The Chinese economy is experiencing a lingering malaise due to the coronavirus scourge, with growth in some core metrics slackening or slipping into negative territory. The downturn trend has the top echelon of the Chinese Communist Party worried, as it takes the credit for largely stamping out the once-rampaging outbreak.
Chinese President Xi Jinping flew into the coastal province of Zhejiang over the weekend to make a diagnosis of the economy and to assess local cadres’ efforts to restore production and consumption. It is his first inspection tour to a major economic powerhouse in the aftermath of the pneumonic plague. Beijing has admitted that almost all business activities nationwide, from land sales to logistics, are still bedeviled by the debilitating impact of Covid-19.
Xi’s first stop in the affluent province was a container port in the city of Ningbo, the world’s third-largest maritime freight logistics hub after Shanghai and Singapore as measured by annual throughput of TEUs. Emerging from a platform overlooking a sea of containers, Xi reportedly told members of his retinue, including Deputy-Premier Liu He, the president’s point man on the economy and the lead negotiator in trade talks with the United States, that foreign trade must be boosted to throw a lifeline to the economy, especially in regions that heavily depend on exports for employment and revenue.
China, the world’s largest exporter, saw tepid outbound shipment in the first two months of the year, traditionally a low period as factories are shut for the Chinese New Year, and trade and sentiment have been further decimated by the epidemic. Total trade volume in January and February was down 15.9% year-on-year to a little over 2 trillion yuan (US$282 billion), on top of a rare 42.6 billion-yuan deficit, compared with a surplus of 293.5 billion during the corresponding period of 2019, according to the preliminary data crunched by the Chinese commerce Ministry.
Xi also toured an auto parts manufacturer in Ningbo that supplied key components to the plants of Volkswagen, General Motors, Toyota and Honda in China. Footage from the state broadcaster China Central Television showed Xi telling local cadres that production must be resumed to pre-outbreak levels while anti-viral measures must also be adhered to.
Earlier, Xi had given the go-ahead to “unlock” the central province of Hubei once ravaged by the respiratory pathogen to resume traffic and business there and also ordered well-off provinces like Zhejiang and Guangdong to take in more migrant workers from Hubei to stave off an emerging wave of job cuts. Hubei’s capital Wuhan will also end its lockdown on April 8. It is also reported that policy incentives are in the pipeline to encourage spending on durable consumer goods like cars. Ningbo, which has a sprawling VW plant, has just unveiled a one-off, 5,000-yuan subsidy for car purchases.
Xinhua noted in a commentary that Xi had been commanding two campaigns – to eradicate the disease and to fire up the economy – and that the top leader’s visit to Zhejiang would give further impetuous to the drive to claw back lost export, consumption and GDP now that the contagion has been put in remission. The op-ed added that Zhejiang, an economic dynamo, held the key to the nationwide resumption of manufacturing as well as stabilizing the global supply chain.
In 2019 Zhejiang’s economic output grew 6.8% to 6.24 trillion yuan, roughly on a par with that of the Netherlands, Switzerland and Saudi Arabia. Zhejiang is also one of China’s largest exporters, with the highest per capita income among all provinces. Xi was in charge of the province as its party chief from 2002 to 2007, and official propaganda said his pertinent policies nurtured the prodigious rise and growth of Alibaba, surveillance gear manufacturer HikVision and automaker Geely, and helped Ningbo wrestle the crown of the world’s busiest cargo port on the back of the city’s bourgeoning foreign trade.
Another reason that Xi chose Zhejiang for his first post-epidemic inspection was that the province had surpassed Guangdong to be the N0. 1 contributor to the central authorities’ coffers.
The fiscal revenue growth of all provinces and municipalities sank into negative territory during the first two months of the year, with the national’s total plunging 10% yoy to 3.52 trillion yuan. In February alone, takings by the central and local authorities contracted by a fifth compared with the same period last year, the sharpest monthly drop seen since the 2008 financial crisis, according to the Finance Ministry.
The pandemic epicenter of Hubei had virtually no fiscal income in February, while Zhejiang booked the smallest drop, -1.3%, compared with other key provincial economies including Guangdong, Jiangsu and Shandong. Zhejiang has thus become the largest source of income for Beijing on a pro rata basis since the beginning of the year, while other coastal provinces are suffering from deeper dives in their takings.
Xi’s trip to Zhejiang is aimed at further boosting the morale of officials and entrepreneurs there so they can turn over a steady flow of income to the central authorities to make up for the dwindling amounts it can collect from elsewhere. Beijing feels the need to loosen its purse strings for big bang stimulus measures and in the meantime, continue to fork out huge amounts for a raft of other commitments, including relief funds for poverty-stricken western provinces to new aircraft carriers for the navy.