Economy and trade

Headline data

Many economic consultancies have lowered forecasts for China's GDP growth during 2020. For example, the Economist Intelligence Unit (EIU) has lowered its real GDP growth forecast for 2020 to 1.0%. This will reflect the continuing challenge of getting businesses back to full operation, the fall in Chinese exports and domestic consumption across Q1 to Q2, and the anticipated ongoing fall in global demand as COVID-19 outbreaks spread around the world. China's GDP declined 6.8% on a real basis during Q1 (YoY). Hubei Province and Tianjin have been particularly hard hit, with Hubei down around 40% (YoY) on what had been running at a US$650 billion regional economy.

COVID-19 has had wide-ranging impact across China's economy:

  • The service sector, especially consumer industries such as tourism, catering, entertainment and logistics (particularly for small and medium-sized enterprises).

  • The manufacturing sector, typically due to disrupted global supply chains, and softer domestic and global demand

  • The trade sector, due to the reductions and cancellations of flights, and sea routes and borders restrictions

Analysis by Trivium China's National Business Activity Index indicates that the Chinese economy is operating at 87.8% of normal output. This can be further broken down to large companies at 87.9% and SMEs at 87.8% of their typical output. It is clear that significant progress has been made to getting back to full operation, however it is also apparent that this data has moved only slightly during the last month or so, indicating a full recovery remains a way off. Company profitability is also impacted. Full capacity utilisation is still being held back by external demand and supply chain constraints. In order to reach 100%, a recovery in consumer demand is also necessary.

Key economic indicators have improved in recent months and suggest that the economy is moving along two tracks:

  1. The production side, which is easier for the government to stimulate, and was boosted by export growth, moved into positive territory. Fixed asset investment also improved – in part linked to improvement in the property and construction sectors.

  2. In contrast, the consumption side is slower to recover. Retail sales have been sluggish, indicating that it is still proving much more difficult to get consumers to spend. The extent of decline in retail sales is lower than in January and February but still indicates a high degree of consumer caution. The cautious approach on public health measures for transportation, retail and recreation continued to have an influence on consumption, with many restrictions still in place for daily activities – i. E. Basically things that require a physical presence. The economist intelligence unit (EIU) is forecasting that retail sales will decline 8% during 2020.

At this stage it does look like industrial production is following somewhat of a v-shaped recovery, whereas consumption is more u-shaped in terms of its recovery trend.

  • Industrial production: +4.4% YoY (April +3.9%)

  • Retail sales: -3% YoY (April - 7.5%)

  • Retail consumer goods sales: +0.8 YoY (May)

  • Catering sales: -18.9% YoY (May)

  • Fixed asset investment: -3.9% YoY (April -2.2%)

  • Unemployment rate: currently 5.9% (but excludes SME data)

  • Non-performing loan ratio: currently 2.04% (US$100bn loans disposed in Q1)

China has issued some RMB 19 billion (approx.NZ$4.5 billion) of consumption vouchers via the local government in conjunction with multiple domestic mobile payment platforms. Alipay data suggests that through RMB 1 distributed through vouchers, consumers spend on average an additional RMB 8. Other data suggests that the multiplier effect may be lower. In total, 28 provincial level regions and 170 prefecture-level cities have taken action according to MOFCOM. The Nanjing city government, for example, has distributed e-vouchers worth RMB 318 million (NZ$75m) that can be used at restaurants, gyms and electronics or book retailers. Beijing, Jinan, Chongqing and Ningbo also have voucher programmes of differing scale.

Whilst unemployment is officially running at 5.9%, the National Bureau of Statistics say that an additional 18% of the workforce is either furloughed, has taken a pay cut or taken unpaid leave during Q1. There are also 8.7 million graduates who will soon be looking for work.

Business impacts

China’s Purchasing Manager Index (PMI), as published by the National Bureau of Statistics, declined slightly in May. In May, the PMI was 50.6, slightly down from 50.8 in April and 52 a month earlier. The PMI had been as low as 35.7 in February. Overall, the May data suggests a flat level of optimism amongst businesses in China, which could be linked to declining international demand taking a toll on Chinese manufacturers. It will take a while longer to see a trend emerge in the PMI data.

