China 's economy was under stress before pandemic
China’s economy was in deep trouble before it launched its viral pandemic upon the world. The trade war tariffs had diminished exports, and supply chains were moving out of China. But now the economic outlook appears weaker than it has in decades. This may be its worst quarter since the end of the Cultural Revolution in 1976, with an actual contraction in GDP in Q1.China's real estate market already suffered from overbuilding. Before the coming crash, it had ghost cities with fewer people than homes. One of the fundamental weaknesses of China under its communist rulers is its inability, to be honest with itself. It tried to hide the pandemic making it worse for its own people and people in the rest of the world. That is going to have a long-term impact on its ability to do deals. It is also looking like something less than a dependable supplier which will mean more repatriating of business back to the US and the West.
Of course, despite the pandemic, Beijing has insisted that it will meet its economic growth goals for 2020. But that’s not realistic. It’s not even clear that China is actually over the pandemic. People can still be seen lining up at hospitals and recent cellphone rolls on China Mobile show up to 21 million fewer users compared to three months ago near the start of the pandemic.
The Near Future Could Be Disastrous
Of course, no economy was prepared for a global pandemic, and all nations will continue to be severely challenged by the CCP (Chinese Communist Party) virus outbreak and its aftermath. But the inherent weakness in China’s economy makes it exceptionally vulnerable to both the pandemic downturn and the shift in global trade patterns away from China that’s underway. This dependency is made worse by cratering domestic demand.
What’s more, the Chinese Communist Party’s comprehensive oppression stifles efficiency and innovation in the economy. This will make it more difficult for the economy to adapt quickly to the challenges posed by this pandemic and the evolving global economy.
As a consequence, the pillars of China’s economy—consumer spending and real estate, as well as exports and direct foreign investment—are shaking, even crumbling, before Beijing’s eyes. The highly profitable pharmaceutical and medical supply industries, for example, will be repatriated to the United States as soon as possible.
The key pillar in China’s economy is domestic demand, which was 57.8 percent of the country’s economic growth in 2019. In the first quarter of 2019, consumer spending made up two thirds of China’s GDP growth.
But it’s not going to be the case going forward.
The epidemic lockdown and factory closures due to supply chain movement out of China will depress incomes. Consumer spending has been hit hard. It’s no wonder that 64.4 percent of Chinese are saying that they would be more “restrained” in spending in the long term, while another 12.6 percent said they would cut spending.
Combined, that’s 77 percent of consumers adopting more conservative spending patterns. These figures are likely to worsen with the expected higher food prices due to pork shortages from African swine fever (ASF).