29 February 2020

Chinese shipyards resume production

The main state-owned Chinese shipyards began to return to work. Production was resumed by the vast majority of the local shipyards, including private companies. According to a report of the Polish Economic Institute, there are already clear signs of economic recovery in China.

On March 25th, restrictions on movement in the Chinese province of Hubei, where the coronavirus epidemic began, were lifted. Only the regional capital, Wuhan, will be closed down by the 8th of April. This decision has a symbolic dimension and is linked to a clear fall in the number of cases. Since 19 March, there has not been a single new case of COVID-19 in Hubei Province, and the incidence rate remains relatively low in China as a whole: according to official data, there were about 80 new cases per day on 17-23 March, while in the first half of February there were about 2,000 cases.

Due to the coronavirus epidemic in January and February, China’s industrial production dropped, according to official data, by 13.5% compared to the same period last year, and exports by 17.2%. Since mid-February, however, the first signs of a recovery in economic activity have appeared.

This is indicated, among others, by the growing demand for energy – the Chinese state media report that the consumption of coal by the six main production groups has increased to 76% of its pre-epidemic level (in the second half of February the consumption level was 66%). Data on the growing car traffic in China’s largest cities also indicate China’s economic awakening.

The start up of the industry is leading to a recovery in Chinese exports, as shown by the container indexes and the growing saturation of EU and US ports. It is difficult to estimate the scale of the recovery in small and medium-sized enterprises, which account for about 60% of Chinese GDP.

In mid-February, work was resumed by Chinese state-owned shipyards such as CSSC Huangpu Wenchong Shipbuilding, CSSC Dalian Shipbuilding Industry Co and CSSC Guangzhou Shipyard International, as well as shipyards of China Merchants Industry Holdings and Cosco Shipping Heavy Industry. Shortly afterwards, production was also launched in two major private shipyards – Yangzijiang Shipbuilding and New Times Shipbuilding.

According to the Seatrade Maritime News report, work has resumed in most of the Chinese shipyards. However, this is not a return to full production capacity as restrictive procedures and precautions related to the pandemic threat are still in place.

Statistics from the China Association of the National Shipbuilding Industry (CANSI) show that the workload rate in relation to the state before the outbreak of the pandemic is 75% in Fujian and Liaoning provinces, 66.7% in Zhejiang province, and 62.5% in Shanghai (however, it can be assumed that these rates have already increased, as the data comes from February 26).

Bao Zhangjing, deputy director of the China Institute of Marine Technology & Economy, forecasts that the volume of new construction sites in China will fall by 10%, from 75 million tonnes to 67.5 million tonnes.

The main challenge for China remains to avoid a return of the epidemic. Throughout the whole year, China may wait for a significant slowdown in growth. According to the OECD forecast, GDP growth will be below 5%. Moreover, for the export-led Chinese economy, the problem will be the decline in demand for Chinese products abroad, related to the development of the epidemic. It may also be difficult to handle container ships from China in European ports, which currently have reduced productivity due to the epidemic.

Beijing hopes that growing domestic demand will be the cure for the recession. Stimulating the economy, however, may increase the level of indebtedness of the Chinese economy, which is already suffering from the negative consequences of debt.

Beijing is trying to take advantage of the declining number of new coronavirus infections and the first news of economic recovery for an image offensive. Despite the fact that for several months the scale of the epidemic was covered up by the Chinese authorities and doctors reporting the new disease were repressed, Beijing is now trying to present itself as a leader in the fight against the pandemic. This includes the humanitarian and commercial supply of Chinese medical equipment to Europe, as well as the promotion of alternative narratives about the origin of the virus by the Chinese state media.

Source: PRC Embassy