China Chartbook: Work resumption on track, but challenges abound
- China's manufacturing sector has steadily advanced production resumption…
- …with 98.6% of major industrial companies restarted work as of March 28 (end-February: 83.1%)
- About 72% of smaller firms have resumed operation, an increase of 42 % points from a month ago
- Looking forward, the pace of recovery will be held back by the rapidly deteriorating global economy
- More supportive policies are warranted
• With decreasing numbers of domestic infections, policymakers are scrambling to revitalise the economy.
• Migrant labors are gradually returning to work. As of March 31, cumulative inbound migration since LNY has increased to 49% of the 2019 levels in Guangdong, Jiangsu, Shandong, and Zhejiang (four economically most important provinces) from 36% end-February.
• Government relaxed travel restrictions in the hardest-hit virus province of Hubei, sending thousands of workers back to jobs.
(Baidu Qianxi Index is calculated using big data from Baidu users’ mobile phones location services, combined with Baidu’s flight tracker and transportation information systems for e.g. trains and buses that are integrated with Baidu.)
• A continued rebound in coke plant operation rates also suggests more work is being resumed. Those in northern China have returned to the pre-outbreak level, while the contraction in the east narrowed to 5%.
(Coke is an important industrial product, used mainly in iron ore smelting. It is made by heating coal in the absence of air—a destructive distillation process.)
• Iron ore shipments from Austria and Brazil, major suppliers, have returned to the level of 4Q19.
• Forex trading volume indicates activities in companies doing foreign trade continued to pick up, before moderating in the past week.
• Housing market springs back to life. Home sales in 30 large and medium-sized cities, a bellwether for the nationwide trend, reached 8.6mn m2 in March, more than triple the 2.33mn m2 in February.
• The tertiary sector is also making progress. According to the Ministry of Commerce, 96% of large supermarkets and 90% of shopping malls have reopened by March 22.
Major cities such as Beijing, Shanghai, and Guangzhou reported busier traffic and crowded subway.
• But cinemas have been ordered to close again on March 27, just a week after being given the green light to reopen as the government seeks to strike a balance between rebooting the economy and preventing a second wave of Covid-19 cases.
• The rest of the world is experiencing a spike in caseload, prompting deployment of increasingly stringent containment measures. The recovery momentum will be dampened ahead by weaker external demand, broken supply chains, and volatile financial markets.
• We expect Beijing to ramp up fiscal stimulus, including increasing the budget deficit target to 3.5% of GDP from 2.8% in 2019 and expanding local government special bond issuance to RMB3.5tn from RMB2.15tn. PBOC will keep monetary policy flexible to prevent borrowing costs from spiking as more LG bond supply hits the market.
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