13 March 2020
It’s an odd thing to welcome but traffic jams are back again in the world’s second-biggest economy, and factories are humming. High frequency activity data from coal consumption to home sales are pointing to a gradual return to normal industrial and commercial activities across China.
Strict control measures implemented in February put many of China’s biggest cities on effective lockdown and led to flash collapses in activity and demand. But they also appear to have worked. China today looks better positioned than many Western countries to bounce back from the economic hit caused by the global pandemic, according to Fidelity’s latest quarterly sentiment tracker. The survey finds 85 per cent of Fidelity’s China analysts expecting the virus problem to ease before the second half, compared to an average of only 48 per cent across all analysts globally. Chinese companies’ earnings are also seen as being among the least hurt by the outbreak.
Markets are positioning for the rebound. Mainland China’s stocks have vastly outperformed global peers this month; the Shanghai Composite Index was up 1.5 per cent from the end of February to March 12, while the S&P 500 fell by 16 per cent over the same period.
Turning a corner
Investors appear to have been reassured by Chinese policy response to economic disruptions caused by the outbreak in the past month. More recently, the State Council, China’s cabinet, issued a call this week for more cuts in the reserve requirement ratio for banks, as authorities seek to boost liquidity further to cushion the virus impact. Provincial governments have announced infrastructure projects amounting to more than 3 trillion renminbi (US$430 billion) in new spending for this year.
A visit by president Xi Jinping on March 10 to Wuhan, the city hardest hit by the outbreak, was intended to telegraph a turning point in China’s battle with the outbreak. Unlike many countries in the West, particularly in Europe and the US, daily new coronavirus cases are now down to a trickle in China. The country reported 15 new cases on March 11 and eight on March 12, down from hundreds or thousands each day throughout February.
Tallying the turnaround
More granular datapoints demonstrate the recovery to date, but also how much ground remains to be made up. The country’s coal consumption has rebounded to more than 500,000 tons a day, from less than 400,000 tons per day through most of February. Although the usage is still about 20 per cent below March levels in the previous few years, a clear upwards trend has formed over the last few weeks.
Transportation and logistics have notably recovered across China as people return to work. Over the last few days, traffic congestion in Shanghai and Guangzhou, two of the largest Chinese cities, has even exceeded levels in March 2018, although roads are still less crowded than a year ago. Some of the traffic jams may be caused by people avoiding subway trains to minimize infection risks. The overall subway passenger flow in eight major cities has plunged about 80 per cent down on a year ago.
Property sales, which took a hard hit at the onset of the outbreak, have been picking up in cities of all tiers since mid-February, recovering to more than half of normal levels before the Chinese New Year. Private consumption, however, remains weak and far below pre-outbreak levels. Movie goers, for example, continue staying home, while retail and auto sales have improved only slightly in the last few weeks.
Despite the sharp decline in new cases, strict health measures remain in place in large Chinese cities, to prevent a return of the virus. Body temperatures are checked at building entrances, while elevators and other public areas are regularly disinfected. Schools remain shut and many restaurants are still closed. Most people wear face masks whenever they go out. Despite the diminished sense of crisis, Fidelity analysts based in the mainland report day-to-day life still feels less than normal, and consumer behaviour is expected to remain depressed for some time.
As the virus spreads deeper around the world, China’s concerns are shifting to the risk of imported cases from abroad. Even as activity starts to normalize, it remains a daunting task for China to achieve its GDP growth target this year. The challenges of domestic demand interruptions are likely to be compounded by an expected slump in foreign demand for Chinese goods caused by the increasingly global nature of the pandemic. It’s not a return to normal yet. But China does seem to be recovering while other major economies are yet to see the worst.
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