The world’s second-largest economy is struggling to deal with the coronavirus outbreak. Moreover, China’s economy could plunge into its first contraction in decades.
Last month, companies had to cope with various problems. They struggled to reopen their factories, shops, etc. Furthermore, it was hard to hire workers as Chinese authorities-imposed travel restrictions and closed factories for a certain amount of time to contain the outbreak.
On Wednesday, the Chinese media group Caixin said its purchasing managers index for the sector fell to 26.5 last month from a reading of 51.8% in January. Moreover, it is the worst result recorded by the survey since it began in 2005. It is worth mentioning that a reading below 50 indicates contraction rather than growth.
Caixin’s report mostly follows small and medium-sized companies, largely tracked with a government survey of primarily state-owned firms in the services.
Factories in China also recorded their worst month on record in February, based on the data provided by Caixin and the country’s government.
The Communist Party has to find a solution on how to solve this problem. On the one hand, the lockdown policy is the most effective way to contain a virus outbreak. On the other hand, such measures created additional issues for the economy.
Economy and labor market
Ongoing virus outbreak is a serious challenge not only for the small and medium-sized companies. Big multinational companies also suffered financial losses. For example, the world’s biggest brewer ABInBev lost $285 million in revenue in January and February in China.
Also, the iPhone maker Foxconn said it didn’t expect production to return to normal until the end of March.
As mentioned above, the current situation is a huge challenge for the world’s second-largest economy. For 40 years, from 1978 to 2018, China’s economy rose at an average annual rate of 9.4%.
China should take measures to support the economy. However, it is too early to expect a big stimulus package from Beijing.
Chinese authorities are trying to keep unemployment low, but the outbreak can change the status quo. China’s services sector provides jobs to about 360 million people and accounts for 46% of the labor market. As a result, it is the largest source of employment.
Millions of migrant workers across the country are among the most affected, as they travel from rural areas to work on construction sites, etc. However, the virus outbreak changed the plans of many workers. Only 80 million migrant workers returned to work as of mid-February.