The outbreak of COVID-19 had a devastating effect on Chinese economy.

Firstly, it caused a
negative AS shock due to the interruption of production tools. Manufacturing production as well
as service industry were heavily impacted: industrial value added fell 13.5% during Jan-Feb
(metals-27%, cars-32%); industrial profits fell 40% in Jan-Feb. Secondly, it caused a negative
AD shock due to the fall in investment and consumption spending, facilitated by the international
trade slump. In the first 2 months consumption and investment fell by more than 20%: in Feb,
Passenger traffic by train or plane fell by 85%; in Jan-Feb, automotive and real estate sales fell
by 40%. International trade volumes decreased from a 42b$ surplus in Jan-Feb 2019 to a 7b$
trade deficit over Jan-Feb 2020 (~0.3% of GDP). Thirdly, China unemployment rate jumped to
6.2 per cent for January and February from 5.2 per cent in December.

Chinese government developed complex measures to facilitate the recovery of the country’s
economy. The short-term economic stimulus includes:

1. Fiscal policy: tax cuts, insurance fee reductions and subsidies for firms, stimulating
positive AS shock
2. Monetary policy: interest rate cut, reserve requirement cut by 50-100 basis points (and is
expected to be cut by another 100 points during 2020), liquidity injection (The People's Bank of
China (PBOC) injected 100 billion yuan (about 14.33 billion U.S. dollars) into the market
through repos and 200 billion yuan via medium-term lending facility (MLF), a tool introduced in
2014 to allow commercial and policy banks to borrow from the central bank using securities as
collateral). This measures should prevent further collapse of the economy and stimulate recovery
of the investment demand, hence leading to a positive AD shock.

In recent months, reinforced by the governmental measures, AD and AS started to recover.

Industry started to revive, and the majority of workers (including migrant workers), according to
the Qinghua University report*, returned to their jobs. Further economic recovery is going to be
ensured by the “New infrastructure” investments of the government which include the
construction of an inter and intra-city high-speed railway (4000+km railway (including 2000km
for high-speed) and electric vehicles charging stations. The national government also plans to
invest in developing the ‘industrial internet’ – digital technologies such as the Internet of Things
(IoT), AI, 5G and cloud implemented in the industrial sector – the next growth engine for
China’s economy. Bloomberg NEF estimates the annual market potential for China’s industrial
internet is 328 billion CNY ($47 billion).

However, economic recovery in the SR and MR will be hindered by the rest of the world
suffering from corona virus and its consequences. Experts* conclude that the world economy is
expected to fall into deep depression (тут кусок Алисы про это)

Nevertheless, in a very long run, when the rest of the world starts to recover from the
consequences of the pandemic, Chinese economy is expected to grow due to its government
investing in technology, infrastructure and, most importantly, deepening of the market-oriented
reform in key sectors of the economy, from land management to labour, which has been
announced by the Communist party this spring.

China’s recovery - the world’s second-largest economy - doesn’t seem to be stable and positively
balanced. Estimation of economic state in a particular country can’t be full-fledged without
examining other world position. The complex point is that China experienced the impact of
Covid-19 much earlier than Europe or USA. Naturally, Beijing announced stimulation measures
like increased credit but in view of a limit effect until the world outside of the China is in
turmoil. To be more precise, global demand will decrease due to antivirus contractions which
can not pass through Asian economy.
The absolutely positive phenomenon that China has about 6 domestic cases (23.04) does not
imply the eventual decision of the problem due to the fact that its main trade partner (USA)
experiences pandemic pick which vastly reduces overseas orders. Simultaneously China will
meet the positive growth by 1.2 %: shipment increase and domestic demand started to recover.
It may be explained by “rebound in March’s export growth was mainly due to catch-up
following delayed production and shipments as a result of lockdowns and travel bans in
February” . It is directly connected with the export sector. The demand for foreign products will
fall due to the COVID -19’s impact on the economic activity outside of the China. This idea can
be proved by looking at the export data for the first quarter of 2020 where exports rate fall by
13.3%.
The encouraging point is trade agreement with USA which is basically equals to exit of the 2-
year deadlock of the “trade war”. In practice, reduction and avoidance of new duties “save”
about 276 billion dollars for Beijing. In its turn, Chinese government promised to increase
imports of agricultural products from the United States, which happened as this indicator
increased by 110% compared to 2019 and demonstrates stable upward trend. Overall, imports
should hold up better due to the gradual stabilization of domestic demand situation but still it
fall by 2.9% by the end of the March. Also, according to Goldman Sachs analysis the property
market started to regenerate on the previous level which gives not only energy for global markets
but provides more than 50 millions of workplaces.
Nevertheless, overall insignificant recovery in March should be mentioned but it is not
appropriate due to upcoming pressure of coronavirus outbreak . The “V-shape” form of MPI
index perfectly confirms and evaluates future prospects. (График индекса MPI). Also, The
ability of the second wave of infections creates the additional difficulties. China is currently back
to work but without complete cessation of pandemic this can be only an Elusion. Thus, the
second quarter’s impact of coronavirus will be even more noticeable.