China’s Economy shrinks for first time

First time China's economy has shrunk since it started recording quarterly figures in 1992
China’s Economy shrinks for first time 13

China’s economy has shrunk for the first time ever in this years first quarter. The drop is due to the current health situation forcing factories and businesses to close. Based on official data released on Friday, the world’s second-biggest economy has shrunk by 6.8%. In light of the decrease there is considerable fears emanating from other countries in regards to the financial toll of the health situation seeing that China itself can be affected in such a manner. China is considered as an economic powerhouse whose primary income is from consumers and is a leading producers of goods and services. 

China’s economy registered growth of 6.4% in the first quarter of 2019 and this was the period when it was locked in a trade war with the US. China has consistently clocked an average economic growth of around 9% a year in the last two decades, though these numbers have been regularly questioned by experts on the accuracy of its financial data. Due to the shut down to the whole country, the Chinese economy grinded to a halt in the first three months of the year.

This is the first time China’s economy has shrunk since it started recording quarterly figures in 1992. Economist Intelligent Unit, Mr Yue Su said: “The GDP contraction in January – March Month will translate into permanent income losses that are reflected in bankruptcies across small companies as well as significant job losses.”  

Economists had already expected bleak figures to begin with. but official data has reported numbers worse than expected. Based on the Friday report released, the key statistics areas:

  • For March the factory output was down 1.1% as China slowly restarted their manufacturing operations. 
  • As people stayed at home, the retail industry has plummeted 15.8% in March 
  • Unemployment rates hit 5.9% in March, which is a slight increased from February’s all-time high of 6.2%.
China’s Economy shrinks for first time 14

Experts have alleged that due to the government’s draconian reaction, the results have wiped out the 6% gains in China’s economy posted in the last set of figures at the end of the previous year. 

In order to stabilise its economy and recover, Beijing has announced that a significant economic stimulus is underway. The ruling Communist Party -via the The People’s Daily announced there would plans to “expand domestic demand”.

The solution may not be so straight forward as the slowdown in the rest of the global economy represents a significant issue as exports play a vital role in China’s economy. International Monetary Fund Forecast China’s economy will dodge recession but growth will be curtailed to only 1.2% this year. Unemployment figures are also expected to rise with the numbers coming from companies that are linked to export trade which are hardest hit. 

China has started permitting factories to resume production and letting businesses reopen in March; a first step in a gradual process to return to pre-lockdown levels.

Louis Kujis, an analyst with Oxford Economics, said “ We don’t expect large stimulus, given that Beijing has generally distanced themself from it. Preferably we think policymakers will receive low growth this year, giving the prospects for a better 2021.”

China mainly depends on factories and manufacturing plants for economic growth and has been named the” World’s factory”. There were mixed reactions to the Chinese financial data in the Stock Markets with China’s benchmark Shanghai composite index up 0.9%. On Friday, Japan’s Nikkei 225 jumped 2.5% however this was mainly due to profits on Wall Street, as US President Donald Trump revealed plans to ease lockdowns. 

Rajitha Reddy
Journalist at News Asia Today covering topics on Life, Business, and Tech in Asia.