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CHINESE GDP CONTRACTION IN THE 1ST QUARTER 2020 | bestbrokers.co.uk

CHINESE GDP CONTRACTION IN THE 1ST QUARTER 2020

The Chinese economy shrank by 6.8% in the first three months of 2020 compared to the previous year. This is the first contraction of this magnitude since Beijing began reporting its quarterly gross domestic product in 1992.


This is a companion discussion topic for the original entry at https://www.bestbrokers.co.uk/blog/2020/04/24/chinese-gdp-contraction-in-the-1st-quarter-2020/

For one, I’m glad that I’m not a Chinese citizen given President Xi Jinping’s ‘requirement’ for the year-end goal to be double the overall level of GDP. It will undoubtedly prove interesting to see what austere measures are put in place to ‘motivate’ the industrial, construction and service sector employees prevented from working by the pandemic to reach his targets!

I guess of most significance here is that it is from 1992, when China started recording quarterly figures, that for the first time in decades we have seen China’s economy shrink. Some of you may recall that just 12 months ago, in the first quarter of 2019, China experienced a healthy economic growth of 6.4% and that was during a period it was enduring a trade war with the USA.

When the economy contracted by almost 7% in the first quarter of 2020, as direct result of the covid-19 virus forcing businesses and factories to shut down, the rest of the world watched on with concern as the second largest economy found their markets constricted.

Inevitably these concerns throughout the rest of the world are based on the fact that they will be next to pay the financial price of coronavirus. The Chinese economy has long been perceived as a major economic powerhouse being a major producer and consumer of services and goods, so when Yue Su at the Economist Intelligence Unit was quoted saying " The GDP contraction in January-March will translate into permanent income losses, reflected in bankruptcies across small companies and job losses. ” he was pretty much telling the fortune of all the other world economies.

To get some idea of the spread of this downturn, we know that of the 41 measured key industrial sectors within China - ranging from oil and gas industries, chemicals, car production, metal products, machinery and equipment, food manufacturing and processing and so forth - all but four reported losses. These four were the oil and gas exploitation, the non-ferrous metals, processing of non-staple agricultural goods and tobacco processing sectors.

As if to add salt to this financial wound, the rest of the world so heavily dependent on China for their exported goods (exports account for around one-fifth of China’s economy) is now also reeling from the effects of the pandemic. Their economies have slowed down under their various containment measures, and the subsequent demand for Chinese products has declined thereby sending a second economic shock wave out to hit China.

With this being the Chinese year of the rat, an animal seen as a sign of wealth and surplus in Chinese culture, it will be interesting to see if the ancient astrological beliefs have any credence!

There’s a lot more action ‘behind the scenes’ to consider too!

Their GDP may have faltered during the first quarter but the political activity driving the way forward has remained as resilient as ever.

Both within, and without, the Chinese economy has long needed a serious overhaul and it is clear that a mere virus has done little to stop the momentum already put in place by previous serious strategic planning to do just that.

Perhaps the first outward signs of this emerged back 2013 with the launch of the Belt and Road Initiative (BRI). In simple terms this is a strategy devised and initiated to create road, rail and sea links across up to 70 countries.

Some have politely recognised this as a little more than a re-creation of the old Silk Road, the ancient Chinese silk trading routes first developed during the Han dynasty 200 hundred years BC. Others have observed somewhat less subtly and perhaps with just cause, that the BRI is little more than heavily disguised debt-trap diplomacy, or neo-colonialism, being put in to action. Putting politics to one side for a moment, the BRI can also clearly be described as standardisation device.

Shortly thereafter, in May 2015, the PRC Premier Li Keqiang announced their next strategic plan, ’Made in China 2025’. In essence this strategy was planned to upgrade China from the status of a low-end manufacturer to becoming a high-end producer of goods and by doing so capture the emerging Chinese high wealth consumer and push into the external global sector.

A major change was required to switch the then current industrial structure to produce more specialised focused goods. With the required heavy investment in R&D, and an emphasis now placed on technological innovation, in order to achieve the party goals there was inevitably an inclination internally to support and offer heavy subsidies to state-owned businesses and preferred operators, creating less fair opportunities for the private sector and foreign investors.

Such discrimination, with additional accusations of cyber espionage and intellectual property theft, was perceived as a breach of international trade rules that set the US and China on the road to a trade war, with several other nations tightening up their foreign investment and trade practices too.

Perhaps the most tangible example of the ‘Made in China 2025’ plan in action is Huawei’s aggressive emergence as one of the most prominent world suppliers of 5G networking equipment. Again some observers see this as a key example of Beijing starting to define technical and technology standards.

Now in 2020, we have ‘China Standards 2035’ strategy near the final draft after two years of preparation, which if indicators are to be believed is the next step of the PRC’s global manufacturing plan, designed to define key aspects of the technological world covering telecommunications, artificial intelligence and even blockchain.

On the world stage we have seen the major players decline in standing - the EU, UN, NATO, WHO and WTO have all been weakened of late. Meanwhile, we have seen China take advantage of this and veto Security Council measures, receive concessions as part of the Paris Climate Accord, the WTO still treats the world’s second-largest economy as a “developing” nation and the director of the WHO supported Beijing as the Coronavirus spread around the world reducing national economies.

Through all of this we have seen a more bullying ambitious foreign policy supported by a strong repressive political system. In avoiding outright perceptible conflicts China has cleverly moved forward on the world stage by cynically using the pandemic for geopolitical advantage and playing favourites with its distribution of pharmaceuticals and personal protective equipment and launched a global disinformation campaign falsely assigning responsibility for the pandemic to the United States.

Recently it was noted that the PRC National Standardization Committee released “Main Points of National Standardisation Work in 2020.” Within lies instructions to “seize the opportunity that COVID-19 creates by proliferating China’s authoritarian information regime; to co-opt global industry by capturing the industrial Internet of Things; to define the next generation of information technology and biotechnology infrastructures; to export the social credit system”.

From the above it is not difficult to deduce that President Xi Jinping, and China, has more in his sights than a simple uptick in the 2020 national GDP box - as the old Chinese proverb says “ Without ploughing and weeding there is not a harvest ”.