China’s economy to shrink for the first time since 1976

Is China a safe-haven? Stocks in the country where the coronavirus originated have dodged the worst of the falls on Western indexes. The Shanghai Composite index is down by less than 10% since the start of the year, compared with 29%-33% losses in the US and Europe.

China is gradually getting back to work but with tough restrictions, say Ryan McMorrow and Qianer Liu in the Financial Times. Employees often have their temperatures taken multiple times per day and most companies are only allowing about half of their workers back into the office. Compulsory face mask wearing remains common.“Halting the world’s second-largest economy has proved easier than restarting it,” writes Keither Bradsher in The New York Times.

Most factories have reopened but are operating at two-thirds of their capacity, while tens of millions of workers remain in quarantine or stuck in other towns. Early data hints at the severe impact of the country’s “vast containment efforts”. Industrial production, retail sales and investment all dropped by double-digits during the first two months of 2020 compared with a year before. 

China may now be on course for its first quarterly contraction since 1976. This week Goldman Sachs predicted a 9% plunge in first-quarter economic activity in the wake of the shutdown.

“Investors seem to be betting that the crisis in China is mostly over,” says Jacky Wong in The Wall Street Journal. The “relative isolation” of the country’s financial system has also insulated its stocks from the global sell-off; just 2.1% of equities are in foreign hands. 

Yet that optimism appears misplaced. The disease may yet flare up again as restrictions are relaxed. As the world’s largest exporter China cannot dodge the incoming global demand hit as other countries bring in lockdowns, nor supply chain disruptions coming from abroad. China may have contained the epidemic for now, but “the economic consequences will... continue to widen”.