Chinese economy nosedives as virus outbreak hits factories
China’s factory production slumped to its lowest level on record in the first two months of the year as the coronavirus outbreak wreaked havoc for the world’s second-largest economy.
Analysts said the shock was worse than the financial crisis decade ago and reinforced fears that the epidemic may have cut China’s economic growth in half in the first quarter.
Industrial output fell 13.5 per cent in January and February from the same period last year, according to figures from the National Bureau of Statistics.
This was worse than expected and marked the weakest reading since records began in 1990.
“Judging by the data, the shock to China’s economic activity from the coronavirus epidemic is greater than the global financial crisis,” Zhang Yi, chief economist at Zhonghai Shengrong Capital Management, told Reuters.
“These data suggest a small contraction in the first-quarter economy is a high probability event. government policies would need to be focused on preventing large-scale bankruptcies and unemployment.”
The dire economic data, released this morning, also showed sharp declines in the retail and property sectors.
Fixed asset investment fell 24.5 per cent year on year, dashing forecasts of a 2.8 per cent rise and a reversal of the 5.4 per cent growth posted in the previous period. Private sector investment dropped 26.4 per cent from the previous year.
Retail sales fell 20.5 per cent year on year, compared to forecasts of 0.8 per cent growth, as consumers avoided crowded places such as shopping centres, restaurants and cinemas.
The figures revealed the wider impact of the slump on the Chinese economy, with the country’s homeless rate rising one percentage point to 6.2 per cent in February — the highest since official records began.
China’s central bank last week said it was cutting the amount of cash that banks must hold as reserves for the second time this year, releasing another ¥550bn (£63.6bn) to push down borrowing costs.
While the coronavirus outbreak began in the Chinese city of Wuhan, the number of global deaths and infections has now surpassed those inside China.
Chinese authorities played down the impact of the virus, saying the coronavirus epidemic was controllable and short-term and authorities would strengthen policy to restore economic and social order.
But Beijing is still battling with cases involving infected travellers arriving from abroad, while analysts warned it could take months before the country’s economy returned to normal.
“The fact that lower Chinese production will have a severe implication on most international companies’ operations is now leading to another round of downside valuation in market prices,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“And of course, the spread of the virus to other parts of the world continues paralysing economies globally and the negative implications will go far beyond a Chinese-led slowdown.”