China’s economy shrank by nearly 10%

China’s National Bureau of Statistics gave its bleakest-ever data release (in Chinese) today, showing a Q1 GDP year-on-year contraction of 6.8%. The statistics bureau also breaks down the consecutive changes in China’s GDP size for the past five quarters:

• Q1 2019: 1.6% expansion
• Q2 2019: 1.5% expansion
• Q3 2019: 1.3% expansion
• Q4 2019: 1.5% expansion
• Q1 2020: 9.8% contraction

Bloomberg has more on the numbers (porous paywall), including a few initial positive signs beneath the headline of gloom and doom:

Other indicators showed retail sales sliding 15.8% in March as consumers remained wary, while investment decreased 16.1% in the first three months of the year. A brighter sign was the smaller-than-expected contraction in March industrial production of 1.1% as factories returned to work amid easing lockdowns…

On the positive side, the surveyed jobless rate actually declined in March, to 5.9% from February’s record 6.2%.

The headline GDP number was “refreshingly honest,” and “suggests Beijing is rethinking its approach to economic guidance,” writes Pete Sweeney in Reuters. Beijing-based economic consultancy Trivium agrees that many of the numbers “pass the smell test,” and comments that if the official year-on-year Q1 GDP contraction had been anything less than 5%, it just wouldn’t have been credible. Trivium’s work resumption tracking indicates that economic activity in China remains stuck at about 83% of capacity.

China’s unemployment problems are still not sufficiently acknowledged, and may continue to get worse this year, the Wall Street Journal suggests (paywall):

Though officials said Friday that China hasn’t suffered large-scale layoffs despite the pandemic, economists estimate as many as 80 million people — roughly twice the population of California — have lost their jobs or not been able to return to work in the past three months, in a working age population of roughly 900 million.

Larry Hu, an economist at Macquarie Group, said he expects joblessness to rise by another 10 million in the coming months unless Beijing enacts a major stimulus.

China is also facing the largest graduating college class in nearly a decade, with nine million white-collar workers entering one of the most challenging job markets in recent memory. Peking University said in a study published Wednesday that employment ads had fallen 27% in the first three months of the year, with the drop steepest among firms tied to global trade.

“China will use stronger macro policy tools to cushion the epidemic fallout,” a Xinhua readout (English, Chinese) of a Politburo meeting chaired by Xí Jìnpíng 习近平 reads. The Politburo also calls for more specific measures, including:

• “More proactive fiscal measures such as issuing special government bonds.”
• Monetary policies “to channel capital into the real economy, especially medium-sized, small and micro enterprises.”
• “Stimulating consumer spending and increasing public spending as appropriate.”
• Support for “sales of export products in the domestic market,” and tax cuts for small and medium-sized enterprises.
• The Chinese-language readout also has instructions to prioritize resumption of work among the labor force in impoverished regions, says that employment issues for college graduates is “of the utmost importance,” and emphasizes maintaining the stability of prices for agricultural goods.

A handful of analysts quoted in Bloomberg (porous paywall) also expect a variety of stimulus measures in the near future.

The Standing Committee of the National People’s Congress will meet from April 26 to 29, per Reuters, though we do not know “whether the committee will decide on when to hold the key annual meeting of parliament that has been delayed this year due to the coronavirus outbreak.”

—Lucas Niewenhuis