As China’s first quarter gross domestic product (GDP) dropped by 6.8%, the first decline since 1992 when quarterly data began to be reported, amounting to CNY1.44 trillion in lost output, equivalent to the entire New Zealand economy in 2018. Although no quarterly figures were released before 1992, it could also be the first contraction since 1976. This foreshadows the enormous damage the Covid-19 pandemic could inflict on the global economy as a whole.

While many paint a dark picture of the Chinese economy going forward, and some even say that its four-decade growth miracle has come to an end, Chinese officials, economists and ordinary citizens alike offer a more balanced and nuanced reading of the data: the short-term pain is enormous, but the country remains resilient in the face of an unprecedented challenge, and economic expansion still has huge potential as the recovery accelerates, the Global Times reports. The economy expanded by 6.4% in the first quarter of 2019

Commenting on the Q1 contraction, Guan Tao, a former senior official of the State Administration of Foreign Exchange (SAFE), told the Global Times: “It’s no surprise at all. In fact, it falls right in the range of market expectations,” pointing to contractions in every sector of the economy from agriculture to manufacturing to services, as well as the evaporation of domestic consumption, investment and foreign demand. Manufacturing recorded the biggest decline of 9.6% year-on-year, followed by the services sector with a 5.2% fall, and a contraction of 3.2% in the primary sector. On the demand side, retail sales fell 19%, fixed-asset investment (FAI) dropped 16.1% and exports slid 11.4%. Nationwide, urban unemployment stood at 5.9% as of the end of the first quarter, though improving in March from the all-time high of 6.2% in February. China’s average individual disposable income declined by 3.9% during the first quarter.

Improvement was detected in March. Fixed-asset investment rose 6.05% from February. Some advanced manufacturing and high-tech services sectors saw even sharper increases, such as e-commerce. The decline in retail sales narrowed by 4.7 percentage points in March, compared with the first two months, including a 5.9% gain in online sales of physical products. The decline in total trade also narrowed by 8.7 percentage points to 0.8%. Most analysts said that the economy has already returned to expansion in the current quarter. Looking at the full year, China could compensate for the loss in the first quarter and record a 3% growth, Cao Heping, Economist at Peking University, told the Global Times. The IMF earlier last week forecast a 1.2% rise for China’s GDP in 2020 and 9.2% in 2021, compared with a 5.9% contraction in the U.S., a fall of 5.2% in Japan and a 7.5% decline in the euro zone this year.

Prior to publication of the Q1 GDP figure, 18 out of 20 prominent economists told the Global Times that China’s economy was likely to contract in the first quarter as a result of a sweeping halt in activity, the nation’s slow recovery of business operations, and a sudden slump in global demand because of the Covid-19 pandemic. They predicted a contraction ranging from 3% to 8%, but also foresaw a quick rebound starting in the second quarter as the country has basically contained the virus and the impact on domestic economic growth has been brought under control.

Chinese businesses have resumed normal operations at a much faster pace than anticipated, thanks to the timely measures enacted in the country to curb the novel coronavirus outbreak. By April 14, China’s major industrial enterprises had an average work resumption rate of 99% and 94% of the employees have returned to work, said Xu Kemin, an official with the Ministry of Industry and Information Technology (MIIT). Small and medium-sized enterprises (SMEs) had a work resumption rate of 84%, up from 76.8% at the end of March.

Foreign direct investment (FDI) in the non-financial sector fell by 10.8% on the Chinese mainland on a yearly basis to CNY216.19 billion in the first quarter of this year, the Ministry of Commerce (MOFCOM) said. FDI flows in March declined 14.1% on a yearly basis to CNY81.78 billion. Given the uncertainties in global markets, multinational companies have no plans to cut their investment plans in China as the country has been recovering more steadily from the epidemic and started exporting goods to other parts of the world, Ma Yu, Researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing said. China will see more FDI inflows in sectors like medical products, pharmaceuticals and high-tech industries until next year, added Ma. Information services saw 28.5% year-on-year growth in FDI flows, while e-commerce businesses notched up gains of 62.4% on a yearly basis, the China Daily reports. As of April 14, 72.8% of 8,700 surveyed major foreign enterprises have a business activities resumption rate of more than 70%.

China has not and will never see large-scale withdrawal of overseas capital, despite the impact of the coronavirus pandemic on foreign companies in China, Gao Feng, MOFCOM Spokesperson said. “The current global industry chain wasn’t formed in a short span of time and won’t be randomly changed by a single person or country,” he added. Gao stressed China’s unchanged attraction for foreign companies when asked to comment on recent media reports that the U.S. and Japanese governments had rolled out plans to pay for their companies to move out of China. A report by the American Chamber of Commerce in South China showed that 75% of the surveyed companies said the coronavirus wouldn’t change their plans to invest in China.

Contrary to expectations, the coronavirus outbreak did not hamper capital flows into the Chinese capital market. During the January-to-March period, foreign investors increased their holdings of onshore bonds by 48% from a year earlier, an increase of USD16.7 billion, while the market sentiment remained largely optimistic, according to the State Administration of Foreign Exchange (SAFE). The foreign exchange market is expected to remain stable this year, despite the external headwinds. China has no plan to decrease the foreign debt leverage, or the proportion of money borrowed from overseas in proportion to its GDP.

The latest IMF forecasts suggest that the global economy will contract by 3% in 2020, its worst performance since the Great Depression. The U.S. economy will contract by 5.9% this year, while China is seen growing by 1.2% in 2020. “China is likely the only major economy that will squeak out positive GDP growth for 2020,” David Chao, Global Market Strategist for Asia-Pacific, excluding Japan, at Invesco, said. “Whether that will be 1% or 3% is very much dependent on the government’s policy – specifically any additional fiscal stimulus packages that will drive growth in the second half.”

China’s market-based benchmark lending rate was lowered on April 20, another sign that the country is determined to channel funds into the real economy via a more flexible monetary policy, analysts said. The one-year loan prime rate fell 20 basis points from a month earlier to 3.85%, while the above-five-year LPR fell 10 basis points from the previous reading to 4.65%, according to the National Interbank Funding Center run by the People’s Bank of China (PBOC). Including the last reduction, China’s one-year LPR has dropped by a total of 40 basis points since last August.

This summary was compiled based on reports by the China Daily, Shanghai Daily, Global Times, the Guardian and the South China Morning Post.