As other countries in the world, including the US and UK lockdown because of COVID-19, China is opening up again! Travel restrictions in Wuhan and across most of the cities in China are being relaxed, and the economic giant appears ready to roar again.
Already, the Chinese administration has reported that crucial indicators such as demand for steel, electricity, and manufacturing are nearing the normal levels.
China had shut down most of the Hubei province and restricted movements in the country to contain the spread of the virus to the rest of the country and globally.
But as the Chinese administration appears determined to turn the page on COVID-19, new questions about the expected growth success are now emerging: “Can the Chinese recovery hold as COVID-19 crisis soars across the globe?” and “What effect will other countries halting their operations have on the early Chinese recovery plans?”
Steve Cochrane, the chief Asia Pacific economist at Moody’s Analytics, argued that the recovery of the Chinese economy is likely to take longer than anticipated.
He explained that we are now beginning to see the effects of the government’s effort to contain the infections, which is a good thing because Hubei was the epicenter of the disease.
However, Cochrane argued that the recovery is likely to be slower because many of the Chinese markets, which are abroad, are closing down.
China Gets a Head Start in Recovery after the Pandemic
Although China was the first to get hit by the pandemic, it also became the first to get it under control.
The effect of this is that the panic being experienced in the global financial markets has cleared from China. This way, a lot of investors are now looking beyond the shakeup caused by the COVID-19 pandemic.
The notion that China has managed to bring the pandemic under control is fast opening the country into a sort of safe economic haven as expected in the continued stability of Yuan in the global market.
Shenzhen and Shanghai
During the first quarter of 2020, Shenzhen and Shanghai were the top performers before getting hit by the Coronavirus pandemic. Shenzhen, which is known as the home to top listed companies that are largely driven by domestic demand, saw a sudden decline with approximately 1%.
However, Shanghai experienced a bigger decline of about 10%.
But China’s success in chocking the virus using the command and control tactics has made investors, both local and international, to develop confidence in the top leadership of the country and continue investing in its market.
China’s Bond Attracting Investors
As the difference between China’s administration and global government bonds widen, the China bonds are becoming more attractive.
According to Jim Veneau, a Hong Kong-based based investment expert, the recent experience from European markets shows that investors can still garner good total returns by focusing on negative-yielding bonds. But this is only possible when buyers continue driving price upwards but pushing the yields lower.
Notably, the yield pickup provided by the China bonds is an inducement for investors who target to increase their portfolios after the inclusion of China bonds to the emerging bonds indexes at J.P. Morgan’s suite. Now, more people who were initially skeptical about China are now streaming to invest there.
China will be the First Beneficiary of Post-COVID Pandemic Economic Recovery
The fact that China managed to deal with the pandemic well ahead of other countries has made it a sort of a case study that other states are willing to emulate. This model is likely to be replicated in post-COVID-19 economic recovery.
For example, China is already manufacturing protective equipment and sending to other countries.
Therefore, the Chinese industries are likely to enjoy a competitive advantage because they are already up and running, compared to the closed enterprises in other countries.
Therefore, the Chinese industries are likely to enjoy a competitive advantage because they are already up and running, compared to the closed enterprises in other countries. Already, wholly foreign-owned enterprises (WFOE) and joint ventured (JV) are taking their positions to take advantage of the emerging opportunities.
Wholly Foreign Owned Enterprises (WFOE In China)
A WFOE is an investment vehicle, mainly a Limited Liability Company registered in China but 100% owned by foreigners. It is the most popular type of business formation because it provides you with total control over the business.
So, whether you want to immediately take advantage of the current economic recovery phase or the boom expected to follow after that, WFOE will be a perfect option.
Joint Venture (JV) in China
A Joint Venture (JV), is another common type of business formation in China that requires you to enter into a partnership with a Chinese resident.
Note that the law requires the Chinese partner to hold controlling shares in the business. The main advantage of a JV is that you can take advantage of the business networks of your Chinese partner to grow the business rapidly.
China and US Suddenly Agree to Work Together
As COVID-19 started spreading across the globe, the US president used controversial terms such as “Wuhan Virus” and “Chinese Virus,” which only escalated the protracted trade wars between the US and China.
But these extreme stands have suddenly come to a halt, heralding a new dawn between the two super-powers.
This new found cooperation is being seen as a possible ground for thawing the previous trade stalemate between the two.
“The relationship with China is a good one, and my relationship with him is really good,” Trump explained. While COVID-19 has brought the two states together with the aim of overcoming the pandemic, the effects are likely to be felt even further down their economies.
“Actually, this is smart,” Orville Schell, the Director of the Center on U.S-China Relations at Asia Society, said. “Is it not the only way to do it? You cooperate where you share interests and compete and criticize where you do not. We did this with Russia in the Soviet days, and it worked,” added Schnell.
In China, investors are already upbeat, expecting that the hefty tariffs introduced by the Trump administration will be removed or revised downwards.
Virus Outbreak Peaks in China’s Main Trading Partners, Likely to Slow down Economic Recovery
While China appears to be getting the upper hand over the COVID-19 pandemic, the surge in the rest of the world is likely to slow down Chinese economic growth prospects right on the tracks. Indeed, the pandemic levels in the main China’s trading partners have soared way beyond what was experienced in Wuhan.
By 10th April 2020, the infections in the US hit 500, 000 while the death toll climbed to 16,000. And this appears to be the tip of the iceberg as the US Administration indicates that the deaths could hit 100,000.
Italy, another leading Chinese products market, has been hit hard by COVID-19 with infections reaching 147,577 and recording 18,849 deaths.
Note that it is not just these two, other countries hit hard by the pandemic include Spain, France, Germany, Iran, Turkey, and Belgium.
The truth is that when the lockdown in China was effected, it also impacted global supply chains, especially for top companies both locally and abroad. Now, getting back the supply chain on their trucks, or at least to where it was before the pandemic, is not easy. It will take time.
Indeed, even when companies in different countries finally resume operations, the purchasing power of most consumers has been greatly compromised.
Think of it this way. Most people are away from their workplaces, either with reduced pay or no pay at all. So, the demand for goods made in China, such as smartphones, laptops, and automotive parts, is likely to remain low for some time.
Simply put, the Chinese economy will get a head start, but will be sluggish until other nations, especially those that act as its primary market get back on their feet.
After months of battling the dangerous COVID-19, China now indicates that it has been victorious with the opening of Wuhan and finally allowing most economic activities to resume.
But the economic growth and eventual success are likely to experience serious challenges because the supply chains that buttress globally have been severely interrupted, and getting them back on tracks could take time.
Again, most consumer segments for Chinese based companies are also crippled, with some already in lockdown and experiencing serious recessions.
So, the demand for Chinese products is likely to get very uncertain, and China had better get ready for a new growth outlook.