China Underground > China Finance > China scraps growth target due to the pandemic: unemployment and falling sales among the causes

China scraps growth target due to the pandemic: unemployment and falling sales among the causes

Last Updated on 2020/05/22

On Friday, in an unprecedented move, China has not communicated its economic growth targets for this year.

It is the first time since 1990 that China has not published these goals, showing how the COVID-19 epidemic has represented an epochal challenge for all the nations of the world.

The abandonment of this practice that over the years had become a regular appointment, underlines the difficulties of recovery of China in the post-pandemic.

The Chinese government has also promised a $ 500 billion (3.6 trillion yuan) stimulus plan to create 9 million jobs and try to limit the damage caused by the global economic and trade crisis. 

China set out a series of measures at this year’s annual meeting of the National People’s Congress, including tax cuts, and investments in infrastructure projects.

The stimulus plan is likely to increase China’s budget deficit to 3.6% of GDP this year. It is the first time that the budget deficit target has been set above 3% since the country’s current tax system was established in 1994.

The Chinese numbers to date have never been particularly believed by industry analysts, but they still represented a test to verify the health of a complex system like the Chinese one.

The industrial production index returned to rise in April, rising by 3.9%, a figure certainly very different from the -13.5% of the first two months of the year, a collapse caused by measures to contain the coronavirus epidemic.

Coal consumption data for the six major power generators returned to normal after the Golden Week holidays in early May. At the moment this figure is 1.5% higher than the historical average, suggesting that the energy demand has returned to normal.

With the reopening of companies and factories, the clear and transparent skies in the country have disappeared, a sign that industrial production has returned to producing at a rapid pace.

However, if on the one hand, these data show us how the country is restarting from an industrial point of view, what has changed most, at least in this first phase, is the mentality of the people, who seem to have changed their habits.

Sales in April decreased by 7.5%, totaling a result certainly better than March, but very far from the usual data. Many are still frightened by a possible resurgence of the disease.

China cannot even count on foreign demand, due to the health crisis.

At the same time, employment data are not particularly positive, showing a drop of 6% in April. According to economists this figure would be underestimated, and the real numbers should probably be double, since at least one-fifth of the migrant workers have not returned to cities.

According to the BBC, Prof Justin Yifu Lin of Peking University, citing a survey carried out by Tsinghua University, 85% of economic activities will struggle to survive in the next three months, and “bankruptcies will lead to more unemployment”.

Many Chinese people, however, work in public companies and the Chinese economic system is generally effective in reabsorbing the unemployed.

If the Chinese government is unable to put the country back on track of growth, the implicit promise on which the party’s justification for power is based will fail.

In the past 40 years, the party has crystallized the “Chinese dream”, a sort of tacit contract with the Chinese people according to which the improvement of economic conditions is linked to the submission of the people to the party.

But this year things did not go as expected, and the last few months have only been characterized by economic uncertainties and suspicions, which have further cracked the image of the country abroad.

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