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Eyes turn to China for signs of economic recovery

As COVID-19 engulfs the world, green shoots in some industries are seen sprouting in the Middle Kingdom

April 16, 2020

After a mandated shutdown due to the COVID-19 pandemic, a small factory making fitness accessories in China’s Hunan province roused back to life in late February. New measures mandated the wearing of protective gear like masks, but otherwise production was back on track.

While much of the world contends with lockdown, China started easing restrictions on businesses and society at large when COVID-19 cases started to fall just over a month ago.

And it’s not just the factories restarting. Workers are also returning to offices. Mobility between cities and provinces is resuming slowly, alongside domestic tourism. Shopping centers and restaurants are reopening – albeit within a strict social distancing framework.

The road to a full recovery, according to experts, remains long and difficult. But there are signs of one emerging.

“While heightened caution remains in place, evidence of a resumption of economic activity in specific sectors is providing insights into what the first green shoots in individual economies may look like,” says Roddy Allan, chief research officer, Asia Pacific, at JLL. “China could be a glimpse into the future for elsewhere.”

To be sure, the pace of economic growth is likely to remain slower than before the outbreak, with workers still in the process of returning to their jobs. Factory activity expanded in March, but economists warned it might not hold up in the face of a global recession. Roads and public transportation across China have yet to be fully up and running.

“The COVID-19 pandemic has brought most industries to a standstill, but some have seized the potential growth opportunities,” says Allan. “We’re observing brighter spots in specific industries less reliant on trade and offshoring.”

Green shoots appearing

One such industry is technology. Enterprises involving big data, cloud platforms, and artificial intelligence have proven to be essential services during the outbreak. Appealing to China’s enormous domestic consumer base, the digital economy appears to have weathered the storm relatively well, Allan says.

One major domestic digital company, which completed a sizable investment into a media company, is poised to expand its floor space in Shenzhen. There’s also a rapidly expanding eCommerce provider, which will consolidate its business and set up a regional headquarters of more than 20,000 square meters of office space, also in Shenzhen.

This resilience during the pandemic also can be seen in tech-focused business districts. High-Tech Park in Shenzhen’s Nanshan District – the precinct with the highest concentration of Internet services companies in the city – is one of the only two precincts where occupancy levels remained stable in the first quarter, according to Grade-A office market data from JLL.

Other industries that weathered the storm include insurance providers, which saw demand for cover spike during the outbreak, and online entertainment, which has seen a boost during lockdown, according to JLL data.

“The green shoots are sprouting and all are essentially linked with domestic demand, as opposed to traditional barometers like trade,” says Allan. 

Green shoots, but not out of the woods

The way China dealt with the COVID-19 outbreak with lockdowns across cities has become a roadmap for other countries, says Peter Liu, Supply Chain Consulting Director, JLL China. “Once the critical stage passed, they could go back to work,” he says.

But Liu points out that challenges remain. With COVID-19 now a global pandemic, China is up against declines in global demand. Domestically, even though labour shortage has now been addressed with the workers back in full force since late March, “there is still a huge backlog on orders to catch up on, plus a lack of specialised parts from other low-tier suppliers in China.”

Recovery is also uneven across industries. Factories that are not as dependent on parts and materials are likely to recovery faster, as are those producing goods more in demand. For instance, toy maker Hasbro has seen increased demand for products like Play-Doh and Monopoly during the outbreak, with many families staying in. Its production in China has mostly returned to normal.

As the virus continues to reshape livelihoods and economies in ways thought unthinkable three months ago, the focus will rightly remain on the health and security of people, communities, and businesses.

Mainland China will continue to experience social and economic hardships for some time.

“Countries globally will feel the pinch of COVID-19 for the foreseeable future, and the true impact on economies will not be truly understood for some time,” Allan says. “While not indicative of a return to normalization, the green shoots emerging in Mainland China might provide other economies with a window of how the first phase of a recovery will present.”

Click to read the full report on green shoots in China