<p class="p1"><span class="s1">The Chinese economy shrank by nearly 7% during the first three months of 2020, officials reported this week.</span></p>
<p>To compare: <span class="s1">China’s economy grew by 6.4% during the first three months of 2019 even though it was locked in a trade war with the Trump Administration.</span></p>
<p class="p1"><span class="s1">“A 6.8% drop in GDP is an extraordinary shock to the Chinese economy, and by implication the rest of the world,” notes Richard Pearson, director of investment platform EQi.</span></p>
<p class="p1"><span class="s1">China also reported a 1.1% decrease in industrial production, a 15.8% drop in retail sales, a 16% decline in fixed asset investment, and a 6.4% reduction in imports and exports. Unemployment reached 5.9% in March. </span></p>
<p class="p1"><span class="s1">The economic shrinkage &#8211; China&#8217;s first in 28 years &#8211; is a direct result of the lockdowns, production freezes, and other strategies designed to halt the spread of COVID-19. Similar economic damage is expected in other major countries grappling with the virus, but China is particularly vulnerable to the disruption given its reliance on exports. </span></p>
<p class="p1"><span class="s1">“The GDP contraction in January-March will translate into permanent income losses, reflected in bankruptcies across small companies and job losses,” notes economist Yue Su. </span></p>
<p class="p1"><span class="s1">Miguel Chanco, a senior Asia economist at Pantheon, predicts China will experience a full-year contraction in 2020 but doesn&#8217;t expect China to report it </span><span class="s1">(Beijing hasn’t reported a full year of decline since the 1970’s).</span></p>
<p>The fact that China is even reporting the 6.8% decline implies they could be in much worse shape. <span class="s1">China has reported economic growth of roughly 9% per year for the past 20 years, but experts believe the true figure is closer to 5%.</span></p>
<p class="p1"><span class="s1">Just this week, China revised its COVID-19 death toll for the city of Wuhan from 2,579 to 3,869 &#8211; yet another indicator that China attempted to downplay the severity of the virus. </span></p>
<p class="p1"><span class="s1">Overall, China has reported 80,000 infections and more than 3,000 deaths (true figures are expected to be much higher). </span><span class="s1">Officials are working to gradually restart the economy, but fears of a second wave of infections have spurred some regions to implement new restrictions. To date, China’s borders remain closed to most foreigners and international flights are limited. </span></p>