China Reports Historic Economic Shrinkage of 6.8%

The Chinese economy shrank by nearly 7% during the first three months of 2020, officials reported this week.

To compare: China’s economy grew by 6.4% during the first three months of 2019 even though it was locked in a trade war with the Trump Administration.

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“A 6.8% drop in GDP is an extraordinary shock to the Chinese economy, and by implication the rest of the world,” notes Richard Pearson, director of investment platform EQi.

China also reported a 1.1% decrease in industrial production, a 15.8% drop in retail sales, a 16% decline in fixed asset investment, and a 6.4% reduction in imports and exports. Unemployment reached 5.9% in March.

The economic shrinkage – China’s first in 28 years – is a direct result of the lockdowns, production freezes, and other strategies designed to halt the spread of COVID-19. Similar economic damage is expected in other major countries grappling with the virus, but China is particularly vulnerable to the disruption given its reliance on exports.

“The GDP contraction in January-March will translate into permanent income losses, reflected in bankruptcies across small companies and job losses,” notes economist Yue Su.

Miguel Chanco, a senior Asia economist at Pantheon, predicts China will experience a full-year contraction in 2020 but doesn’t expect China to report it (Beijing hasn’t reported a full year of decline since the 1970’s).

The fact that China is even reporting the 6.8% decline implies they could be in much worse shape. China has reported economic growth of roughly 9% per year for the past 20 years, but experts believe the true figure is closer to 5%.

Just this week, China revised its COVID-19 death toll for the city of Wuhan from 2,579 to 3,869 – yet another indicator that China attempted to downplay the severity of the virus.

Overall, China has reported 80,000 infections and more than 3,000 deaths (true figures are expected to be much higher). Officials are working to gradually restart the economy, but fears of a second wave of infections have spurred some regions to implement new restrictions. To date, China’s borders remain closed to most foreigners and international flights are limited.

Editor’s Note:  China’s economic numbers, as well as their COVID-19 number, are under the control of the CCP, and most experts do not consider them to be reliable.  That can only mean that the numbers are much worse than they are reporting. Anyone doing business there at this time, should take his into account.

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