Driving the Day
1. Wuhan revises up COVID-19 deaths and cases
This morning, the NHC dropped the latest numbers for domestic COVID-19 cases.
On April 16 (NHC):
- There were 26 new COVID-19 cases, of which 15 were imported.
Local transmission continued in Guangdong and Heilongjiang.
- Five local transmissions were recorded in Guangdong and three in Heilongjiang.
There were also 66 new asymptomatic cases, of which three were imported.
But here’s the big news:The Wuhan government have revised up their estimates of both confirmed cases and deaths over the course of the outbreak (Xinhua 1):
- As of yesterday, the number of confirmed cases in Wuhan went up to 50,333 from 50,008.
- Deaths went up to 3,869 from 2,579.
The official explanation raised a few eyebrows (Xinhua 2):
- Everything was hectic during the outbreak and both the government and the medical system were too thinly stretched to keep an accurate count.
Get smart: Many welcomed the step as a (small) concession to transparency.
Our take:There are good reasons to be skeptical of China’s figures, particularly in Wuhan.We believe cases and deaths wereunderreported there, especially during the chaos at the beginning of the outbreak.
But…we also don’t think the official numbers are too far off the mark. Our contacts in Wuhandon’t think the numbers are grossly underestimated. And we don’t thinkthe government wouldbe reopening the economy if it didn’t think the virus was under control.
2.Quarterly GDP sees deep contraction
It’s official: Chinese GDP contracted by 6.8% y/y in Q1 2020, on a real basis.
- In real q/q terms: The economy shrunk by 9.8%.
Some context: These numbers are the lowest on record – by far – but they are in line with the consensus projections from economists.
- Anyone who’s been paying the slightest attention to China over the past three months already knew the economy shrank significantly during that period.
- With the vast majority of businesses shut down for weeks, the extent of economic weakness was clear to everyone.
Quick take: It’s not really worth breaking down the performance in the various parts of the economy for the quarter.
- Every industry was in the doldrums during the COVID-19 shutdown.
- That said, agricultural production held up okay, growing by 3.5% y/y. That makes sense – people still gotta eat.
What it means: The economy has a deep hole to climb out of in Q2, and while March already saw significant improvement from February (see next entry), policymakers have much more work to do to achieve even a semblance of economic normalcy.
Get smart: As we said yesterday, any GDP number above -5% would not be credible. We think the contraction was deeper than the official data, but at least these numbers pass the smell test.
NBS: 统筹疫情防控和经济社会发展成效显著 3月份主要经济指标降幅明显收窄
3. Slower economic contraction in March is a win
The stats bureau also released March economic data on Friday morning.
The headline: Things were bad – but much better than in the Jan-Feb period.
- Industrial production contracted by 1.1% y/y – vastly improved from the 25.9% contraction in Jan-Feb.
- Fixed asset investment contracted by 10.9% y/y – improved from the 24.5% contraction in Jan-Feb.
- Retail sales contracted by 15.8% y/y – improved from the 20.5% contraction in Jan-Feb.
- The surveyed unemployment rate came in at 5.9% in March – down from 6.2% at the end of February.
Get smart: The economy was clearly still contracting in March, although it was contracting less quickly than in February – which makes sense given then resumption of business throughout the month.
Get smarter: The most concerning data point to us was the deeply negative retail sales. Again, it makes sense, as consumers were cautious when they came out of lockdown – reluctant to physically go to restaurants or shopping centers.
- But weak demand is now the key variable keeping businesses from normalizing their operations – so if that number doesn’t improve in a hurry in April, then it will be a big problem.
One last thing: The surveyed employment rate doesn’t cover SMEs – so we wouldn’t put much stock in the March improvement.
NBS: 统筹疫情防控和经济社会发展成效显著 3月份主要经济指标降幅明显收窄
4.Business resumption update
Business activity in China continues its slow, upward grind, according to theTrivium Business Activity Index.
Here are our estimates as of April 17:
- TheTrivium National Business Activity Indexindicates that China’s economy is operating at 82.9% of typical output, up from 82.8% on April 16.
- TheTrivium National Large Enterprise Activity Indexindicates that China’s large enterprises are operating at 83.0% of typical output, showing no change from April 16.
- TheTrivium National SME Activity Indexindicates that China’s small businesses are operating at 82.9% of typical output, up from 82.6% on April 16.
The All-China Federation of Industry and Commerce provides more detail on the resumption picture. It has surveyed over 80,000 private companies since late January (Yicai):
- According to the survey, as of early April, 91.39% of private companies had resumed operations.
But this is bad:
- Less than half were operating at above 50% capacity.
Get smart:Clearly, some SMEs are still struggling to make ends meet.
5.Breaker of chains
2020 is going to go down in the books as a bad year for globalization.
We’ll let Xu Kemin, director of the Ministry of Industry and Information Technology (MIIT) Department of Industrial Policyand Regulationsexplain why (MIIT):
- “Due to the poor flow of international personnel and logistics, enterprises that have returned to work and resumed production are again faced with the risk of having to reduce production or shutting down.”
- “[T]he stability of the industrial chain and the supply chain is impacted to some extent.”
You can say that again.
Here’s just a sampling of the woes facing Chinese companies as global supply chains break down.
- A shortage of Ecuadorian balsa wood is delaying the construction of wind turbines in China and delaying the installation of new capacity(SCMP).
- Automakers with production based in China are also feeling the pinch as key components become harder to source from abroad(Bloomberg).
- Ditto excavator manufacturers who have been forced to jack up prices in response(Caixin).
Get smart: Beijing is doing its best to get the economy back on track, but can’t do much about broken global supply chains. Such are the perils of a globalized economy.
SCMP: China turbine makers winded after Ecuador lockdown leaves them without blades
Bloomberg: China’s Fledgling Car Rebound Faces Risks of Parts Shortage
Caixin: As Pandemic Epicenter Moves Abroad, Chinese Excavator-Makers Raise Prices
No prizes for guessing what Xi Jinping and Premier Li Keqiang got up to on Thursday.
- No, not making BFF bracelets in the halls of Zhongnanhai.
Instead, the duo once again hopped on the phone to various world leaders to offer aid and support in the global fight against the coronavirus.
Some context: The two leaders, especially Xi, have been on a telephonic public relations tear in recent weeks, promising support far and wide to countries still struggling with COVID-19.
On Thursday, they called:
- Russian President Vladimir Putin (Xi)
- Polish Prime Minister Mateusz Morawiecki (Li)
- Sudanese Prime Minister Abdallah Hamdok (Li)
The calls followed the familiar template as exemplified by Li’s comments to Hamdok (Gov.cn):
- “The virus is the common enemy of mankind.”
- “[Li said] that the Chinese people are willing to join hands with the people around the world…to overcome difficulties and safeguard global public health security.”
But Xi’s call to Putin had an added flair that caught our eye (Xinhua):
- “He stressed that politicizing and labeling of the COVID-19 pandemic are detrimental to international cooperation.”
Get smart: In an oblique jab at the US, Xi is looking to cast China as the “adult in the room” re: COVID-19.