Earlier this year, the world was plunged into a new reality, one ushered in by the novel coronavirus. First, we experienced a new short-term reality that kept people at home almost indefinitely and shuttered all businesses that didn’t sell essential items such as food. Now, countries are facing a long-term reality that depends mainly on how they handled the outbreak of this disease.
How countries handled (or are handling) the outbreak of this pandemic will pave the way for their economies for the next few decades. Some countries have performed better and have already been able to open up, while others are still counting cases. If you’re an investor, you’re probably wondering how this virus is impacting the potential to invest in a country in the years ahead.
This is our coronavirus economic prediction for China and what it will mean for their country for years to come.
Before we get started, it’s important to note that the coronavirus poses two threats to countries. First, there is the public health threat that people will get sick from a disease which could potentially be fatal if they don’t receive the proper treatment. Second, there is the economic threat that is brought on by orders from the government for citizens to stay at home and for businesses to shut down (temporarily). These measures were put in place to slow the spread of the virus.
If the health crisis isn’t dealt with effectively, then it could have lasting effects on the economy of a country. However, the longer that people are forced to quarantine and stay home, the more monetary assistance they will need. This is the dilemma that most countries are dealing with. Let’s take a look at the place where the virus is widely considered to have started: Wuhan, China.
Being ground zero for a disease that turned into a global pandemic is never a good thing. The fact that the virus started in China is not a very good sign for their economic recovery because it means that the virus is very prevalent there. This could potentially mean more people infected and longer recovery times. However, at this stage in the spread of the virus, it’s almost irrelevant where the virus started because it’s so widespread and has reached almost all edges of the map.
While China being ground zero isn’t a good thing by any means, at this point it probably doesn’t really matter.
Let us now take a look at what China has reported about the virus up to this point (this article was written on July 6th) and try to put the data under the proverbial microscope.
What China Has Reported
According to the most recent data, China has reported:
➢ 83,557 cases
➢ 4,634 deaths
➢ 78, 518 recoveries
However, the main thinking is that China has not been 100% transparent in their data related to the coronavirus and may have either fabricated or omitted key numbers. One of the main reasons for the skepticism is that the numbers and statistics reported fall outside recognized and accepted medical norms.
There were simply too many cases reported at once and the drop off was too sudden to be believable. They have drawn criticism from the WHO as well as other countries for not releasing pressing information related to the virus. Donald Trump, in particular, has been vocal that China suppressed data which could have helped the U.S. better prepare to fight the pandemic.
The following graph from Google shows the reported stats from China:
The WHO (World Health Organization) has also claimed that they had difficulty getting information from China. At first, it seemed as though China was doing a good job of handling the virus, but later they mentioned that they felt like they were getting critical information just 15 minutes before that same information was appearing on public television in China. Considering the fact that they were trying to alert other countries of the most recent information on the virus and create a global awareness and response plan, they felt that they should have received this information sooner. It was almost as though China waited until the last possible moment to release valuable information and, instead, chose to sit on this information for up to a week at a time.
Refused to Release an Economic Prediction
Recently, China shocked the economic and business world by refusing to release an economic prediction for 2020. This broke a precedent that has been around for years and is a sign that they are having more trouble jumpstarting their economy than they might be letting on. This doesn’t exactly mesh with their reports that they have done an outstanding job containing the virus.
There are two ways to interpret this, from the eyes of a foreign investor:
- Uncertainty – The leadership in China is just very, very uncertain as to how things are going to play out in terms of their economic response to the coronavirus. This also implies that things are still “playing out”, meaning that they aren’t out of the woods yet and there is still a risk of a second wave of the virus
- They’re hiding something – Either China’s leadership is truly uncertain about how things will go and doesn’t want to speak too soon OR they already have their own predictions on how bad it will be and simply don’t want to share them with the world. If this is the case, then foreign investors can take this lack of news as very bad news… no news is bad news, in other words
One thing is certain: China’s refusal to release an economic prediction for 2020 is definitely not good news. If they were really feeling confident in where they were in terms of handling the virus, then they would be eager to share that information with the world. Instead, they are essentially dodging the question and trying to change the subject.
Here’s our interpretation of what’s probably going on with China.
How We Can Interpret This
First, here are a few of the things that the Chinese government is doing to help the country rebound. They were cautious of just writing checks to their citizens (as was done in the United States and other countries) and instead have opted for these measures:
➢ The government has decided to cut the cost of Internet this year by 15%
➢ The government will increase its subsidies for basic medical insurance for some residents but only by a little over $4 a year per person
➢ They’re going to stick by their initiative to eradicate rural poverty by the end of the year, which is very reassuring news
➢ They reassured domestic and foreign investors that China is still committed to shifting away from central planning toward a greater reliance on free markets
➢ They reaffirmed China’s commitment to the phase 1 trade agreement with the United States.
Here’s what we think: China is still China. They’re on pace to be the world’s largest economy by 2030 and although the coronavirus is definitely causing them more trouble than they’re letting on, eventually they will rebound. It’s a little bit like a massive steam engine that gets caught in a snowstorm. They might get slowed up a little bit with all of the snow on the tracks but eventually, they will be out of the storm and back to full speed. It’s really just a matter of when they will return to full speed, not if.
The measures listed above (specifically the fact that they emphasized that they will still be trending towards free markets as well as honoring Phase One of the trade deal) are very reassuring. However, just like the lack of transparency they showed when reporting coronavirus stats, China has a history of always putting their best interests first. We wouldn’t be surprised if they said what people wanted to hear at the moment, only to change direction later on.
That being stated, we are still very bullish on the direction the Chinese economy is heading toward. The coronavirus presents a disruptive development that nobody saw coming. However, by 2025-2030, the coronavirus will likely be a distant memory instead of something that still threatens to shut down businesses. It’s also worth mentioning that other countries still have to deal with the virus as well. Particularly, the United States is still struggling to contain the spread of COVID-19. Going forward, this is something that will be present for all countries, not just a China-specific problem.
If you’re an investor who is getting skittish about investing in China, we’d recommend the age-old investing advice to “focus on the long-term”. Don’t think about China’s growth over the next few months. Instead, focus on where they’re (still) projected to be in the next 10 years, which is the world’s #1 economy.
We hope that you found this article valuable when it comes to understanding how China’s economy might fare in the wake of the coronavirus. Please bear in mind that this is just our analysis and should not be taken as hard fact. If you’re interested in reading more, please follow our blog and visit the “New Here?” section of ChinaFund.com for a well-structured perspective on our work.