ASSESSMENTS

China's Economy Braces for a COVID-19 Double Hit

Mar 24, 2020 | 14:59 GMT

Workers operate a production line of a new material company in Lianyungang, China, on March 23, 2020.

Workers operate a production line of a new material company in Lianyungang, China, on March 23, 2020.

(Costfoto/Barcroft Media via Getty Images)

Highlights

  • China's economy will sustain a double hit in 2020 due to COVID-19 given both the direct domestic impact of the virus control measures and the looming hit to global demand. 
  • The government will need to tread carefully in stimulus spending given the risk of increasing economic instability by fueling unsustainable debt. 
  • However, if the global outbreak worsens, the risk to economic growth and employment may compel Beijing to engage in large-scale spending in order to ensure political stability in the long term.

In China, the economic fallout of the COVID-19 outbreak will drag on 2020 GDP growth as the country endures the twin hits of both the early-year domestic slowdown and the as-yet-unknown drop in overseas demand in key markets. But the country’s high debt levels -- partly fueled by its massive stimulus during the 2008 financial crisis, in addition to the structural slowdown already underway before the outbreak -- means Beijing will hesitate to mirror the large-scale spending being implemented in other virus-ravaged economies, such as the United States, Japan and South Korea. China will now have to choose whether to help buoy its employment and annual growth targets through spending that could jeopardize long-term economic stability....

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