China sees lowest growth rate in 29 years, and worst GDP contraction since the Cultural Revolution
On a slowdown mode, China's economy grew by 6.1 per cent in 2019, the lowest annual growth rate in 29 years amid the bruising trade war with the US. Hong Kong-based South China Morning Post reported that the 6.8 per cent drop in the first quarter of 2020 is the first contraction since the end of Cultural Revolution spearheaded by the ruling Communist Party founder Chairman Mao Zedong in 1976 which had caused extensive damage to the fledgling Chinese economy then. EIU has estimated that around 5 million have lost their jobs. Labour protests are now re-emerging in the wake of the lifting of restrictions.Will the Chinese economy survive?
China's GDP took the worst hit since the disastrous Cultural Revolution in 1976, plummeting by 6.8 per cent in the first quarter of 2020 as the country took unprecedented measures to fight the coronavirus pandemic that brought the world's second largest economy to a standstill.
China's gross domestic product stood at 20.65 trillion yuan (USD 2.91 trillion approx) in the first quarter of 2020 amid the COVID-19 impact, down 6.8 per cent year on year, China's National Bureau of Statistics (NBS) said on Friday.
The figure slightly rebounded from a drop of 20.5 per cent in the first two months, the NBS data said. On a slowdown mode, China's economy grew by 6.1 per cent in 2019, the lowest annual growth rate in 29 years amid the bruising trade war with the US but it remained above the psychologically important mark of six per cent.
The GDP in 2019 expanded to USD 14.38 trillion from USD13.1 trillion in 2018.
But the coronavirus which devastated China and the world ever since it broke out in Wuhan in December last year has dealt a major blow to the Chinese economy which was already in slowdown mode in the last few years due to steady shrinking of its exports markets.
While China had shut down the 56 million-strong central Hubei province and its capital Wuhan for over two months since January 23 to contain the virus for over two months, the entire country came to a standstill to prevent the COVID-19 from spreading across the world's most populous nation.
The world's second-largest economy is now limping back to normal with factories resuming production all over.
Hong Kong-based South China Morning Post reported that the 6.8 per cent drop in the first quarter of 2020 is the first contraction since the end of Cultural Revolution spearheaded by the ruling Communist Party founder Chairman Mao Zedong in 1976 which had caused extensive damage to the fledgling Chinese economy then.
Its goal was to preserve Chinese Communism by purging remnants of capitalist and traditional elements from Chinese society, and to re-impose Mao as the dominant ideology in the Community Party of China.
New data released by the NBS confirmed the slump due to the COVID-19 which was worse than predictions of minus 6.0 per cent from a survey of analysts, the Post report said.
The NBS data also showed that over the single month of March, the economy remained under huge pressure, with the industrial sectors, retail and fixed asset investment all shrinking again, following a collapse over the first two months of the year.
Releasing the figures to the media here, NBS however said the country's economic and social development witnessed overall stability in Q1.
A breakdown of the data showed output of the service sector, which accounted for nearly 60 per cent of the total GDP, dropped by 5.2 per cent, while primary industry and the secondary industry saw a decline of 3.2 per cent and 9.6 per cent, respectively.
"The situation of epidemic control and prevention continued to improve with a basic interruption in epidemic transmission at home," the NBS said, adding that the resumption of work and production has accelerated and fundamental industries are growing steadily, state-run Xinhua news agency reported.
Friday's data showed China's job market improved slightly in March, with the surveyed unemployment rate in urban areas standing at 5.9 per cent, down 0.3 percentage points from the previous month, it said.
China's retail sales of consumer goods, a major indicator of consumption growth, declined 19 per cent year on year in the first quarter of this year hit by the coronavirus outbreak, the NBS report said.
In March, retail sales of consumer goods reached 2.645 trillion yuan (USD 374 billion approx) down 15.8 per cent year on year.
Retail sales in rural areas dropped 17.7 per cent year on year in Q1, while that in urban areas decreased 19.1 per cent, the Xinhua report said.
The decline came as efforts to curb the spread of COVID-19 have kept most people across China indoors, as well as shops and restaurants shut during the past three months.
Revenues of the catering sector, one of the worst-hit industries, fell 44.3 per cent compared with the same period last year, said the NBS.
Meanwhile, online sales stayed relatively stable as consumers turned to online services when staying indoors, falling 0.8 per cent year on year, it said.
UNPRECEDENTED SCALE OF UNEMPLOYMENT
The coronavirus pandemic is expected to cause millions more people in China to lose their jobs, leaving many of them stranded without a safety net, unable to access state unemployment benefits, economists say.
Analysts expect nearly 30 million job losses this year due to stuttering work resumptions and plunging global demand, outpacing the 20-plus million layoffs during the 2008-09 financial crisis.
Beijing has fortified its jobless claims programme in the decade since the financial crisis erupted, tripling the pot of funds to which both employers and workers contribute to 581.7 billion yuan ($82.37 billion), according to the latest data.
But millions of workers have no contracts or have not been paying into the unemployment insurance scheme, meaning they will have to rely on their employers giving them compensation if they get laid off. Many will be forced to dip into savings or seek help from their extended family if they lose their jobs.
Some 2.29 million people received unemployment insurance in January and February, according to the Ministry of Human Resources and Social Security. In the same period, an estimated 5 million people lost their jobs, according to Dan Wang of the Economist Intelligence Unit.
Wang estimates another 22 million people may lose their jobs this year but only half will likely qualify for unemployment benefit, she said.
China's State Council did not respond to a request for comment.
Workers registered in the system can draw monthly payments for up to two years if they have contributed to the scheme for a decade. The length of the payment decreases with shorter contribution periods.
In Beijing, laid-off workers who have paid into unemployment insurance for long enough can expect up to 1,815 yuan ($257) per month but that is less than half the average wage of a migrant labourer in 2018, according to government data, and is less than the average monthly rent of around 2,500 yuan for a modest room in the Chinese capital.
If they can't claim for unemployment insurance, people with household income below a minimum threshold - ranging from 1,160 yuan ($165) a month in Shanghai to 337 yuan in an impoverished region like Ningxia - can apply for assistance to top up their incomes.
The situation is particularly acute for China's roughly 200 million rural migrant workers, who take on labour-intensive jobs for meagre wages and have limited access to public health care. Many of them were shut out of factories and barred from crossing city lines when China locked down large swathes of the country to get the virus under control.
Migrant labourers might have already lost up to $100 billion in wages during the lost working weeks of lockdown earlier this year, one study by researchers at Stanford University estimates.
Labour protests, which almost ground to a halt during the lockdown, have re-emerged with workers who suffered particularly hard due to the clampdown on economic activity, such as taxi drivers, featuring more prominently.
"Given that we are heading towards a deep global recession imminently, businesses closures that result in wage in arrears and failure to pay social insurance contributions will drive labour unrest," said Mimi Zou, a fellow in Chinese law at Oxford University.
Data from China Labour Bulletin, which monitors labour disputes in the world's second largest economy, shows that of 50 collective worker protests in March, half were in the service and transport sectors. Construction workers also protested over compensation, including some who helped build emergency hospitals in Wuhan, the epicentre of the epidemic in China
"The main issues that we're seeing already in terms of worker protests which are beginning to creep up again, again it's mainly work arrears," said Geoffrey Crothall of China Labour Bulletin.
"Workers are simply not being paid, despite government assurances that they should be on the payroll."