Question

What are the effects of COVID-19 on China's Economy

before and after COVID-19 illustrate how COVID-19 affects China's economy. In addition to the whole country, you also need discuss the differences of the effects between different areas of China

At least 1700 English words are required

Answer 1

The COVID-19 outbreak has severely weakened China’s first quarter economic performance. Domestically, the outcome of the government’s policy efforts remains unclear, as the government aims to strike a balance between two, often contradicting, objectives. Externally, the extent of the COVID-19 outbreak also remains uncertain as the spread continues to unfold. Its likely devastating impact on the world economy will hurt China’s economy significantly, through lower demand for Chinese products and by disrupting global supply chains, which China’s economy is deeply embedded in and heavily dependent upon.

However, if the Chinese government pursues its promised reforms, the economy could see a quick return to growth.

First, there is the risk of a resurgence of the virus outbreak, due either to imported cases or transition through asymptomatic carriers of the virus. The possibility of a second wave from imported cases is rising, as the spread outside China has become serious. In the case of a resurgence of the virus spread, another round of strict lockdowns and other stringent traffic control measures will have to be imposed, which will devastate the economy. The struggle to balance business resumption and disease control will be further prolonged.

Second, the outbreak will severely affect the world economy and pose additional challenges on China’s economy. In its latest outlook, the International Monetary Fund estimated that world output is expected to contract by 3%, with world trade down by 11% in 2020 and advanced economies performing the worst. These factors will have a significant negative impact on China, which depends on external demand and trade-related production activities.

Third, a prolonged depression in the global economy may trigger a new wave of production configuration. Economic hardship may reinforce protectionist tendencies worldwide. Countries will also try to bring production back home and shorten global supply chains to better manage risks. As the world’s largest exporter and as an important link in global supply chains, the Chinese economy is severely affected by such trends.

There is little doubt that the economy will perform considerably worse in 2020 than originally targeted, which was a growth of around 5.5% to achieve the government’s centennial goal of doubling its economy between 2010 and 2020. Nonetheless, we believe that recovery is on the way, and the Chinese economy will likely fare better than many of its neighbors and achieve an annual growth of 2%-3% this year.

After the Lantern Festival, more and more cities have wholly or partially resumed work, and the inter-provincial and intercity human traffic has increased significantly. The risk of the virus spreading through the large-scale return to work of migrant workers will significantly increase. There can be no underestimation of the risk of a second round of virus eruption in other major cities, such as Beijing, Shanghai, Shenzhen, and Chongqing. At the same time, the outbreak is spreading to the rural areas in Hubei and other regions, where severe lack of medical resources is a high probability, making things even harder for the prevention and control of the disease.

As the Leishenshan (Thunder Mountain) Hospital, Huoshenshan (Vulcan Mountain) Hospital, and Fangcang Hospital become operational, and medical teams from other provinces have arrived at Wuhan and other severely afflicted areas in Hubei to aid the fighting of the virus, bringing huge relief to Wuhan and those afflicted areas in Hubei overstrained in medical resources; in second-tier cities, such as Hangzhou, Nanjing, and Suzhou, countermeasures such as isolation and screening have been tightened.

In the short term, the impact of the COVID-19 disease on China’s economic growth will be very obvious. Since the outbreak, many domestic and foreign institutions have made their estimations (see Figure 1). Most of them believe that the GDP growth rate in the first quarter may be about 4%, a decline by about 2 percentage points. The growth rates in the next three quarters will gradually pick up depending on when the outbreak ends, and the annual GDP growth will show a “V-shaped” pattern. All things considered, this outbreak will far surpass SARS 17 years ago in its impact on the economic growth. On the one hand, the scale of this outbreak as of now is already much larger than the previous one, whether in terms of confirmed cases or deaths. On the other hand, as compared with the SARS period, things have become very different in terms of growth environment, industrial structure, and the room for policy stimulus, which are less favorable to offsetting the impact than years before. However, like any disaster, the impact of the Novel Coronavirus disease is sure to be temporary. When the outbreak is over, the economic growth will soon return to normal as determined by the general course of things. In light of the prevailing analyses and estimations of domestic and foreign institutions, we believe that if the outbreak could be largely over in late March or early April, the growth rates in the four quarters of this year may reach 4.5%, 5.0%, 5.8%, and 5.7% respectively. The annual growth rate may be 5.2-5.3%.

