Bad, bad, bad.
That's how China's economy fared in the first quarter.
China's economy shrank to the tune of 6.8% in the first three months of this year. That's the first decline on record since the current official calculations began in 1992. Alternatively, it's the first fall since the Cultural Revolution in 1976, effectively since China began allowing a modern economy to develop.
Either way, it's a historic low. Friday's figures from China's National Bureau of Statistics were slightly worse than the 6.5% contraction expected by economists polled by Reuters. The comparison is with the first quarter of 2020. Compared to the fourth quarter of 2020, the Chinese economy fared even worse, down 9.8%.
China, which began reopening some factories in March, is the first major nation to report GDP figures for the first quarter. The details may differ, but much of the developed world surely will be following its path. Economic performance will be various degrees of bad.
Chinese shares tracked the rest of Asian markets higher on Friday. The CSI 300 index of the largest companies in Shanghai and Shenzhen closed up 1.0%, while the Hang Seng in Hong Kong advanced 1.6%. Other Asian markets also rose, with investors largely looking forward to efforts for economies in North America and Western Europe to gradually get back in business.
Chinese equities have come out of this mess pretty well. The CSI 300 is down only 6.3% for the year. Like most markets globally, it has rallied massively since descending to its lowest point on March 23.
Square root recovery?
There has been talk about whether the economic recovery will be "V-shaped" or "U-shaped." Veteran forecaster Byron Wien has a fresh take. Wien, now vice chairman of private wealth solutions at Blackstone Group BX, thinks recovery will be shaped like a square root sign, with a quick "V" at first, then a gradual uptick.
In China, retail sales fell 15.8% in March, exacerbating the record 20.5% plunge in the first two months of the year.
Industrial output held up fairly well, falling by only 1.1% in March, thanks in large part to activity from state-owned enterprises. That was far better than the 13.5% slump in January and February, which were combined for calculation purposes due to China's Lunar New Year. But within the March figures, manufacturing dropped 10.2%.
The propaganda out of Beijing says that the labor picture is steady, with no large-scale layoffs. Although the jobless rate hit a record high of 6.2% for the first two months, it recovered slightly to 5.9% in March. Social stability is a fixation of the Communist Party, which is not elected by the public. So it receives its mandate to rule in part based on how effectively it manages growth and provides jobs.
Far from running at capacity
While activity may resume, China's dependence on exports will suffer as demand dries up around the world. Factories are also "opening" without running at capacity.
Hong Kong media reported that some companies said they were back in business to please local officials, but were not functioning due to difficulties getting workers back from the lockdown put in place around the Lunar New Year in late January. Even if they did get their staffs back from their hometowns, the companies struggled to provide enough protective equipment.
China's economic activity has recovered only 82.8% of its capacity from normal pre-virus levels, according to the Trivium National Business Activity Index. So, around one-fifth of the economy remains closed.
Many economists prefer to look at such private estimates of production, because China's GDP figures are undoubtedly massaged. However, the direction is clear. The International Monetary Fund this week forecast the economy will grow only 1.2%, with the IMF slashing its original 6.0% estimate in January.
The city of Wuhan, epicenter of the coronavirus outbreak, on Friday suddenly revised its death count from the virus upward by 50%. The municipal government now reports 3,869 deaths, up from the original death toll of 2,579. In revising the count, the city said hospitals had been overwhelmed and had not always reported deaths promptly or logged them correctly.
It takes China's official total death count to 4,632, or 5.5% of the 83,730 Covid-19 patients reported. After locking down Wuhan on Jan. 23, the city reopened its borders on April 8.