China ramping up

Universal Studios theme park construction site in Beijing
Source: The Age

A report from Melbourne's The Age newspaper:

The world’s largest Universal Studios is being built in south-east Beijing. Work stopped on the $3 billion theme park as the coronavirus raged through China, taking 3172 lives and forcing the closure of schools, workplaces and mass gatherings.

Now, migrant workers like Mr Qiao are picking up the tools at Universal Studios again. Its rival, Disneyland, shut its doors in California on Friday as the rest of the world started coming to terms with a virus that has wiped more than $6 trillion off stock markets, blocked borders and overwhelmed intensive care units.

While the rest of the world shuts down, China is ramping up.

Japanese financial group Nomura estimated this week that 62 per cent of the businesses hardest hit by the virus had resumed work by March 8. In the rest of the economy, the figure was 74 per cent.

In Jiangxi Province, which borders Hubei Province, the centre of the coronavirus outbreak, power generators have returned to 93 per cent of last year’s capacity as factories appear to increase production.

Car sales went off a cliff in February, falling by almost 80 per cent since February 2019. It was the industry’s worst result in modern times. Apple’s iPhone shipments to China plummeted by 60 per cent.

In a report that has now been blocked by Chinese censors, Chinese media outlet Caixin revealed this week that factory power generation figures were questionable. The report claimed factory bosses were leaving the lights on to boost the perception among Party cadres that they were back at work.

Ma Jun, the director of the Institute of Public and Environmental Affairs in Beijing, told Bloomberg on Tuesday that in China there is a belief that problems can only be solved within the process of economic development.

“Just like a moving bicycle, it runs more smoothly when it is moving at a high speed. But when it slows down, setbacks tend to occur,” he said.

Global ratings agency S&P forecasts the Chinese economy will grow at 4.8 per cent in 2020. It will have to claw its way back from its worst result in three decades to help many countries, including Australia, avoid recession.

And it's likely that, without aggressive, draconian public health containment measures, things could have been much worse.

Schools forced into lockdown, workplaces shuttered, families separated. The phenomena that would have been unthinkable outside China a month ago have become a reality in Europe and are now expected to hit Australia.

More than 60 million people were placed into lockdown in Hubei Province in January. By March, that same number were ordered to stay home in Italy as the number of deaths surged past 800.

Overwhelmed by more than 12,000 cases, the Italian College of Anaesthesia, Analgesia, Resuscitation and Intensive Care is now preparing for wartime triage. Those patients with the highest chance of recovery, or with the most years left in their lives, will get priority as intensive care units are overrun.

On Friday, China announced the country had recorded only 15 new infections on Wednesday. It was 1000 times that per day in mid-February.

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Europe is finally taking steps to reduce new infections, but these steps will cause Europe's growth rate to plunge in March and April.  A few weeks after infections have peaked in Europe, shops will be allowed to reopen, and life will return to normal.  

Meanwhile, the US is still doing nowhere near enough to contain the virus, thanks to Trump's fear that admitting to the existence of the virus would impact his re-election chances.  Not to mention the US health system, where too many are too poor to even pay for the Covid-19 test.  The result will be that the USA's s economic slowdown and eventual recovery will be delayed, which will worsen the impact on businesses and individuals.  One might be able to survive a one month hiatus, but won't survive a six month one.

So the world economy will fall in March, through April and May and perhaps even June, before beginning a tentative recovery.  And that's if there aren't secondary impacts such as massive defaults in corporate bond markets with consequent impacts on credit and the banking system.  The Covid Crash has already led to a plunge in the oil price and a collapse in "junk" bond prices.  Airlines, shipping lines, hotels, restaurants, and producers of consumer durables  are already at risk of bankruptcy.

It will get worse before it gets better.  And I really don't see a V-shaped recovery.