Second ‘Shock Wave’ Hitting Chinese Economy as Exports Plummet

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In Brief
  • Chinese workers are back in factories but demand has collapsed.

  • Factory owners are receiving massive cancellation notices.

  • Orders that remain are difficult to pay because of global banking closures.

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The COVID-19 pandemic began in the Wuhan province of China and caused massive economic problems. Workers unable to go to factories left the Chinese export market all but stopped.



However, as Chinese workers have returned to work after the scare, factory owners are finding that their businesses have dried up. As the virus has continued impacting the broader world, demand for Chinese exports has collapsed. [Bloomberg]



Shock wave 2.0

The massive decline in demand for exports has led to international companies delaying or canceling orders. While the Chinese workers are able to work, the factories themselves are without work.

This has created what may end up being the greater damage from the pandemic. The economic shock wave that tumbling demand can create will likely push impacts out from China to the rest of the world as well.

According to Larry Hu, Chief China Economist at Macquarie Group, the worst is still to come. He said:

“The worst is yet to come for exports and supply chain. For the whole year, China’s exports could easily fall 10% or probably more.”

Payment crisis

Even clients who are keeping export orders are suffering from payment struggles. Bank closures globally have left retailers with precious few ways to make payments to suppliers. This has left manufacturers with product they cannot release.

International payments are made far simpler with digital currencies. This simplicity has led to a potential use case for Bitcoin, as international banking connections are beginning to shutter with fears of the virus. However, Chinese economic authorities have remained averse to digital currencies that are not state-run.

Impacts

Chinese government officials suggest that new warehouses might be built to house the product. However, with so much excess production already in place, Chinese factories may eliminate workforce to protect profit margins.

Should Chinese production slow dramatically, a global recovery will take much longer. Production plans will likely be limited by the demand loss. Factory production will follow suit, leaving financial ruin in its wake.

Disclaimer

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With a background in science and writing, Jon's cryptophile days started in 2011 when he first heard about Bitcoin. Since then he's been learning, investing, and writing about cryptocurrencies and blockchain technology for some of the biggest publications and ICOs in the industry. After a brief stint in India, he and his family live in southern CA.

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