In terms of import and export trade: due to the slowing down of growth in consumption and investments forced by the outbreak, and the implementation of the first phase agreement in the Sino-US trade war, the import and export trade will continue to further level off in 2020. After the World Health Organization announced on January 31 that the outbreak constitutes a public health emergency of international concern (PHEIC), some countries have adopted short-term measures, such as evacuation of repatriates, entry restrictions, and suspension of flights, and import and export as well as foreign direct investments (FDI) have suffered as a result. On the other hand, many people have, due to the outbreak, cancelled their plans to travel abroad during the festival, which will lead to a significant decline in China’s service trade imports. Taken together, in the outbreak period (the first and second quarters) as well as the whole year, China will maintain a surplus position with regard to its current account in the balance of trade, but the margin may be lower than last year. The contribution of net exports to the GDP growth is expected to remain basically the same as 2019 or experience a slight decrease. With the international balance of payments remaining basically stable and given the commitment to maintaining a basically stable exchange rate in the first phase of the Sino-US trade agreement, the RMB-USD exchange rate is expected to remain stable in 2020.

Keeping in a view the staggering situation G-20 nations called an emergency meeting to discuss worsening conditions and prepare a strategy to combat Covid-19 as losses could be reduced. The spread of the epidemic is picking up speed and causing more economic damages. It is stated by the U.S. official from federal reserves that American unemployment would be 30% and its economy would shrink by half. As for as the jobs of common people are concerned, there is also a real threat of losing their jobs because with business shutting down that shows that companies will be unable to pay to workers resultantly they have to lay off them. While when it comes to the stock market, it is severely damaged by Covid-19 such as the stock market of the United States is down about thirty percent. By looking over the existing condition of several businesses, most of the investors are removing its money from multiple businesses in this regard $83 billion has already removed from emerging markets since the outbreak of Covid-19. So, the impact of Covid-19 is severe on the economic structure of the world because people are not spending money resultantly businesses are not getting revenue therefore most of the businesses are shutting up shops.

It also observed that the economic recovery from this fatal disease is only possible by 2021 because it has left severe impacts on the global economy and the countries face multiple difficulties to bring it back in a stable condition. Most of the nations are going through recession and collapse of their economic structure that points out the staggering conditions for them in this regard almost 80 countries have already requested International Monetary Fund (IMF) for financial help. Such as Prime Minister of Pakistan Imran Khan also requested IMF to help Islamabad to fight against Novel Coronavirus. Furthermore, there is uncertainty and unpredictability concerning the spread of Coronavirus. So, the Organization for Economic Cooperation and Development (OECD) stated that global growth could be cut in half to 1.5% in 2020 if the virus continues to spread. Most of the economists have already predicted about the recession to happen because there is no surety and still no one knows that how for this pandemic fall and how long the impact would be is still difficult to predict. Besides, Bernard M. Wolf, professor, Economics Schulich School of Business, said that “it is catastrophic and we have never seen anything like this, we have a huge portion of the economy and people under lockdown that’s going to have a huge impact on what can be produced and not produced”.

As Covid-19 has already become a reason for closing the multiple businesses and closure of supermarkets which seems empty nowadays. Therefore, many economists have fear and predicted that the pandemic could lead to inflation. For instance, Bloomberg Economics warns that “full-year GDP growth could fall to zero in a worst-case pandemic scenario”. There are various sectors and economies that seem most vulnerable because of this pandemic, such as, both the demand and supply have been affected by the virus, as a result of depressed activity Foreign Direct Investment flows could fall between 5 to 15 percent. Besides, the most affected sectors have become vulnerable such as tourism and travel-related industries, hotels, restaurants, sports events, consumer electronics, financial markets, transportation, and overload of health systems. Firstly, continue with essential containment measures and support for the health system. Secondly, shield affected people and firms with large timely targeted fiscal and financial sector measures. Thirdly, reduce stress to the financial system and avoid con tangent. Fourthly, must plan for recovery and must minimize the potential scaring effects of the crisis through policy action. Concerning the serious and worsening conditions all over the world, nations need cooperation and coordination among themselves including the help and mature as well as sensible behaviour of people to effectively fight against Coronavirus. Otherwise, because of the globalized and connected world, wrong actions and policies taken by any state will leave a severe impact on other countries as well. This is not the time of political point-scoring and fight with each other rather it is high time for states to cooperate, coordinate, and help each other to defeat this fatal pandemic first for saving the global economic and financial structure.