China’s economy might suffer second or third wave of virus shock

To curb the spread of Covid-19, China has implemented a national lockdown since Jan. 22, and most cities have adopted mandatory quarantine. Such efforts have begun to pay off.

Companies have begun to gradually resume operations since the middle of last month, and the progress over the past one month or so has been remarkable – or better than most expected.

It is said that large factories in China have resumed about 70 percent of their capacity. However, tertiary sectors such as restaurants, tourism and service companies remain largely closed.

We can probably say that in China, the worst is already behind. However, no single economy can be decoupled in today’s world.

China, despite being the global manufacturing powerhouse, still has to rely heavily on certain imported raw materials and key parts, including high-end semiconductors and machinery.

Factories can now draw on their inventories, but if the global supply chain continues to be disrupted as many nations in Europe and the United States have introduced lockdown measures, Chinese manufacturing will be affected at some point down the road.

Meanwhile, the coronavirus outbreak is expected to last for some time. Lockdowns and quarantine measures will affect global consumption. End-user demand might fall dramatically, and Chinese makers would have to brace for a plunge in orders.

In the near future, countries around the world may choose to keep travel bans or restrictions on public events in place. This is obviously bad for the global economy.

This article appeared in the Hong Kong Economic Journal on March 16

Translation by Julie Zhu

[Chinese version 中文版]

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