Signs of a China recovery in coronavirus battle

Xi Jinping in front of a poster saying ‘Race against time, fight the virus’ during an inspection of a disease control centre in in Beijing Picture: AP

Chinese President Xi Jinping this week visited Wuhan, the epicentre of the coronavirus outbreak in China.

Xi visited the military-operated Huoshenshan Hospital, one of the hospitals constructed weeks ago to deal with the crisis.

He met with staff at the hospital, but didn’t meet face to face with patients, speaking to them by video link.

His visit to a city that has been in lockdown since January is enormously significant for those in the West trying to assess the long-term impact of the coronavirus crisis.

There seems little doubt that the spread of the virus globally, and the associated shutdown of activities and travel around the globe, will result in a global downturn, if not a recession this year.

It’s almost impossible to think that Australia will escape a recession this year.

That said, business, political and community leaders need to keep their heads about taking drastic steps, such as large-scale lay-offs of workers, and keep a close watch on developments in China to assess the length of the crisis.

Is Xi’s visit to Wuhan, which comes as new incidents of the virus in China continue to fall, a precursor to Beijing lifting its lockdown of Hubei province?

His visit was accompanied by commentary from Hubei’s newly appointed party leader, Ying Yong, as reported in the local press, that officials needed to prepare for business to return to normal in the city. The last of the hastily built temporary hospitals built in Wuhan to handle patients with mild symptoms, including those in sports stadiums and ­convention centres, have now closed.

As one Chinese commentator quoted in the South China Morning Post noted on Tuesday, Xi’s visit marks a belief by the Chinese leadership that a “fundamental turning point has been achieved in China’s coronavirus battle”.

But even if that is the case, how quickly can China — where more than 3000 people have died from the virus and the total number of cases is 80,000 — get back to business as usual?

The short answer it that it will take some time — months even — before it happens.

But, knock on wood, there are signs that China appears to be moving past the worst of its crisis.

Swedish furniture company Ikea has now reopened five of its 30 stores in China, having closed them all last month.

In an interview with The Australian on Tuesday, Fortescue Metals chief executive Elizabeth Gaines said the miner was still producing its iron ore in Western Australia “at full pelt” and there had been no downturn or interruption of shipments to Chinese steel mills.

That said, she was closely watching the blowout of inventories at China’s steel mills, from normal levels of around five to seven million tonnes, to current levels of about 30 million tonnes.

If activity does not pick up, the question is whether the steel mills decide to cut production and run down inventories, reducing demand for iron ore.

The real proof will be when all Chinese factories have reopened, travel within China returns to normal and schools resume.

The West is watching closely for signs of improving activity in China.

But as the former head of the Federal Reserve board in Dallas, Richard Fisher, told The Australian on a visit to Sydney this week, the proof will be not in the official economic statistics released in China, which are often questionable, but in what is really happening on the ground there.

One technique the West uses to monitor economic activity in China is using satellite pictures to check the amount of electricity being used across the country.

With Chinese leaders always keen to put a brave face on its economic situation, as he pointed out, some factories have been ­ordered to keep their lights on even if they are not working.

It is not out of the question that Chinese leaders may respond to the economic crisis with a renewed stimulus package later in the year, including more infrastructure building.

The immediate crisis is the now drastic shutdown in economic ­activity in the West in response to the virus.

Italy’s decision to move the whole country into lockdown is another unprecedented event, signalling that the crisis is moving to a borderless Europe.

There could well be many small businesses in Australia and around the world that go under in the coming recession unable to withstand the sharp drop in business.

Some sectors will continue to be hit very hard, including the airline and travel industry.

Qantas chief executive Alan Joyce has predicted that some regional airlines may fail as global air travel, particularly within Asia and to and from Asia, has all but shut down.

The good news this week is that policymakers in Australia and the US are now stepping up to the plate and taking the situation seriously with plans for targeted fiscal stimulatory measures.

Central bankers around the world have also learned from previous crises the importance of being prepared to stand by with extra liquidity.

The key for leaders having to make big decisions is to look through the hysteria, watch events in China closely, keep a cool ahead about the severe but short-term economic downturn ahead and pressure policymakers to take the necessary decisions to allow the economy to get through the next few difficult months.