Economy pickup can be consolidated

With its economy contracting 6.8 percent year-over-year in the first quarter due to the large-scale shutdowns and quarantines implemented to curb transmission of the novel coronavirus, China urgently needs to sustain its third month upturn in the second quarter.

Although the pickup momentum in March was palpable — with the purchasing managers index rebounding sharply from 35.7 the previous month to 52 — it should be borne in mind that the uptrend was due to the easing of the domestic pandemic situation, and it was supported by the largely normal external demand from countries now waging their own battles with the virus, whose effects will be fully felt this month and beyond.

China has been among the first of the worst-hit major economies to have demonstrated the ability to control the pandemic, but its prevention and control efforts brought the national economy to a virtual standstill for weeks. Despite nearly all major industrial enterprises and about 80 percent of smaller businesses having now resumed work, business activity, particularly in the services industries, is still not back to normal because of weak consumer demand and the drop in demand for China’s exports due to the effects of the pandemic in other countries.

The weaker external demand means that although most enterprises in China have resumed production, those reliant on external demand face a shortage of orders, which has been another punishing blow for small and medium-sized businesses, for some of which it has proved to be fatal.

With unemployment and inflation eating into families’ spending power, the expectation that the unleashing of constrained consumption would initiate an economic rebound looks to have been overly optimistic as consumer confidence is yet to recover.

So notwithstanding the Chinese economy doing well overcoming the challenge of the pandemic’s domestic effects in the first quarter, the real test will be the second quarter and beyond, as the aftereffects of the first wave of the pandemic at home will overlap with the shock waves produced by the pandemic elsewhere.

That the central leadership terms the challenges confronting the Chinese economy as “unprecedented”, and has urged local governments to accurately assess the difficulties, risks and uncertainties, indicates that it has not been misled by the upbeat trend in March and is aware of the submerged reefs lying ahead in the storm.

To try and establish a firm foundation for the economy’s recovery, it is good to see that China’s policymakers have rolled out a range of measures over the past week, including more proactive fiscal policies and support for small businesses, as well as measures aimed at stabilizing foreign trade and investment and expanding opening-up.

If other countries can get their pandemic situations under control, that will also have a knock-on effect in bolstering consumer confidence in China boosting expectations that it will be able to realize its economic growth target this year.