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The country faces its biggest economic downturn since the 1970s and recently took the unprecedented decision to scrap its gross domestic product (GDP) targets. China’s economy shrank by 6.8 percent in the first three months of the year as business shuddered to a standstill amid the coronavirus lockdown. And forecasts for 2020 are less than half of the 6.1 percent growth rate recorded last year.
China’s economy is driven by demand and right now there is no demand
Viktor Shvets, head of Asian strategy at Macquarie Commodities and Global Markets, told Bloomberg Radio: “At the end of the day, China’s economy is driven by demand and right now there is no demand.”
Justin Yu, a sales manager at Zhejiang-based Pinghu Mijia Child Product Co that makes toy scooters for the US market said orders were below normal levels.
He said: “We are seeing more orders coming in this month as we get closer to our normal peak season.
“But our orders are still 40 to 50 percent lower than last year.”
Analysts warn overproduction will lead to unsustainable price cuts and deflation which can lead to economic stagnation, business failures and mass unemployment.
Yao Wei, China economist at Societe Generale, said: “The supply normalisation has already outpaced demand recovery.
“In other words, the recovery so far is a deflationary recovery.”
Purchasing manager index figures for May underlined the slow nature of the recovery, with the manufacturing outlook slipping back.
Bloomberg economist Chang Su said: “Although demand conditions are improving on the margin, they will still take a long time to recover to where they were before the virus crisis.
“Investment is picking up, domestic consumption improving and external demand is less bad than it was.”
In Zhenjiang, Jiangsu province, Melissa Shu, an export manager for an LED car lighting factory, said orders were steadily improving but noted no sense of urgency from clients and warned the outlook remained uncertain.
She said: “I do not think supply will outstrip demand for long – once inventories build up, or producers know orders are falling, production will come down as well.”
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The pandemic has left the ruling communist party and its leader Xi Jinping facing some of the greatest challenges in several generations.
Chinese premier Li Keqiang said: “Pressure on employment has risen significantly.
“Enterprises, especially micro, small and medium businesses, face growing difficulties.
“There are increasing risks in the financial sector and other areas.”
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