How is China faring in the wake of the Covid-19 outbreak?

28th September, 2020

Until relatively recently, it had been thought that China would emerge weakened from the Covid-19 outbreak. Businesses wouldn’t like the supply chain fragilities exposed by the outbreak and would take their business elsewhere; the UK/China tensions would weaken its economic opportunities outside its own borders; the country would no longer be allowed unfettered access to Western intellectual property, which would damage innovation.

Some of these predictions may prove to be correct: indeed, it is clear that US companies will guard their intellectual property a little more closely and will not consider it a fair swap for access to China’s deep consumer markets. Equally, governments are not likely to allow Chinese companies unrestricted access to their markets when China places so many barriers around their own. The same may be true for merger and acquisition activity or access to Western capital markets. Chinese companies can expect barriers.

However, there are signs that China may emerge stronger from this pandemic than many had predicted. It emerged from the virus far more quickly, and its measures proved far more effective. That has enabled its economy to revive quickly. Global companies may want to move their supply chains away from China but have been forced to go where there is still supply. Often that means sticking with – or moving to – China production.

The tribulations of TikTok and Huawei highlight the problems for Chinese companies wanting to operate abroad, but it is worth noting that China’s economy is increasingly driven by domestic demand. It is now the largest part of GDP, and even though it has been dented by the pandemic, it remains relatively strong.

Andy Rothman, investment strategist at Matthews Asia, points out: “Auto sales have posted double-digit year-over-year growth for four consecutive months, and online sales of goods rose at a double-digit year on year pace in each of the last six months. New home sales have registered year on year growth, in volume terms, for four straight months, after declining by 39% year on year during the first two months of the year. Industrial production has fully recovered.”

Rather than this being an ‘us’ and ‘them’ issue, China’s strength is likely to be good for the global economic recovery. While there are likely to be new terms of engagement in the way the West does business with China, it would be useful to both sides if they could find a path through their current stand-off.

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