According to a new report by Chinese and American researchers, the coronavirus pandemic could cost China the equivalent of 2.7 percent of its gross domestic product this year, while the economy could still expand by more than 8%.
According to a team from the Chinese Academy of Sciences’ Centre for Forecasting Science and the University of Kansas, the manufacturing and processing sectors are likely to bear the brunt of the effect, with the value of coal, ore, metal, energy, gas, and food producers projected to see their production fall by between 2.8 and 5.4 percent.The researchers said in a peer-reviewed paper published in China Economic Review on Saturday that sectors and companies that are closely connected to the global economy will be the hardest hit.
They forecast the total cost of the pandemic to China in 2021 at between 1.2 and 2.7 per cent of GDP. Based on the value of its economy in 2020 – 101.6 trillion yuan (S$21 trillion) – that would represent between 1.2 trillion and 2.7 trillion yuan.
Despite the potential costs of the health crisis, the country was still well placed to record strong economic growth this year, the study said.“China’s economy could achieve growth of up to 8.1 per cent in 2021,” it said.
Beijing imposed sweeping lockdowns in early 2020 after the coronavirus was first identified in the central city of Wuhan. The move cost it the equivalent of 3.5 per cent of its GDP in the year as thousands of businesses – especially those in the retail, transport, food and beverage, hospitality and other service sectors – saw their sales and profits slump, the study said.
The worst of the damage was recorded in the first quarter, but by the end of the year, the economy had stabilized to a year-on-year growth rate of 2.8 percent, down from 6% a year earlier.
According to the report, the biggest danger to China’s economy in 2021 would be “international price shocks,” led by professors Yang Cuihong and Cai Zongwu of the Centre for Forecasting Science.
They said that several countries had attempted to shore up their economies by printing large quantities of money, causing inflation and driving up the prices of commodities and raw materials.
As a result, many Chinese manufacturers, especially those serving developing countries, will face financial hardship because they would be unable to pass on price increases to their customers.According to the report, many of China’s largest regional trading partners, such as South Korea, Japan, and Southeast Asian countries, will be affected by the GDP downturn, as would Australia, the European Union, and the United States, though to a lesser degree.Despite the researchers’ predictions, an economist from Beijing’s Tsinghua University said that because of the dynamics of China’s and the global economies, using macroeconomic models to forecast developments was not an exact science.
“An unexpected twist of the pandemic such as mutation can bring a lot of uncertainties into their results,” said the person, who asked not to be named.Yang and Cai said their model consisted of more than 100 equations that simulated activity and interactions related to supply and demand, foreign trade and investment, fiscal policies and financial markets.
Before the pandemic, the model had predicted China’s economic growth with more than 90 per cent accuracy, they saidThe study’s forecast of 8.1 per cent growth in 2021 is in line with figures put forward by the International Monetary Fund and the World Bank.