China suffers historic contraction as virus paralyses economy

(Beijing) AFP: China’s economy shrank for the first time in decades last quarter as the coronavirus paralysed the country, in a historic blow to the Communist Party’s pledge of continued prosperity in return for unquestioned political power.

Gross domestic product in the world’s second-largest economy fell 6.8 percent in January-March from a year earlier, according to government figures - a stunning turnabout for a generation of Chinese consumers raised on super-charged growth rates.

The National Bureau of Statistics (NBS) data marked the first contraction since the government began logging quarterly performance in the early 1990s, and a sharp reversal from the six-percent expansion during the fourth quarter of 2019.

The figure beats an 8.2 percent decline forecast by an AFP poll of analysts before the news 
was released.

But economists have long harboured suspicions that official Chinese economic data is massaged for political reasons.

“The actual contraction in the first quarter, especially in March, could be worse than headline numbers suggest,” Nomura analysts said yesterday.

Experts warn that growth is unlikely to rebound soon, with depressed demand for Chinese goods in overseas markets that are also grappling with the pandemic.

Fears of a second outbreak are also dragging on efforts to fully fire up China’s economy, a major engine of global growth.

“We are now facing rising pressure in the prevention of imported epidemic infections, as well as new difficulties and challenges for resuming work and production,” NBS spokesman Mao Shengyong told a press conference.
Full-year GDP growth expectations have fallen to 1.7 percent, according to AFP’s poll, in what would be the worst annual performance since 1976.

But the International Monetary Fund, which has pegged China’s 2020 full-year expansion even lower at 1.2 percent, is predicting a strong rebound to 9.2 percent growth in 2021.

Mao said only that if the pandemic can be brought under control, “the second half of the year should be better than the first”.

The economic figures are deeply significant in China due to the tacit political compact between the Communist Party and the country’s 1.4 billion people.

More than four decades since Beijing abandoned radical Maoism in favour of authoritarian capitalism - achieving spectacular growth - Chinese citizens have largely acquiesced to the party’s monopoly on power, in exchange for continued prosperity.

China analyst Jean-Pierre Cabestan of Hong Kong Baptist University said the current situation puts a nail in the coffin of the party’s stated goal of doubling GDP from 2010-2020.

But he saw no immediate peril for the all-powerful regime, especially if it can maintain stability and steer the country through the health crisis while other countries struggle.

“I think that’s a very important set of achievements which the party is going to promote in order to remain legitimate,” Cabestan said.