If the trends are correct, China will emerge from the crisis stronger than the United States.

If the figures are correct, the Chinese economy contracted 6.8 percent in the first quarter of 2020. Such contraction is unprecedented for China. No economic contraction has been reported in China since 1976, the year Mao Zedong died, and the economically disastrous cultural revolution in China came to an end. Quarterly figures have only been updated since 1992, but these also always showed growth. For the full year, the International Monetary Fund (IMF) forecast growth of 6 percent in January: That forecast was revised earlier this week to 1.2 percent.

China faced Covid-19 before the rest of the world. The country appears to be in control of the epidemic at the moment. The death toll is remarkably low: across China, according to upwardly adjusted official figures, there would be “only” 4,636. Belgium, for example, has already reported 4,857 deaths.

China is also at the forefront of efforts to get the economy back on track. But that recovery is slower than expected. Industrial production, consumer spending and real estate investments fell in March, although the contraction was less than in the previous two months.

According to the IMF, the 2008 Lehman crisis pales in what is currently happening in the world economy. Read more about the bleak forecast released by the IMF this week

Weak question

Economist Louis Kuijs, head of Asia Economics in economic research and consulting at Oxford Economics, attributes the slow recovery to weak demand, both in China and internationally. “The problem is not on the supply side. It is recovering, but the question is much more difficult,” says Kuijs by phone from Hong Kong.

Weak external demand was previously unforeseen. The entire world economy was expected to recover as soon as China resumes its industrial production. When an international crisis erupted around Covid-19, foreign demand largely disappeared. It seems unlikely that he will recover quickly. “And if Americans stop buying children’s clothing or toys, Chinese exporters will immediately feel it,” says Kuijs.

People are not only afraid of the virus, they also fear that the economy will not recover for now

Louis Kuijs economist

China has become much less dependent on exports in recent years. In 2006, exports still represented 36 percent of gross domestic product (GDP), now it is 18 percent. To stimulate economic recovery, China will focus even more on stimulating domestic demand, according to Kuijs. “That is the main driver of the Chinese economy, it is much more important than exports.”

But that is not easy either. “People are not only afraid of the virus, they also fear that the economy will not recover for the time being,” Kuijs said. “So they don’t spend their money easily.”

Throwing money

Some speculate that the Chinese government will inject a lot of money into the economy, just like the 2008-2009 financial crisis. The idea is that China could not afford too little economic growth politically, because the population would not accept it. It would only support the government if and as long as it provides sufficient economic benefits.

However, Kuijs does not expect a powerful stimulus package. “There is a lot of resistance against people who matter in the Chinese financial-economic world,” said Kuijs. “In 2008-2009, the money was unbelievably thrown. That sometimes ended with companies that didn’t spend it at all. As a result, people like Chinese Vice President Liu are now very resistant to doing something like this again. “Liu He is the man who led many of the trade war negotiations with the United States.

The current economic recession is also causing significant job losses. According to official figures, unemployment was 5.9 percent at the end of March. That was just under 6.2 percent in January and February, but the figures are far from complete. For example, the more than 200 million migrants with informal work are not included. Many of them have lost their jobs or are still trapped in the fields. Travel restrictions prevent them from reaching their employers in cities. Some of them probably won’t come back at all.

Scarce jobs

Jobs have become scarcer, especially at the lower end of the labor market. In the January-March period, jobs with salaries of just over € 500 decreased by 44 percent, compared to 12 percent for jobs with salaries above € 1,950.

Kuijs expects the Chinese economy to rebound further in the second quarter, but he does not expect growth for all of 2020. The IMF expects growth of 1.2 percent, and even 9.2 percent by 2021. This is reflected in the US figures. USA And the euro zone: for 2019, the IMF predicts a contraction of 5.9 and 7.5 percent, respectively, for 2021 a growth of 4.7 percent in both the US. USA As in the euro zone.

In any case, if those trends are correct, China will emerge stronger from the crisis than the United States. Then comes the time when China has also become the world’s largest economy in absolute numbers.