China`s economy supposedly grew by at least 6.1% last year, this is the country`s slowest growth in three decades. This is not a surprise: every year since the last decade has been said to be “China`s slowest growth since”. Taking official numbers into account, the country`s growth has been sliding down gently toward 6% as the government has prioritized high-quality growth other than just hitting mere numbers.
And if pumping out record quantities of sub-standard steel using energy-inefficient methods that blacken the skies over some of China`s largest cities despite two decades of government`s campaign to reduce overcapacity is your idea of high quality growth then China is right on target.
With unsold steel stockpiles at record levels, car sales were down by 8% last year, mobile phone sales down by 7% and exports up only 0.5% it’s a record that China`s economy grew last year. Western economists agree that it is growing just. Proprietary analysis based on satellite observations and other direct measures suggest a growth rate of between 3.0 and 3.5 percent. Models based on indirect modeling of growth rates yield figures in the same range.
If China went into this year growing at just over 3%, don’t expect it to keep in the black this year. Hubei province alone which is the locked down epicenter of the coronavirus accounts for more than 4% of China`s total GDP. Hubei isn’t the only province affected.
Manufacturing, construction and transportation together account for roughly 45% of China`s GDP. A one third dip in these activities in these three sectors for a month would cost China roughly 1.25% of annual GDP. In short, it’s hard to imagine China`s economy growing at all this year. There will certainly be recession in the first half of the year. It is unrealistic that China would avoid GDP declines in the first and second quarters of this year.
But for China`s communist rulers, there`s a silver lining in this. It an opportunity for them to reset the economic statistics after more than a decade of systematic state lies. If Xi Jinping has the courage to report the recession this year, he can blame it on the coronavirus. Then he and his party could lead the country forward. China`s economic health could then be strong again and become useful to them.
Don’t count on it.