China may focus more on employment than on growth amid virus pandemic
By Tomoyuki Tachikawa
BEIJING, Kyodo - China is expected to be forced to place more emphasis on taking measures to maintain employment than on pursuing economic growth, at least this year, given that the coronavirus pandemic has eroded corporate profits.
As the increase in infections peaked out in China in late February, around one month after the virus began to rage, the Communist-led government initially believed the world's second-biggest economy would attain a "V-shaped" recovery.
The optimism, however, has waned, as the virus, which was first detected in the central Chinese city of Wuhan late last year, has been sharply spreading across the globe since March and responsive steps have been taken, including lockdowns, stifling economic activities worldwide.
xpectations are mounting that China will drastically expand government spending and ease monetary policy to prop up the economy, but providing too much stimulus might spark fears about inflation and the bursting of a property bubble.
All eyes are now on what kind of economic policy the Chinese leadership of President Xi Jinping will adopt at the postponed annual session of the country's parliament, the National People's Congress, starting Friday.
Amid the outbreak of the new virus, which causes the respiratory disease COVID-19, China's overall economy marked its first quarterly decline on record during the January-March period, down 6.8 percent from the previous year.
In the first three months of 2020, industrial production slid 8.4 percent, and retail sales plummeted 19.0 percent, with the total value of exports dropping 3.5 percent, underscoring that the virus outbreak dealt China's enterprises a crippling blow.
Last year, China set a gross domestic product growth target of 6.0 to 6.5 percent at the parliament, which usually takes place from March 5 in Beijing. But, the nation's economy is unlikely to expand at such a pace in 2020, analysts say.
The International Monetary Fund said in mid-April that China's economic growth is projected to slow to 1.2 percent this year, with the world economy seen contracting by 3.0 percent in 2020.
Although China's exports bounced back in April, up 3.5 percent from a year earlier, a major driver of the rebound was rising shipments of face masks and other disease prevention products. Those of electronics and luxury goods were weak.
"This time, China's economic downturn was triggered by a supply shock. We previously thought production and private spending would recover soon once people's lives returned to normal," said a source in Beijing, who is well versed in the country's economy.
"But unfortunately, external demand has been shrinking against a backdrop of the pandemic. Hopes for a V-shaped recovery in the Chinese export-oriented economy have faded," he added.
Globally, just over five million cases of COVID-19 infection have been confirmed, with the number of deaths exceeding 320,000, according to a tally by Johns Hopkins University.
Reflecting the economic sluggishness and lackluster demand both at home and abroad, the job climate has recently become gloomier in China.
The surveyed unemployment rate in urban areas, including the nation's largest commercial hub Shanghai and the capital Beijing, stood at 6.2 percent in February and 5.9 percent in March, up from December's 5.2 percent and January's 5.3 percent.
If the unemployment rate stays at the same levels throughout this year, that means tens of millions of people would lose their jobs, economists say.
Additionally, over eight million students are expected to graduate from universities in China in 2020, especially after the summer. And later this year, they will enter the job market, which is certain to remain tight for the time being.
"In China, a higher unemployment rate has tended to lead to social unrest. It is necessary to pay attention to the future employment situation," said Kokichiro Mio, a senior researcher at the NLI Research Institute in Tokyo.
The Chinese government has already decided to carry out several measures to shore up the job market, such as extending loans to companies that are trying to maintain stable employment.
Since April, the ruling party has also shown its commitment to weighing the improvement of people's standard of living more heavily than economic growth.
At the May 15 meeting of the Political Bureau, the party pledged to safeguard "economic development and social stability" and to ensure "the full completion of poverty alleviation targets," China's state-run Xinhua News Agency reported.
Xi's leadership, meanwhile, has been making serious efforts to keep the economy from faltering further.
Nevertheless, some pundits warn that excessive fiscal expansion and monetary easing may have adverse effects on the economy, as they would overheat asset and real estate investment as well as lower the value of the currency and accelerate inflation.
In China, consumer prices have been on an upward trend in recent months due in part to stockpiling of daily necessities amid the spread of the virus, and a pork shortage stemming from a yearlong African swine fever epidemic.
The country's consumer price index spiked 5.4 percent from a year earlier in January, the highest year-on-year jump since October 2011, and has also continued to rise through April. Price hikes would drag down consumption, which could take a toll on the economy.
The People's Bank of China, the nation's central bank, put off a rate cut in May after slashing its benchmark lending rate from 4.15 percent to 4.05 percent in February and to 3.85 percent in April.
"China should steer economic policy in a well-balanced manner. We are very closely watching the National People's Congress to gauge the direction of the Chinese economy," the source in Beijing said. (Kyodo)