Chinese President Xi Jinping, inspects the novel coronavirus prevention and control work in Beijing on Feb. 10, 2020.
Xinhua News Agency
Already under heavy fire as the coronavirus outbreak shutters factories, disrupts supply chains and is set to shock China’s already-slowing economy, Chinese President Xi Jinping, it seems, is also under pressure to still deliver the country’s promised growth.
In a speech delivered Feb. 3 and released over the weekend, Xi said: “Currently, we still have to deliver this year’s economic and social targets.” Last year, China’s growth dropped to its slowest pace in nearly three decades.
Xi, according to a translation of his remarks, said those tasks must still be “done well,” with a message for provinces — other than those most severely affected by the outbreak — to keep a balancing act: Control the epidemic, but make sure they are fulfilling reform and development goals.
The Chinese government could face an “economic crisis” if the outbreak doesn’t abate, The Economist Intelligence Unit (EIU) wrote in a note last Friday, before the Xi speech was published.
Public frustration could “escalate dangerously” if the outbreak proves to be uncontrollable by the end of March, EIU wrote.
It said the economic costs of China’s shutdown as it seeks to contain the epidemic will be apparent at that point.
“At that point, the central authorities will not have room to pin the blame on local officials, given that they will have been directing the crisis response for longer than two months,” the EIU note said, adding it could be why Xi is now taking “more personal control” over the crisis.
Earlier this month, over half of China extended shutdowns to contain the outbreak. Last year, those parts of China accounted for more than 80% of national GDP and 90% of exports. That disruption of the world’s manufacturing hub has severely hit supply chains globally, with companies still dealing with the fallout.
As China struggles to get back on its feet, with factories starting to reopen and workers trickling back, progress is slow. Returning workers need to follow quarantine orders, meaning factories are still operating at limited capacity.
“Many smaller companies have stated that they will not be able to survive beyond the first quarter of the year in the current business climate,” the EIU wrote. “Besides a health crisis, the authorities could face an economic crisis, with implications for incomes and jobs.”
A Macquarie economist, in a Monday note, said it is “surprising” that China would still insist on its original growth target of 6% for this year.
“(Given) the Coronavirus, it’s a bit surprising why policymakers don’t want to revise down the target for this year. Maybe it’s for the sake of expectation management; maybe they believe that the recovery this time would be as strong as the one after SARS,” wrote Macquarie economist Larry Hu. “In any case, given Xi’s speech, policymakers are likely to stick to the original target.”
As the outbreak unfolded, many analysts have downgraded China’s growth for this year. In 2019, China’s full-year GDP growth was 6.1%, down from 6.6% the year before.
Before the virus hit, analysts had already predicted that growth for the world’s second-largest economy would slow to below its 6% target. But earlier this month, they downgraded it further, with estimates ranging between 4.9% and 5.6%.
Xi reportedly warned top officials earlier this month that efforts to contain the outbreak have gone too far and are damaging the economy, according to a Reuters report.
Citing sources, the report said Xi told officials some of the shutdown measures have not been practical and have sown fear among the public, and discouraged them from imposing “more restrictive measures.”
In the last few weeks, China has rolled out more measures to support companies hurt by the crisis. That includes trotting out more funding as well as lenders supplying billions in credit. Its central bank also said lenders in the country will tolerate more bad loans. This week, it cut rates on medium-term loans.
“At this stage, the most likely policy options are to cut rates and provide targeted easing to impacted companies and areas,” said Hu.