Car manufacturers are closing factories

[zakiyatasnim]

Most industries in China have closed for two weeks after the Lunar New Year holiday. Most factories have postponed their reopenings as tens of millions of people remain locked down in dozens of cities across the country.

coffee shops are closed, and ports are much quieter than usual. Small and medium-sized businesses, which operate on short-term contracts and have only small financial and physical reserves, are already struggling. Reports from China's central belt suggest that livestock farmers are running out of feed.

Wuhan, a city of about 11 million people, is a major industrial oman number data center, a regional hub, a key cog in the auto industry, and a magnet for foreign firms. It is the third-largest education and research base in China, home to two of the top 10 universities. Weeks of downtime will have a significant impact on economic output.

Chinese President Xi Jinping acknowledged this last week. In response, the government is stepping up efforts to stimulate the economy by lowering tariffs on U.S. imports and making loans cheaper for businesses and consumers.

What could be the overall impact on China?
China's economy grew by 6% last year, according to Beijing's official statistics agency (the lowest rate in nearly 30 years and a big drop from 10.2% in 2010). There are hopes that 2020 will be a period of recovery after a protracted trade war with the Trump administration in 2019.

The coronavirus makes that unlikely, however. But most analysts still predict 5% growth for the Chinese economy, even taking into account the spread of the virus and the potential impact on consumers, businesses and the government.

However, Zhang Ming, an official at the Chinese Academy of Social Sciences, is more pessimistic.

He told Caijing magazine: “– GDP growth in the first quarter of 2020 could be around 5%, and we cannot rule out the possibility of falling below 5%.”

Diana Choyleva, chief economist at Enodo Economics, believes that China’s real growth rate for 2019 was closer to 3.7% and will be even lower this year. Some particularly pessimistic analysts warn that the worst-case scenario could be an economic contraction.

Importantly, investors hoping for a robust recovery once the outbreak is contained are likely to be disappointed. Choyleva points to the huge amount of bad debt that is not only aging China’s industry but also holding back growth for several years. China’s central bank has started pumping extra money into the economy to support borrowing while the virus is still raging, largely to boost business investment, but Choyleva said the money, while cheap, is mostly being used to prevent the development of “zombie companies.”