A man makes batteries in China’s Anhui province on March 30.
Photo: str/Agence France-Presse/Getty ImagesAs the U.S. and Europe confront the bitter toll of the new coronavirus, Chinese citizens are tiptoeing back to their normal lives. A return to the precrisis economic status quo, however, remains far off.
As both the official purchasing managers index and a competing private one produced by Caixin showed this week, China’s economy began growing again in March. But the uptick is coming from a very low base and economists still believe China’s economy contracted about 10% year-over-year in the first quarter. Moreover, although the country appears to have successfully slowed the spread of the virus, its impact is lingering in important ways—particularly for consumers and exporters.
The impressive “V-shape” of the PMIs doesn’t mean China is experiencing a V-shaped recovery, where everything bounces right back to normal and businesses make up all of February’s lost ground in March. PMIs measure month-over-month changes, so what you have is a catastrophic fall in February followed by a very modest rebound from the trough in March. Numbers above 50 indicate business expansion.
That said, there are grounds for limited optimism. Importantly, the property market is showing signs of life. After a very rough mid-March, average property sales in 30 major cities have moved back up to around 40,000 to 50,000 square meters a day over the past several days, according to data from Goldman Sachs. That is roughly comparable to 2018 and 2019 levels. Returning vigor in the property market is critical both for global commodity markets and for China’s financial and social stability. Property developers are among the most indebted Chinese firms and construction companies employed more than 50 million workers in 2019.
Less encouraging are signals from consumers more broadly, who now drive the majority of China’s growth. A Morgan Stanley online survey of 2019 consumers in 19 provinces last week found that while most respondents—86%—were leaving the house for work, most were still reluctant to go out to shop, eat or socialize. And 69% said they would go out for essentials only, down from 75% in early March—still extremely high.
That level of caution may be hard to overcome as long as both citizens and the government remain worried about a secondary outbreak. Last Friday, Beijing ordered all of the nation’s movie theaters to close again after a handful reopened. And a small county in Henan province Tuesday found itself locked down again due to fears about a renewed outbreak.
All of this comes as Chinese factories—and their employees—will soon be feeling the hit from falling demand overseas. China is back to work, but without a real end to the epidemic, both at home and abroad, a return to normalcy may remain elusive.
Write to Nathaniel Taplin at nathaniel.taplin@wsj.com
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