Opinion: What is happening in China?

The Chinese city of Wuhan was at the epicentre of the COVID-19 outbreak back in January and has only just begun to lift lockdown restrictions. Richard Dawson asks if a sharp rebound in economic activity in March across China can give confidence to UK businesses

It seems like a lifetime ago that the world was informed of a mysterious illness, similar to pneumonia, that was spreading among people who had visited a live animal and seafood market in the Chinese city of Wuhan.

On New Years’ Eve 2019, China contacted the World Health Organisation (WHO) to inform them of “cases of pneumonia of unknown aetiology”.

After informing the WHO, it took just four weeks for the disease we now know as COVID-19 to spread across mainland China, completely destabilising the world’s second largest economy in the process.

On January 23, Chinese authorities imposed a total lockdown on the city of Wuhan. This measure seemed extreme to Western sensibilities at the time, but one that many Governments would go on to implement.

The first confirmed cases of COVID-19 outside China occurred in Japan, South Korea and Thailand. But by the end of January, Europe and the US had their first cases too.

Throughout February and March, almost all European countries reported major surges of the disease with Italy being hit first and hardest.

At the time of writing, there are almost 1 million known cases of SARS-CoV-2 globally and nearly 50,000 people have died from the illness.

Financial markets have been in meltdown since mid-February and whole national economies have ground to a halt as a result of social distancing measures and lockdown procedures.

But the first country to begin to emerge from the chaos unleashed by this mysterious illness is the country in which it originated – China.

In recent days, Chinese authorities have been tentatively lifting restrictions on freedom of movement. Factories and offices have re-opened, production has resumed in many key industries and even retail outlets have been allowed to trade, albeit with rules in place to ensure personal hygiene.

For a couple of weeks now, the vast majority of new cases of COVID-19 in China are thought to have originated from outside the country.

With the obvious caveat that it is still very early days, it does look as if China is starting to get its epidemic under control. This is particularly encouraging for those of us in the Western Hemisphere who are only at the beginning of the lockdown phase, with the peak of the virus weeks away.

China had to impose a two-month lockdown to get to the point where a degree of normality has returned to citizen life. Here in the UK, we are entering the second week of lockdown restrictions, which are set to be reviewed – and widely expected to be extended – on April 13.

But, if we can get the virus under control, then it could be that we follow a similar trajectory as China – with restrictions beginning to be lifted within two months.

What’s more encouraging is, now that social distancing measures have been somewhat relaxed in the People’s Republic, business activity has rocketed back up to pre-crisis levels.

The latest survey of China’s purchasing managers, the China composite PMI, notes that activity has soared to 52 from 35.7 in the manufacturing sector and to 52.3 from 29.6 in the services sector month-on-month – both of which are key to the national economy.

These figures are well above what economists were forecasting as there are still many Chinese companies that have not resumed work and production.

The National Bureau of Statistics, which produces the PMI, however, does temper the figures by stating that “this does not mean that China’s economic operation has returned to normal.”

The total economic chaos caused by COVID-19 could mean that, for the first time since 1976, China’s GDP could actually shrink in 2020.

China also faces the prospect of potential new outbreaks of the disease as its economic machine starts running again.

But in the meantime, the Chinese situation looks quite positive, which is promising for other countries around the world.

It is expected that the trajectory of UK economic growth this year will be v-shaped in the sense that a steep decline in Q2 will be followed by a fast recovery in Q3.

This latest China composite PMI, which follows a v-shape, should give confidence to UK businesses who are very short of it at the moment.