The Chinese economy contracted by 6.8 percent (YoY) in 1Q20, marking the first time that the Chinese economy has experienced a contraction since statistical reports began in 1992. The main reason for this phenomenon is the stringent COVID-19 disease control and prevention measures issued by the Chinese authorities, including lockdown orders and orders for domestic tour operators to cease tour package sales. Such measures have caused a partial stagnation of economic activity throughout China. Some of the impacts can be seen in retail sales and industrial production figures in 1Q20, which declined by 19.64 percent (YTD, YoY) and 8.4 percent (YTD, YoY), respectively.
Although the Chinese authorities have started to gain control of their outbreak situation, the prospects for immediate recovery of the Chinese economy are not so bright, based on the overall picture of Chinese exports, which continue to face pressure from the sheer number of countries that may simultaneously enter recession. Likewise, private consumption might then be unable to return to the level it held prior to the pandemic, in the same way as investments are being held back in anticipation of a clear revival of the world economy. KResearch has readjusted its projection for economic expansion in 2020, from a previous projection made in January 2020: the new figure is a cautious expectation of growth in the range of 1-3 percent, compared to the original projection of 5.7 percent.
With China's economic conditions set on a trajectory of very low growth, to the extent that the Chinese authorities will be hard-pressed to fulfill their goal of doubling the amount of gross domestic product (GDP) from 2010, more stimulus packages may be issued in the form of monetary and fiscal policies to help sustain the economy. Monetary and fiscal policy normalization can be expected once the Chinese economy begins to show signs of recovery, to ensure that such policies are not too relaxed which might lead to stability issues for the Chinese economy in the long term.