Bounceback: the China experience

As the West grapples with increasing mobility restrictions to contain the virus’s outbreak, China has been through the worst and is gradually recovering – both physically and economically.

As of mid-March the number of new cases were in decline, and most of those emerging related to “imported” cases – from people newly arrived within China’s borders.

The primary reasons behind China’s successful containment of the outbreak were the draconian quarantine measures and rapid testing. These may prove more difficult to replicate in the West due to cultural differences – and limitation of resources.

For instance, China swiftly implemented a requirement to undertake rapid testing of any suspect case; immediate isolation of anyone who was a confirmed or suspected case – and then the quarantine of the patient and close contacts for 14 days.

By contrast, the UK government has said that it would only test for COVID-19 among people admitted to hospital; and that people with mild symptoms wouldn’t be tested but should stay at home.

This is a particular problem with COVID-19 because up to 80% of those infected may have only mild or moderate symptoms. Mobility restrictions in the UK and elsewhere – as opposed to China's response – have been more focused on self-observation rather than a strict, enforced lockdown.

The economic consequences of China's form of control are devastating but temporary. And history may  yet show they are the correct and necessary response.

Following China’s decision to put most regions, especially Hubei province, on lockdown, the country’s January-February economic indicators slowed significantly and broadly on the COVID-19 outbreak. Industrial production, retail sales and fixed investment contracted 13.5%, 20.5%, and 24.5% respectively year-on-year. However, as the virus’s spread became more clearly contained, we have seen evidence of normalisation.

March activity – based on data at the middle of the month – has seen broad improvements across many indicators. These include, for example, pick-ups in vehicular traffic.

Automobile traffic index

Car traffic: congestion level measures % increase in travel time compared with free-flow conditions


From the Chinese authorities we know that by March 17, the work resumption rate for small and medium enterprises had reached 60% and even 90% for some provinces outside of Hubei (the epicentre of the outbreak).

Passenger numbers are recovering fast


China’s use of stimulus

The Chinese stimulus measures are likely to prove more effective in putting the economy back on track than equivalents deployed in Western economies. This is because in addition to grand-scale monetary and fiscal measures, local government in China can provide highly targeted support. This can vary according to the urgency of local need. For instance, amongst the many measures announced, Hubei Province has set up a special fund amounting to 200 billion yuan ($28 billion) to alleviate funding pressure. It also adjusted the minimum capital ratio of infrastructure projects from 20% to 15% to improve investments in highways, railways and other projects.

Elsewhere Shanghai rolled out a subsidy plan for companies that were heavily impacted by COVID-19, while Heilongjiang province set up an “SME stability fund”.

Another differentiating factor between China and the West is that China has a large state – or quasi-state-owned sector, where employment is comparatively secure. In the face of a sudden halt in activity this limited potential job losses.

A culture of community

The Chinese people have a strong awareness of community. They are also culturally inclined to obey authorities, something which appears to have played a large role in the early containment of the contagion. With a population of 1.4 billion, across a very large geography including a number of large, high-density cities, the successful containment within a period of two months is a notable feat.

As the rest of world now follows with different – and perhaps belated – forms of lockdown, the economic costs in totality are becoming clearer.
If lessons can be learned from China, it is that strict containment works. After that activity can normalise – helped by fiscal and monetary supports.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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