The odds are rising that China will report a sharp deceleration in growth " or even a contraction in the first quarter as a result of the coronavirus epidemic.
The outbreak has paralyzed the country's manufacturing and service sectors, putting Beijing in the difficult position of either forgoing its economic growth goal for 2020 or returning to its old playbook of massive debt-fuelled economic stimulus to support growth.
The first available economic indicators showing the extent of the economic damage done by the epidemic have prompted economists to slash their Chinese growth forecasts.
Several are even expecting the once-unthinkable scenario in which China's economy posts a zero growth rate or even an absolute contraction compared to the previous quarter, even though the weakness is likely to be only short-lived.
A contraction in first-quarter growth would be the first since the end of the Cultural Revolution in 1976.
A report published by the East Asian Institute at the National University Singapore noted that China could report a contraction of 6.3% in the first quarter of 2020 as compared to the same period from 2019. The growth rate for 2020 is set to fall well short of the 5.6% needed by Beijing to meet its economic target.
If China still wants to achieve an average 5.6% growth for 2020, it would have to engineer a growth rate of as high as 12.7% in the second half of the year, according to Bert Hofman, Sarah Tong and Li Yao, the report's authors.
"The question is whether this is feasible and whether the consequences in terms of increased debt and potentially less productive investment are worth the price," according to the report.
The gloomy assessment followed larger-than-expected deterioration in the official and private sector purchasing managers' indices for both the manufacturing and services sectors.
China's headline year-over-year gross domestic product (GDP) growth rate has hovered in a narrow range between 6% and 7% for 18 consecutive quarters until the end of 2019.
A sharp dip in the otherwise steady growth trajectory in the world's second-largest economy would send fresh warning signs about the risks of relying excessively on China as a production base and consumption market, particularly for large multinationals from Hyundai to Apple.
An official recognition of an economic contraction, even a brief one, would break a long tradition of China reporting consistent growth to prove the Communist Party's ability to manage the economy and to rally the whole country to achieve one historical milestone after another.
President Xi Jinping insisted last week that China would realize the vision of building up a "comprehensively well-off" society by 2020, an inheritance from China's former paramount leader Deng Xiaoping and a major gauge of progress to realize Xi's grand "Chinese dream" by the middle of the century.
One important but loosely defined parameter for achieving a "comprehensively well-off" society is that the size of the economy at the end of this year will be double that of 2010.
To achieve that, economists calculate that China must achieve a 5.6% growth this year, although Beijing has been vague about the specific target. This now seems out of reach barring massive stimulus or a redefinition of the goal.
Louis Kuijs, head of Asia economics at Oxford Economics, said his group has cut its forecast for the year-on-year growth rate to 2.3% for the first quarter and 4.8% for 2020 overall.
Kuijis added that it would be next to impossible for China to make up the lost ground during the remainder of the year given the impact of the coronavirus on the rest of the world, particularly South Korea, Japan and Italy, who are all major trading partners.
"It would require massive, unreasonable amounts of stimulus, if it is at all possible, given the headwinds," Kuijs said.
Instead, it would "make much more sense" for the Chinese leadership to play down the need to meet the previously set economic target," he added.
Beijing's social and economic development targets for this year have not yet been made public, even though Xi has pledged that the government would still achieve them despite the challenge posed by the virus outbreak.
The full-year targets covering growth, employment and inflation are usually released at the National People's Congress, the ceremonial gathering of China's legislature in early March.
But this important annual event has been postponed owing to the threat of the coronavirus, which has infected over 80,000 people and killed more than 2,900 in the country as of Wednesday.
China's National Bureau of Statistics is due to publish first-quarter GDP growth data in mid-April. Other monthly data covering industrial production and retail sales for January and February are due next week.
They will offer a clearer picture of how much the coronavirus epidemic has damaged China's growth in the first two months of this quarter, although the damage it has caused in China and the rest of the world is hard to measure because the epidemic is still evolving.
Production among manufacturing companies across China, except in the virus epicenter of Wuhan, Hubei province, has gradually tried to return to normal, with firms that have close ties to local governments and access to financial resources resuming production faster than the much larger number of small businesses.
The latest data from China's industry ministry showed that only 32.8% of small and medium-sized enterprises had restarted production as of the middle of last week, an increase of just 3.2 percentage points from three days earlier.
But even among the larger enterprises the government is trying to help, many are not running at full capacity because of disrupted logistics that have impeded the delivery of raw materials to factories and finished products to customers.
A shortage of workers related to travel barriers erected to stem the spread of the virus, or local regulations that prevent factories from resuming full operations until they have implemented sufficient health safeguards, are also hampering efforts.
Foxconn, which assembles most of Apple's iPhones in China, said normal production is not expected to resume until the end of March.
China, though, has limited its economic aide policies to "targeted" fiscal and monetary moves, avoiding the massive stimulus it undertook in 2008 in response to the global financial crisis that led to the negative side-effects of high debt and unproductive investments.
China's ruling Communist Party has never reported a contraction in economic growth since the country started the reform and opening up movement in 1978.
Even in 1990, when China was hit by Western sanctions following the crackdown on the 1989 pro-democracy movement, the country still reported an annual growth of 3.8%.
In the history of quarterly GDP growth rates " China started to report such data in 1994 going back to 1992 " the lowest growth rate on record of 6.0% was in the third and fourth quarters of 2019.
The most recent year that China admitted to an economic contraction was 1976, the final year of the Culture Revolution and the year when chairman Mao Zedong died.
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