China suffers worst economic decline since 1970s in battle against viruses


China suffered its worst economic contraction since at least the 1970s in the first quarter as it battled coronavirus, and weak consumer spending and factory activity suggest it is facing a recovery longer and more difficult than originally planned.

The world’s second largest economy shrank 6.8% from a year ago in the three months ending in March, after factories, stores and travel were closed to contain the infection, revealed Friday official data.

This was stronger than some forecasts which predicted a contraction of up to 16%, but China’s worst performance since before the start of market-type economic reforms in 1979.

Some forecasters said earlier that China, which had paved the way for a global halt to fight the virus, could rebound as early as this month. But they have lowered growth forecasts and postponed recovery times as negative trade, retail sales and other data accumulate.

“I don’t think we will see a real recovery until the fourth quarter or the end of the year,” said economist Zhu Zhenxin at the Rushi Finance Institute in Beijing.

Retail spending, which provided 80% of China’s economic growth last year, plunged 19% in the first quarter from the previous year, below most forecasts. Investments in factories and other capital assets, the other major growth engine, fell 16.1%.

The ruling Communist Party declared victory over the virus in early March and began to reopen factories and offices as the United States and Europe tightened controls. But cinemas, hair salons and other businesses deemed non-essential but employing millions of people are still closed. Tourism is struggling to recover.

Controls over Beijing, the capital and some other cities have been tightened to prevent a resurgence of the disease. Most foreigners cannot enter the country.

Consumer spending is slow to recover despite government measures to encourage spending by distributing vouchers in certain cities and launching a media campaign showing public servants eating in restaurants.

Many potential buyers keep their money for fear of possible job losses. Others are reluctant to venture into supermarkets or even leave their homes.

It is a blow to automakers and other companies who hope that China will lift the global economy out of its most painful crisis since the 1930s.

“I will definitely be more economical,” said Zhang Lizhou, a 26-year-old marketing director in Beijing.

Zhang said his company, which has yet to reopen, paid him 1,500 yuan ($ 215) a month, but his finances were strained to pay a mortgage. His girlfriend lost her job when her employer failed due to the epidemic.

“I will save money to overcome any difficulties,” said Zhang. “If I had done that, I would not be what I am now – anxious but unable to do anything. “

The ruling party has called on companies to continue to pay workers and avoid layoffs. These are promising tax breaks and loans to help entrepreneurs get back on their feet. Yet a wave of bankruptcies flooded the job market, adding to economic anxiety.

Auto sales fell 48.4% from a year earlier in March. This was better than the February record of 81.7%, but adds to a 2-year drop that was already pressing global and Chinese automakers on the industry’s largest global market.

Exports were down 6.6% in March compared with a year ago. This was an improvement from the double-digit drop in January and February, but forecasters warn exporters that they should face another slowdown as the fight against the virus depresses demand from American consumers and European.

Forecasters, including Oxford Economics, UBS and Nomura, say China will experience little or no economic growth this year.

The operator of a still closed fitness center in the western city of Xi’an said he did not know if the business would survive.

“The business could go bankrupt and I should find something else to do,” said the owner, who only gave his last name, Liu.

Beijing is trying to support the business by spending more on building next-generation telecommunications networks and other projects. But the ruling party does not want to inject too much money into the economy for fear of increasing the debt or driving up inflation, which is near a peak in seven years.

Chinese leaders are likely to adopt stimulus measures at least as important as their response to the 2008 crisis, but will focus on “quality rather than quantity,” Zhu told the Rushi Finance Institute.

He said the money would likely go to technology development and social protection instead of construction, as it did in 2008.

Last year’s economic growth fell to a decade-long low of 6.1% under the pressure of weak consumer demand and a price war with President Donald Trump which depressed exports.

“The epidemic has magnified the problems, so the pace of recovery will be much slower,” said Zhu.


Video producer AP Wayne Zhang and researcher Yu Bing contributed.


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