Industrial profits were down 34% (YoY) on average during March, according to China's National Bureau of Statistics. The decline was steeper for large-scale enterprises, which recorded 50% declines on average. On a more positive note, these numbers actually represent some improvement over January and February.

There are also indications of slowing wage growth in China – March data was +2.1% (YoY), which is lower than normally experienced in China. Business capital expenditure was also down 8% during Q1. Both indicate a general tightening across businesses.

Corporate registration data shows that 460,000 businesses closed their doors permanently during Q1, and at the same time new business registrations declined almost 30% YoY and those that newly registered were to a large extent concentrated in major cities.


At the consumer level reporting for Q1 from China Central Bank highlights that 53% of people are currently inclined to save more, which is up 7.3% on the previous quarter and is indicative of concern about job security and the employment outlook. "Revenge Spending" in the economy has to been slower to emerge that anticipated.

Apart from the voucher consumptions discussed earlier, local governments have initiated a programme to boost local consumption and economic growth. For example, in Wuhan local officials supported livestreaming promotions for local Food and Beverage products. Daily sales were approximately RMB18 million (NZ$4 million). Shanghai has initiated an action plan to escalate the new online economy and has created a two-month shopping festival during May and June.

Imports and exports

China’s exports fell 3.3% in dollar terms (yoy) during May, which contrasts the unexpected increase of 8.2% recorded in April. The positive data for April largely reflected a catch-up in shipments of products that were ordered during February and March ahead of countries going into lockdown. The regional export picture has been impacted by the various lockdown measures in the US and Europe in particular. Strong exports of medical supplies, including Personal Protection Equipment (PPE) helped to limit the overall decline.

If the more pessimistic forecasts for Q2 play out in reality, 4 - 6 million jobs could be lost in manufacturing from China's total manufacturing sector workforce of approximately 105 million people. It is worth noting that whilst the export sector still accounts for 18% of China's GDP — and in sectors such as garments (30-40%), computers (70%) and machinery (20-25%) — a significant portion of business profits are linked to exports.

With global demand running at a lower level, Chinese exporters are looking at how to re-direct their products to the domestic market where demand is currently stronger. Local government support is starting to kick in around that – for example, in Dounguan (Southern China) companies are understood to be gaining assistance to promote their goods to domestic markets and to access ecommerce channels.

However, it should be noted that despite the decline in exports, China still managed to post a massive trade surplus of US$63 billion in May, due slumping imports and favourable commodity prices (eg. crude oil and natural gas).

Advice to exporters

Recent economic data supports feedback from businesses on-the-ground in China that market conditions are improving. This reflects the progress made in companies getting back to some degree of operation, improvements in the situation for ports and logistics and, of course, the winding back of some of the restrictions people faced in terms of their movement and daily lives.

But it does also need to be acknowledged that Chinese companies in the trading sector continue to be impacted by global supply chain disruption and declining international demand. Chinese consumers also remain cautious. SMEs in particular are still under pressure in the current economic environment and it is recommended that companies carefully watch credit extended and the risks that may emerge around delayed payments.

Now is the time for exporters to be actively communicating with their supply chain and distribution partners to order to get clarity around their own situation and how they can work with them to retain existing market share, capture new demand or recover pricing. An example of a specific trend exporters should get across is the expansion of ecommerce consumption into the older demographic grouping, which is likely to last well beyond the pandemic and the potential for Chinese consumers to favour local brands during their recovery.

Companies should also focus beyond Tier 1 and Tier 2 cities and continue to build their strategy for reach Tier 3 and beyond.

Examples of sectors that could potentially rebound more quickly during a market recovery are:

  • Food and beverage (as supply from other countries into China is disrupted)

  • Health and nutritional products

  • Online entertainment

  • Online education.

Further insights

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