China’s Business Activity Turns Broadly Negative for First Time

Date: Monday, March 16, 2020
Source: The Wall Street Journal

Business activity, for the first time on record, turned broadly negative, as home and retail sales, construction activity and factory output all fell

SHANGHAI—Business activity in China turned broadly negative for the first time on record as home sales, construction activity, retail sales and factory output plunged, pushing unemployment to a record high, signs of the costly economic damage associated with trying to control the spread of the coronavirus.

Taken together, the data, which is from the first two months of the year, paint a bleak picture of the impact that China’s government lockdowns on the movement of people and goods have had since they were implemented in late January to slow the spread of the coronavirus.

Many of China’s controls remain in place as officials try to strike a balance between restarting the economy and ensuring that the coronavirus, which has now grown more serious outside the country, doesn’t flare up again in China. By one nonofficial indication of how much activity has yet to recover, subway ridership in Guangzhou late last week was running at 44% of the year-earlier pace, though that was almost double the rate recorded two weeks earlier.

During the January-February period, home sales plunged by one-third, fixed asset construction activity fell by almost one-quarter, retail sales dropped by one-fifth and a measure of factory output contracted by double digit percentage points, according to figures published Monday by the National Bureau of Statistics.

The impact on China’s economy gives an indication to policy makers around the world of what’s at stake as they weigh measures to curtail consumer and business activity to lessen the coronavirus fallout on their communities.

For China, the figures challenge repeated comments from government officials, including President Xi Jinping, that the country can meet its ambitious economic targets for the year—most notably, a target of eliminating poverty by the end of the year, and another that aims to double overall gross domestic product from the beginning of the decade. Economists say meeting that latter goal would require China to register economic growth this year of 5.5% or higher.

Mao Shengyong, a spokesman for the statistics bureau, expressed confidence Monday that the downturn, while severe, would be short-lived, and re-emphasized China’s determination to meet its economic targets for the year.

Output at China’s factories slumped 13.5% in the combined January-February period from a year earlier, the statistics bureau said Monday. Retail sales slumped 20.5%. Fixed asset investment, a measure of construction, fell 24.5%, while real estate construction slid 44.9%. Home sales fell 34.7% and investment in the real-estate sector was off 16.3%. All of these figures were much worse than analysts forecast, and also represented a contraction after positive growth readings in the earlier comparable periods.

China’s record-high jobless rate, officially 5.7% for February, is particularly concerning to Communist Party authorities whose political mandate includes improving the economic situation for its people.

Government officials said Monday that the coronavirus has made it especially difficult for millions of the country’s poorest people to find employment this year. Economists say joblessness is likely to pick up and make any recovery from the coronavirus all the more difficult by crimping the consumer purchasing power China has increasingly relied on to power its growth.

The urban unemployment rate isn’t particularly high by international standards, but the significant jump from 5.2% in December shows the direct impact of production being suspended to control the coronavirus, Mr. Mao said. It follows a year when the government set an “employment-first policy” as its top economic priority in a reflection of downward pressure that had been building long before the coronavirus upended the economy.

“We were already expecting things to be pretty bad, but these figures are much worse than we had thought,” said Shuang Ding, an economist at Standard Chartered in Hong Kong.

Mr. Ding casts doubt that actions by Beijing now to encourage a resumption of business activity, as well as plans to lower taxes and pump government money into banks and businesses, could spur enough of a rebound over the rest of the year to fully offset the first-quarter hit to the economy.

The world economy has been thrown into turmoil as the coronavirus that was first detected in the central Chinese city of Wuhan late last year spread around the world to more than 145 countries and territories.

Global travel is plunging, governments are banning mass gatherings and countries are sealing their borders, threatening the kind of pause in activity world-wide that China experienced and which is now being reflected in its economic data.

While China’s economy has been slowing for years, outright negative figures are unprecedented and give credence to economists’ warnings that the world’s second-largest economy will record a drop in first-quarter GDP when compared with the previous quarter. China hasn’t published a GDP target for 2020 as a whole, but many economists expect growth to fall well below last year’s 6.1% rate.

Growth has been a constant in China since Mao Zedong’s death in 1976—the last year the economy recorded a negative performance. In the more than four decades since, it has averaged annual growth of 9.4%.

China produces data that span the first two months of each year to account for Lunar New Year, which falls on a different date in January or February depending on the calendar.

The figures for the first two months include almost a whole month of largely uninterrupted activity in January, before Wuhan was locked down on Jan. 23, two days before Lunar New Year. Mr. Mao, the bureau spokesman, said activity was normal until late January, indicating the bulk of the pullback occurred last month.

 

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