China’s growth streak has lasted for decades, surviving the crackdown at Tiananmen Square, the global financial crisis and the trade war with the United States. But it might not endure the coronavirus epidemic, making it nearly impossible for the rest of the world to escape a slowdown.
The damage was widespread in the official numbers on Monday, the first significant batch of government data since China’s vast containment efforts brought the country to a standstill. Industrial production, retail sales and investment all posted record double-digit drops for the first two months of the year, compared with the same period in 2019.
The weakness raises the possibility that the entire Chinese economy may have shrunk in the first quarter of this year. It would be the first contraction since 1976, when China was hit by the devastating Tangshan earthquake as well as the tumult from the death of Mao, whose Cultural Revolution threw the economy into disarray for a decade.
The knock-on effects for the world are significant. China’s factories rely on oil and other commodities from countries like Angola, Sierra Leone and Chile. Its shoppers love Apple iPhones, Chevrolet cars and Starbucks coffees. Its construction of new buildings, roads and rail lines depends on steel often made from iron ore mined in Brazil or Australia.
If people can’t be convinced to start spending money again, “the demand shock may spread to East Asia and then to Europe and the U.S. — and the world may face a disaster,” said Cao Heping, a Peking University economist.
When the virus started spreading from Wuhan in January, China moved aggressively to lock down the country, imposing stringent and painful measures on the movement of people and goods. The economy ground to a stop.
Halting the world’s second-largest economy has proved easier than restarting it, raising worries that the economy may continue to stumble for a while. It could be months, if not longer, before the country is fully up and running again.
According to official statistics, most factories in China have reopened, after being closed since the lunar new year holiday in January. But they are operating at two-thirds of their capacity.
It’s a two-part problem — a lack of workers and buyers.
Tens of millions of migrants who work in the factories are still stuck in quarantines or in their hometowns. Chinese state media announced triumphantly on Monday that four busloads of workers had been allowed to leave Hubei province, where the outbreak first emanated.
Chinese consumers aren’t buying either. Car dealerships have emptied. In Shanghai, the number of shoppers is still far below normal, from the cheap eateries and budget shops of blue-collar neighborhoods on the city’s southside to the luxury stores of Nanjing Road, the most famous shopping avenue in China.
“The supply problem is fixable, it’s bringing people back” to work from the countryside, said Ker Gibbs, the president of the American Chamber of Commerce in Shanghai. “The demand problem is harder.”
As China’s powerful economic engine sputters, the rest of the world’s expansion is under threat.
The stock market of Australia, which sells vast quantities of iron ore to China, has been among the world’s worst performers in recent days. Germany’s automakers depend heavily on the Chinese market and have seen sales wither. Mideast energy producers have struggled, as China has turned away shipments of liquefied natural gas and cut way back on oil consumption.
Global economists had been wondering whether China would admit that its economy shrank in the first quarter, given the country’s tendency to report predictable and steady growth no matter what happens. But the government data on Monday suggests that China may break with that dubious tradition next month in reporting economic output for the first quarter of this year, allowing for a more accurate look at the troubled economy.
“Most of us are expecting a negative percentage, 2 or 3 percent below zero, or maybe lower,” said Zhu Chaoping, a global markets strategist in the Shanghai office of J.P. Morgan.
Government officials tried at a news briefing on Monday in Beijing to play down the severity of the problem. “The impact of the epidemic is short-term, external and controllable,” said Mao Shengyong, the director general of the department of comprehensive statistics at the National Bureau of Statistics, which released the data.
Mr. Mao said that it was too soon to estimate whether the economy had shrunk in the first quarter. The economy typically slows somewhat in January and February after the Lunar Year holidays. So March typically represents a disproportionate share of the quarter’s output, as much as 40 percent, he said.
Economic statistics for the first two months were expected to be weak. But the data released on Monday was more dismal than many economists had anticipated.
Retail sales tumbled 20.5 percent from a year ago as many stores stayed closed well beyond the usual end of the lunar new year holiday. Even when shops did reopen in February, they had almost no customers until early March as many people continued to stay home to avoid infection.
Industrial production fell 13.5 percent last month compared with February of last year. Many factories did not reopen until late February if at all.
Fixed-asset investment, which includes construction of buildings, roads and railways, slipped 24.5 percent last month. It is expected to revive quickly as provinces pour money into infrastructure projects this spring to restart economic growth.
The epidemic now appears to be prompting the government to adjust its economic goals. China’s top leader, Xi Jinping, has called for eliminating extreme poverty by the end of the year, as well as doubling economic output between 2010 and 2020.
On Monday, the government seemed to give itself some wiggle room. Just 15 minutes before the data was released, the state-run newspaper, China Daily, published a report saying that while extreme poverty would be eradicated this year, the other goal is now to double economic output “by around 2021.”
Economists are uncertain how much growth would be needed for China to achieve the target this year — the usual estimates are somewhere between 5 and 6 percent.
On Monday Fitch Solutions revised down its forecast for China’s economic growth this year to 5.2 percent. Commonwealth Bank of Australia also pushed down its forecast on Monday, to just 4.2 percent.