China’s economic recovery under threat from fresh coronavirus outbreaks and floods
Fresh clusters of coronavirus cases along with severe flooding may hold back China’s recovery from the pandemic as consumption and construction are likely to be hit, according to analysts.
of 2020, the first major economy to show a recovery from the damage caused by the coronavirus after its gross domestic production (GDP) shrank by 6.8 per cent in the first three months of the year.
But consumption, which was badly hit by the coronavirus, remains a fragile spot for China after retail sales – a key measurement of consumption fell by 1.8 per cent in June, although this was better than the 2.8 per cent decline in May.
“Consumption remains weak. Retail sales are stabilising, but even in June, remained below the levels recorded at the same time in 2019,” said S&P Global Ratings Asia-Pacific chief economist Shaun Roache. “Export growth stays patchy given the stuttering recovery in the rest of the world.”
Weak demand and reimposed lockdown measures in some regions in China as a result of a resurgence of coronavirus cases are also set to add more pressure to consumption, analysts said.
“The floods have wreaked havoc in many places. But I think that, at the macroeconomic level, the damage is not large enough to really affect growth of the national economy. Also, there could be some impact on food prices, but that is likely to be transitory and modest,” said Louis Kuijs, head of Asia economics at Oxford Economics.
“I think the new Covid-19 cases could potentially have a larger impact, macroeconomically, since an outbreak in one place could affect people’s behaviour nationwide, in terms of making people more reluctant to go out and engage normally.”
The Chinese government estimates that the economic costs of the floods, which have so far affected 27 of China’s provincial-level jurisdictions, is likely to hit 144.43 billion yuan (US$20.6 billion).
Although China became one of the first countries to recover from the coronavirus pandemic, analysts have confirmed parts of the economy will struggle to recover in the long-term. China’s gross domestic product shrank by 6.8 percent in the first three months of the year due to coronavirus. The retail sector, in particular, was heavily hit by the virus and added to the impact of severe flooding in parts of the country, may struggle to recover.
S&P Global Ratings Asia-Pacific economist Shaun Roache said: “Consumption remains weak.
“Retail sales are stabilising, but even in June, remained below the levels recorded at the same time in 2019.
“Export growth stays patchy given the stuttering recovery in the rest of the world.”
After a spike in COVID-19 cases, retail sales in Beijing dropped a huge 26.9 percent last month in comparison with the same time last year.
Floods in China have affected 50 million people in the country with a further 41,000 homes damaged due to the heavy rains flooding the Yangtze, Yellow and Huai rivers.
Due to the horrific floods, some analysts have stated China’s manufacturing and construction sectors will struggle to recover.
Zhao Qinghe, senior statistician at the National Bureau of Statistics (NBS) said on Friday: “Small companies continue to face pressure on both supply and demand.
“Some enterprises reported that flood-related disasters caused disruptions to logistics and transportation, along with problems like flooding in plants, equipment and inventory.”
The Chinese government has even stated the economic cost of floods could soon reach £15.8billion.
Liu Aihua from NBS said: “Some enterprises reported that flood-related disasters caused disruptions to logistics and transportation, along with problems like flooding in plants, equipment and inventory.”
This dent in the Chinese economy comes with relations between China and the West reaching crisis levels.
Last week, China’s ambassador to the UK, Liu Xiaoming warned Britain and the US were risking a reawakening of Cold War tensions.
Amid the decision on the removal of Huawei kit and the international outcry over the Hong Kong security law, the ambassador has warned relations are now “seriously poisoned”.
He also urged the UK to resist pressure from the US to put sanctions on Beijing.
In a press conference last week, he indicated a decoupling of relations between the UK and China, would seriously harm Britain post-Brexit future.
Liu said: “It is hard to imagine a global Britain that bypasses or excludes China.
“Decoupling from China means decoupling from opportunities, decoupling from growth and decoupling from the future.
“China respects UK sovereignty and has never interfered in the UK’s internal affairs.
“It is important the UK will do the same – namely, respect China’s sovereignty and stop interfering in Hong Kong’s affairs, which are China’s internal affairs, so as to avoid further damage to the China-UK relationship.”
By BILL MCLOUGHLIN