Introduction

The outbreak of Covid -19 pandemic has resulted severe negative implications to all nations
in an enormous way. The complete shutdown of global markets has brought economic and
social life to a standstill. The covid -19 pandemic is not only the most serious and devastating
global health crisis since the 1918 Great Influenza, but is set to become one of the most
economically costly pandemics in recent history. The globally synchronized lockdowns and
trauma of financial markets has led to an unpredicted economic stop and macroeconomic
shock to one of the largest economies of the world, which is non other than China. The
outbreak of the pandemic has led to multi-sectoral impact as all the major economic activities
of China beginning from manufacturing sector to foreign trade and labor markets have
experienced a huge macroeconomic shock. Covid -19 has brought unpredicted challenges to
Chinese economy. Although China brought the pandemic under control yet it experienced
first negative quarterly economic growth since 1922. For the first ever time China’s GDP
growth rate declined to -6.8% in the year as per National Bureau of Statistics, 2020. Among
the multi sectoral impact the local industrial and manufacturing sector has witnessed a
negative growth rate of -18% as compared to last year. The retail, real estate and travel are
the three biggest sectors in Chinese economy which has witnesses a negative macroeconomic
shock. A lot of people in these sectors have either been furloughed for a temporary period or
lost their jobs completely. The IS-LM model provides us the graph which shows the
relationship and trend how the virus has impacted the sectors of Chinese economy and its
correlation with all variables.
Consequences of Covid -19 on Chinese economy
 Effect on export, import and foreign trade

The outbreak of the pandemic has led to slowing down of consumption and investment on an
average level which has a direct impact on decline in exports and imports of China. Since the
first month of 2020, when the situation in China becomes uncontrollable, many trading
nations implemented policies that prevented any means of export and import from China. The
first policy implementation was from the side of U.S government which said “No entry” and
“No Air traffic” which further worsened the figures of foreign trade. This decline made the
cooperation difficult and put China in tough times as there was continuous cancelation of
orders and import goods being constrained, leading to additional difficulties for modest
manufacturing industries of China. Chinese exports to overall world declined by 4% YoY
(Table 1). The manufacturing exports which make up the largest proportion of Chinese
exports declined by 18% (Table 2). The decline in export is consistent with widespread
lockdowns having a negative impact on industrial production. The asymmetric impact on
China’s export and import caused a reversal in trade balance of China, as the surplus of $42.5
billion in 2019 fell to deficit of $7.1 billion in 2020. U.S and Japan are known as the largest
trading partner with China as it records largest volume of bilateral trade since last decade.
Although being the largest trading nations trade reports from US and Japan shows continuous
decline in exports as it decreased by 4.7%. China’s import has declined too but the aggregate
drop is smaller than exports. The machinery and electronic industry which have largest value
in China’s import basket, were limited to 3.8%.
  Effect on Unemployment

Although being one of the biggest economies of the world, China witnessed worst
economic shrinkage due to sluggish domestic consumption amid the pandemic. The
closing down of factories, small scale business enterprises and companies forced people to
leave their jobs and unemployment broke out in the country where about 70 to 80 thousand
people lost their jobs. According to National Bureau of Statistics, the rate of
unemployment rose to 6.2% corresponding the urban national survey. The rising
unemployment rate led to decline in the nominal income and slowed the rate of economic
growth and per capita income of the people. This brought negative effects to Chinese
economy. Trends from the labor market as a whole is evident enough to show the rising
unemployment. Between January and February 2020, the urban employment rate jumped
from 5.3% to 6.2% which was the peak, although it fell to 5.9% in March. The total
employment decreased by 6% between January to March, while 18.3% of total unban
population were down-sized.

 Impact on HealthCare systems and medical supplies

The outbreak of the Covid -19 pandemic had laid down deep and negative implications on the
health care system of China. Firstly, the community hospitals failed to act as gatekeepers and
as a result the epidemic reached to a state of community transmission. Improper functioning
of community hospitals has led to public distrust in quality of diagnosis and treatment
provided. Secondly, health care workers could not meet the massive influx of patient available
with the increasing spread of virus. With rising cases, there was extremely difficult working
environment for the front-line workers as there was dire shortage of PPE kits. Besides a study
revealed that 50.7% of the workers suffered from emotional exhaustion in form of fear,
anxiety and depression. Lastly, there was dire deficiency of medical resources in China. As
the epidemic progressed, the entire tertiary and secondary health care systems of China
experienced a serious shortage of ventilators, masks, isolation gowns and majorly hospital
beds and essential medicines. The scare supply of qualified medical resource increased the
burden. We can also say that once the pandemic is under control there is full space of
development of pharmaceuticals industry because of increased awareness of the people.

 Impact of Covid -19 on Local Industries Sector

China has always been known for holding its biggest manufacturing and retail industry in the
world. The outbreak of the virus forced the government to impose lockdowns and restrictions
across the states which had strong negative impact upon the industries such as manufacturing,
catering and retail and tourism industry due to low volume of commuters. The closure of
industries led to downfall of overall GDP as the secondary sector holds a major proportion of
China’s GDP.

o Manufacturing Industrial sector

The manufacturing industry of China has been a major catalyst in capitulating its economy to
new heights in the pre-covid era. The Covid -19 crisis limited the mobility and slowed down
the global demand leading to a supply shock due to which the manufacturing sector faced an
economic loss of USD 50 billion. The pandemic resulted cancelation of many orders as there
was complete shutdown of logistics and other departments leading to fall in demand of
intermediate goods. The Purchase Manager Index for the manufacturing industry falls by
2.1% and the external demand fell by -16% shock which had a huge impact in GDP.
 o Catering and Retail industry
The catering and retail industry of China received a severe blow, when the government-
imposed lockdowns and ordered people to stay at homes to minimise the outbreak. The
liquidity and solvency of retail business in accordance to rent, human resources and
inventories is negatively affected in terms of high interest debts and financial loses. As per the
reports, more than 90% of the restaurants and retail shops witnessed revenue drops over 50%
a year, and 94.6% of catering and restaurant services saw less than half customers to last year.
Capital shortage and loss of employee resulted macroeconomic shock by lowering revenues
by 44.2% in first quarter.

 Impact on the Tertiary Sector – Transportation and Services

The transportation and service sector are the second largest contributor to the Gross Domestic
Product of China. Due to the government-initiated lockdowns and fear of contacting and
spreading of virus, there has a huge negative shift to transportation demand. The crisis has
mainly affected the aviation industry, and the data from Ministry of Transportation, China
reveals that passenger traffic including roadways, railways and aviation amounted 190
million, a huge number as it sounds but a massive decrease of 73.2% as of 2018-19. The
beginning of 2020 shows passenger traffic in first 27 days of lockdown fell by 35% as of
2019. This resulted massive setback to overall growth and contraction in tertiary sector of the
economy.