Covid-19 strikes China’s economy, raising popular dissatisfaction
The Chinese government’s delayed response to the epidemic and lack of transparency also provoked public criticism of Chinese President Xi Jinping and the Chinese Communist Party.
The coronavirus epidemic struck China when it was in the midst of serious economic problems and high unemployment and Chinese economists were already candidly warning of a 1% drop in growth this year. The attempted cover-up by Chinese authorities of the coronavirus epidemic for nearly two months—unimaginable in democracies—exacerbated economic losses and disruption, in addition to causing the loss of numerous lives and delaying an international medical response to the virus. Reports say at least two international pharmaceutical companies will start human trials of vaccines against coronavirus by next month and could have the vaccines ready by early next year. Chinese economists had warned in January that if the epidemic was not contained by mid-february, China’s growth rate could drop by 2%. The absence of transparency in efforts to, initially inform the people and later combat the coronavirus, led subsequently to the imposition of unavoidable drastic measures and sharply accentuated the already high level of distrust between the people and China’s communist regime.
The impact of the coronavirus epidemic on China has been severe. With over 80,000 persons infected by coronavirus; millions of persons under quarantine; schools, colleges, restaurants and public places closed resulting in the layoff of millions of workers to join the millions of those already unemployed; stringent transport restrictions imposed throughout China; and 18 cities placed under strict isolation, the damage and losses to China’s economy have been enormous. Chinese economists estimated in early January that China’s services sector alone was suffering a loss of US$144 billion a week! Restaurants, food stalls etc., have closed due to the coronavirus epidemic rendering millions unemployed. A China Cuisine Association survey reported that around 95% of caterers experienced major losses over the Lunar New Year and that the impact of the coronavirus outbreak on restaurants, fast-food joints and snack stands will be several times greater than that caused by the SARS outbreak of 2003. They will also face serious cash flow issues and difficulty obtaining financing in coming months. More than 300 Chinese companies including Xiaomi and China’s ride-hailing company Didi Chuxing are seeking bank loans totalling at least US$8.2 billion to ease the impact of the coronavirus epidemic. To ameliorate distress, China has decided to provide medium-term funding to banks and cut the interest rate.
Similarly, China’s Ministry of Human Resources and Social Security, on 27 January, released new regulations to relax certain labour laws for the period when the nation is combating the coronavirus. The new regulations prohibit laying off workers or stopping their pay if the workers are not able to work due to government bans. Companies have been instructed to provide a minimum living payment to those not able to work. For the same reason, those who are involved in the rescue activities of the epidemic and temporarily lose income and are not able to pay off credit card debts or a mortgage, will not be penalised for breach of contract. Delayed payments would be allowed. The State Grid for electricity announced that customers would be allowed to continue to use electricity even if their payment is past due. The State Grid will also arrange for customers to do business remotely online without visiting local offices.
A number of China’s factories, R&D centres and companies, mainly headquartered in Wuhan, were shut and efforts to reopen them began in late February with patchy results. Navy Shipyards, aircraft factories and weapons production plants were similarly closed. Regulations were issued to restrict the activities and training of China’s People’s Liberation Army (PLA). Recruitment to the PLA, which had been planned in two phases, was postponed. China’s major internet companies, including Tencent, Bytedance, Baidu and Didi, deferred the date for their employees to return to offices. Apple iphone maker Foxconn, which employs more than 400,000 on the Chinese mainland, delayed complete reopening until March. A survey of American companies in China released on 18 February, showed that more than three-quarters have insufficient staff to run a full production line. Separately, Xinhua reported that less than half of small and medium enterprises are back at work. Data released by Chinese software company Gaode on 10 March showed that while Wuhan’s work resumption rate stands at just 12.54%, most companies planned to ramp up work to 80% by end March. To encourage companies to resume work amid the coronavirus outbreak, China’s Ministry of Transport said (15 February) that China’s roads will be toll-free starting 17 February and the policy will be in force until the epidemic is deemed to be over.
Despite the economic losses and disruption caused by the coronavirus epidemic, Chinese President Xi Jinping
sought to keep the focus on China’s economic targets and the “Two Centenary” goals, which includes the “China Dream”. In a teleconference directly with over 170,000 officials across the country on 23 February he focused on reviving the economy. He said “Macro policies…should prevent the economy from slipping out of a reasonable range” and expressing concern about China’s role in global trade said: “[We] need to secure the smooth operation of foreign trade supply chains and stabilize [China’s] share in the international market.” Later at a Politburo Standing Committee (PBSC) meeting on 4 March, Xi Jinping claimed there was overall improvement in the epidemic situation across China and resumption of economic activities had accelerated. He urged deepening international cooperation and giving full play to China’s role as a “responsible great power”.
Apparently projecting that China continued to pursue the “China Dream”, a think-tank of the Stateowned China National Petroleum Corporation (CNPC) soon disclosed it was exploring the possibility of a Beijing-led global health organisation to rival the WHO. Separately highlighting the Chinese government’s strengths in combating the coronavirus epidemic, Chinese Foreign Minister Wang Yi referred (2 March) to China’s “Two Centenary Goals” and vision of building “a community with a shared future for mankind”!
The Chinese government’s delayed response to the epidemic and lack of transparency also provoked public criticism of Chinese President Xi Jinping and the Chinese Communist Party (CCP). Xi Jinping’s till now unexplained absence between 29 January and 10 February from public view and the official media and national TV at a time when China faced a national medical crisis drew added critical comment. Reputed Chinese intellectuals and scholars, at certain personal risk, posted criticisms of Xi Jinping and the CCP on their social media accounts. Well known Chinese professor, Xu Zhangrun of Beijing’s Tsinghua University, on 5 February, posted a scathing criticism of Xi Jinping and the Chinese authorities captioned “Angry People No Longer Fear”, that went viral on China’s social media. He was arrested shortly thereafter. There were similar displays of anger by other Chinese intellectuals and even one Supreme Court judge. Videos surfaced of Wuhan residents shouting “fake, fake” and “this is not real” during an inspection by Politburo member Sun Chunlan. A call by Wuhan Party Secretary, Wang Zhonglin, a close associate of Xi Jinping, to “carry out gratitude education among the citizens of the whole city, so that they thank the General Secretary [Xi Jinping], thank the Chinese Communist Party, heed the Party, walk with the Party, and create strong positive energy” evoked sharp rebuke and widespread anger. Former Tsinghua University professor, Xu Zhiyong urged (3 February) Xi Jinping to step down for his “inability to handle major crises”.
With their image substantively dented, if not damaged, Chinese President Xi Jinping and the CCP have a long and arduous road ahead to revive economic growth, create jobs and restore public trust. China will need to try and re-establish international supply chains, but more important will be whether global markets will be in a position to procure and absorb Chinese products as they themselves struggle to recover from the after effects of the coronavirus epidemic.
Jayadeva Ranade is former Additional Secretary in the Cabinet Secretariat, Government of India and is presently President of the Centre for China Analysis and Strategy.