This article was first published on May 15, 2020.
China’s economic recovery is underway following a forceful public health response to COVID-19. Consensus estimates suggest that while Chinese GDP growth will fall to 2.5% from 6.1% in 2019, with other large economies entering recession China will once again be the primary source of global growth. China Q1 GDP was -6.8% relative to Q1 2019 – relatively close to the consensus estimate from 57 analysts of a contraction of 6.5%, and materially better than many of the estimates of double-digit contraction.
As-of mid-April, signs of recovery can be seen across China, with some schools re-opening, manufacturing PMI rebounding, and people once-again traveling. Much discussion focuses on the speed of China’s recovery, with three broad paths hypothesized: A “V-shaped” recovery, A “U-shaped” recovery or An “L-shaped” recovery. We believe that this debate is too simplistic: there is a tendency to treat China as one single economy. In our experience this significantly underestimates the heterogenous nature of China, with huge dispersion geographically. Different sectors of the Chinese economy will experience recovery very differently, and competing influences will shape the path of growth over the next 12-months depending on the sector concentration in each region. This will result in an aggregate “blend” of V, U and L-shaped profiles – the weighting of each allowing different scenarios for the overall economic picture.