If Hubei gets moving again, China's 2020 GDP may grow 5.5%

By GT staff reporters Source:Global Times Published: 2020/2/17 21:18:40

Delayed work, logistics will hurt photoelectronics

A worker processes lithium battery in a new-energy vehicle factory in Yichang, Central China's Hubei Province in December 2019. Photo: cnsphotos

The economy of Central China's Hubei Province, the epicenter of the novel coronavirus outbreak, is likely to shrink in the first quarter as local pillar industries such as manufacturing and photoelectronics take a big hit due to extended factory work stoppages and crippled transport systems.

If Hubei can resume production and get the economy growing slightly or even remaining flat as of the second quarter, it will be possible to keep China's overall GDP growth at 5.5 percent in 2020, they forecast.

The epidemic, which had resulted in more than 58,000 confirmed cases and over 1,600 deaths in Hubei as of press time, has exerted a negative impact on local production and economic activity as many companies there are grounded.

A manager of Info-eternal, a photoelectronics device producer located in Optics Valley in Wuhan city surnamed Peng told the Global Times on Monday that the epidemic has had a big negative impact since "the plant remains closed and the products cannot be transported elsewhere.

"Originally, we would have resumed production on February 14 and that is now postponed to the 24th, according to the notice by the local government. Yet we can't be sure that we can open on the 24th," he said.

"Our suppliers in Hubei Province are also not resuming production and other partners and clients across China cannot receive our products at this moment," Peng said.

Hardly any factory in Wuhan has resumed work, Peng said, noting that the upstream and downstream industries nationwide are also taking a large hit.

"At present, there are several dozen pieces of equipment in the factory that have not been sent out. The price of each one ranges from 20,000 yuan ($2,865) to 80,000 yuan," a manager surnamed Xiao from Wuhan Optics Valley at a laser equipment company, told the Global Times. 

Wuhan plays a leading role in the photoelectronics industry in China. Production in the city accounts for more than 60 percent in China market and 25 percent across the globe, Tian Yun, vice director of the Beijing Economic Operation Association, told the Global Times on Monday.

"It's hard to find replacements for Wuhan in the photoelectronics industry at the moment, and work delays and interrupted logistics in the city would harm the Chinese and the global photoelectronic sector," Tian said. 

Not only is Optics Valley stuck in the shadows — local business activity has shown no sign of recovery.

"Except for the supermarkets and groceries that provide daily necessities, all other business activity has stopped in Wuhan," a university professor surnamed Sun, who stayed in Wuhan during the Spring Festival, told the Global Times on Monday.

"I saw very few pedestrians on the streets. It is really heartbreaking these days to see that Wuhan, a big and bustling city before the epidemic, now looks like a ghost town," Sun said.

Bitter steel 

As one of the pillar industries for Hubei, more than 70 steel and iron companies slowed or halted production. 

A staff member at Ezhou-based Echeng Iron and Steel Go, under China Baowu Steel Group, which is the world's second-largest steelmaker, told the Global Times that demand for steel is weak, because factories across the nation have not resumed mass production. He saw no boom coming for steel demand in March or April.

"Even though other factories want to step up production in the future, the consumption of steel has its pace and cannot triple in one day."

According to industry newspaper China Metallurgical News, five major steel mills in Hubei have reduced their output and the small enterprises all halted production in Hubei, where the industry supports 50,000 families. 

"This situation disrupts the regional steel market supply and demand balance near Hubei Province. If the mills produce too much steel, no factories demand it; at the same time, their smelting-steel material cannot last for long," Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told the Global Times on Monday.

However, the steel disruption in Hubei will not spread to the nation as a whole, as the amount of crude steel output accounted for 3.6 percent and steel output accounted for 3.1 percent of national production in 2019, statistics from the research center sent to the Global Times showed. 

Factories in Wuhan, a manufacturing hub, are also experiencing bitterness during recent days.

Lenovo told the Global Times on Monday that its manufacturing base in Wuhan, its largest in the world that makes all its products including Motorola handsets, has not yet resumed production due to the coronavirus.

GDP outlook

Hubei's GDP will contract in the first quarter, experts forecast. In the same period of 2019, Hubei's GDP growth was as high as 8.1 percent. 

The province achieved 7.5 percent GDP growth in 2019, 1.4 percentage points above the national average, realizing output value of 4.58 trillion yuan and ranking seventh in the Chinese mainland.

In recent years, Hubei was one of the provinces with the most vigorous economic growth and fixed-asset investment, said Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation. 

If Hubei's economy is hit, the damage to China's overall economy will lie not only in actual output, but also in expectations for growth momentum, Mei told the Global Times on Monday.

A gap in economic development remains between the province and China's major economic drivers, such as East China's Zhejiang Province and South China's Guangdong Province, which reported gross regional product at about 6.2 trillion yuan and 10.77 trillion yuan last year, respectively.

If the epidemic can be controlled by the end of the first quarter and local production, transport and consumption in Wuhan return to normal, it is possible for Hubei's GDP to grow slightly or at least hold steady in the year, Tian said.

If Hubei can maintain GDP growth above zero in 2020, it is likely that China's economic growth will attain 5.5 percent in the year, Tian said.

From crisis to opportunity 

"I don't think Hubei's economy cannot recover from the setback. Instead, the local government should try to turn  the crisis into an opportunity. In the future, some sectors, medical industry in particular, can be further developed in the province," Tian said.

BGI Genomics Co told the Global Times on Monday that the company's Wuhan branch, which is located in Optics Valley, has not resumed work but "we had a team of more than 100 people busy producing coronavirus test kits during the Chinese Spring Festival."

"The priority for Hubei is to contain the virus now — but meanwhile, local authorities could combine that effort with attracting business opportunities and investment," Mei said.

After the virus is contained, the Chinese government is expected to consider optimizing nationwide industrial deployment - some core domestic industries should be dispersed in two to three areas instead of one, even if there is some repetitive manufacturing, Tian said.

Newspaper headline: Hubei’s GDP to shrink in Q1

Posted in: ECONOMY

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