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Business reopening, investments, e-commerce: after two months of containment, economic activity is slowly recovering in China. Jean-Christophe Babin, CEO of Bvlgari, the brand of the LVMH group, even estimates that the level of its sales “has exceeded last year’s level for the last three weeks”. Survey on the economic dynamics of a country emerging from crisis.
While Europe and the United States are in the midst of a period of containment that will probably last several more weeks, China has already begun its “deconfinement” and is experiencing the beginnings of an economic revival.
A timid but encouraging recovery
According to the National Bureau of Statistics, the Purchasing Managers Index – which is used as a benchmark to assess a country’s economic activity – stood at 52 points in China in March, after a historically low level in February (35.7 points). It would therefore appear that China is back on the path of expansion, as a result above 50 points means that activity is growing.
“The recovery in China, although limited, is encouraging, indicating that measures to contain the pandemic can be successful in controlling the epidemic” said Gita Gopinath, chief economist of the International Monetary Fund, in early April.
The slowing of the contagion in the country and the gradual lifting of containment measures have in fact allowed factories to gradually restart and thus the economy to take off again. In the Shandond region of China, for example, the plant of French carmaker Peugeot Motocycles, which had been closed since February, has reopened and is showing satisfactory signs of recovery. “Production has returned to its pre-crisis level and even a little more“, said its CEO Costantino Sambuy on April 6 in an interview with Le Point magazine.
Similarly, the equipment manufacturer Nike announced at the end of March the reopening of 80% of its stores in China: “At a time when the recovery is starting in China, no other company is as well equipped as Nike to evolve in the current climate“, according to John Donahoe, the brand’s managing director, in a press release.
The observation of data such as pollution or transport has confirmed a revival of activity: “The capacity utilization rate is currently between 65% and 70%, which is not so far from the 80% recorded in normal times, synonymous with full capacity“, according to economist Dan Scott.
According to several surveys carried out by the Chambers of Commerce, activity has therefore resumed at 75% throughout the country. And for the Bloomberg agency, hotel reservations would have increased by 40% on March 1st compared to the previous week, and domestic flight reservations would also have been 3.3 times more numerous for the last week of February compared to the previous week.
A dazzling expansion of e-commerce
As the Chinese economy is gradually emerging from its torpor, coronavirus containment measures in China have provided a major boost to the development of online commerce.
The country saw a 300% surge in online sales during the containment period, mainly via the Alibaba and Taobao digital platforms. Sales of yoga mats and rowing machines for home gymnastics are reported to have increased by up to 250% over a two-week period in February compared to the same period in 2019.
Nike purchases on e-commerce platforms also jumped 36% during the Chinese containment period, surpassing sales in physical stores by more than 30%. “Revenues increased 5% to $10.1 billion in the three months ended February 29, the third quarter of fiscal year 2019/20“, according to a BFM TV analysis.
Confined Chinese consumers have also been introduced to new ways of shopping from home. For example, 130,000 viewers tuned in over three days (March 6-8) to Douvin, the Chinese equivalent of TikTok, to watch a live broadcast from the New World shopping mall in Shanghai. For 12 hours each day, different hosts hired by the shopping center then sold branded products such as Adidas, Dior and Lego.
Boosted by the digital boom, China can therefore count on healthy digital commerce to strengthen its economic situation and consolidate its recovery phase.
Fears of a jagged recovery
“The figures for an economic recovery do not mean that production has returned to its pre-virus trend, warns Julian Evans-Pritchard, analyst at Capital Economics. It simply suggests that economic activity has improved slightly from February’s dark days.”
Indeed, the rather encouraging data for February and March are no guarantee that economic activity will improve, much less stabilize, in the months to come. Shaken by a crisis of unprecedented proportions, China needs to rise from its ashes.
In the first two months of the year, retail sales fell by 20.5% and industrial production by 13.5% compared to the first two months of 2019. According to Trivium China, the national economy was operating at 72.6% of its usual output on March 19, and SMEs at only 71%.
Also, the country faced a drastic drop in imports of raw materials, consumer goods and luxury goods. “Moncler has seen an 80% drop in sales since the beginning of the epidemic, Burberry has closed 24 of its 64 stores in China, as has Starbucks, which has lowered the curtain on half of its 4,000 points of sale“, said Armand Mazloumian, President and Founder of the French Chinese Center and head of electronic payments at La Banque Postale in China.
This significant drop in domestic demand would have led to a huge loss of income for some companies, such as the Danone group in China, which would have lost more than 100 million euros since January.
In addition, a W-shaped recovery is being feared by experts, firstly because Chinese companies are likely to suffer the repercussions of containment measures for many quarters, and secondly because a resurgence of the epidemic in China is not impossible.
A policy of economic recovery
Facing deep uncertainties, China has decided to invest billions of yuan in its economic reconstruction. “In order to boost the economy, local governments have announced their investment plans for major projects. A wave of investment in infrastructures is already in progress“, reported the Chinese economic magazine Zhongguo Jingji Zhoukan on 15 March this year.
The artificial intelligence sector will also be particularly supported in this recovery plan, as well as the automobile sector: Chinese purchasers of clean vehicles will not pay taxes for two years, in order to encourage them to invest again.
A total of 49,600 billion yuan will be invested over the next few years, compared with 7,600 billion yuan in 2020.
And to strengthen its economic recovery, China has also pledged to help the rest of the world in the fight against coronavirus. Thus, banking institutions have mobilized to help 20 countries around the world. In particular, the Bank of China has donated 2.25 million pieces of medical supplies, including masks and overalls, to various countries. These financial efforts would eventually enable China to regain a surplus trade balance through increased exports.
While the country should be able to avoid a crisis in the short term thanks to these stimulus measures, it cannot be ruled out that the Covid-19 pandemic will cause an explosion of debt within a few months. In a general context marked by a lack of prospects, China therefore remains cautious, while continuing its slow and complex recovery.
Read also > Swatch group CEO sees ‘massive’ temporary hit in China from coronavirus
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Business reopening, investments, e-commerce: after two months of containment, economic activity is slowly recovering in China. Jean-Christophe Babin, CEO of Bvlgari, the brand of the LVMH group, even estimates that the level of its sales “has exceeded last year’s level for the last three weeks”. Survey on the economic dynamics of a country emerging from crisis.
While Europe and the United States are in the midst of a period of containment that will probably last several more weeks, China has already begun its “deconfinement” and is experiencing the beginnings of an economic revival.
A timid but encouraging recovery
According to the National Bureau of Statistics, the Purchasing Managers Index – which is used as a benchmark to assess a country’s economic activity – stood at 52 points in China in March, after a historically low level in February (35.7 points). It would therefore appear that China is back on the path of expansion, as a result above 50 points means that activity is growing.
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Business reopening, investments, e-commerce: after two months of containment, economic activity is slowly recovering in China. Jean-Christophe Babin, CEO of Bvlgari, the brand of the LVMH group, even estimates that the level of its sales “has exceeded last year’s level for the last three weeks”. Survey on the economic dynamics of a country emerging from crisis.
While Europe and the United States are in the midst of a period of containment that will probably last several more weeks, China has already begun its “deconfinement” and is experiencing the beginnings of an economic revival.
A timid but encouraging recovery
According to the National Bureau of Statistics, the Purchasing Managers Index – which is used as a benchmark to assess a country’s economic activity – stood at 52 points in China in March, after a historically low level in February (35.7 points). It would therefore appear that China is back on the path of expansion, as a result above 50 points means that activity is growing.
This article is reserved for subscribers.
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