicate that the economy is likely to regain some strength in the second quarter, but this depends on what happens in China and abroad. The Chinese government is trying its best to keep the economy steady, but there is still huge uncertainty over the future path and how strong the economy will be.



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