China's half-century of unrivaled economic growth screeches to a halt

A half-century-long period of economic growth in China screeched to a halt on Friday, when Chinese officials said that the world’s second-largest economy shrank 6.8 percent in the first three months of the year compared with a year ago. Yahoo! Finance's Akiko Fujita joins The Final Round to discuss.

Video Transcript

JEN ROGERS: Akiko Fujita, I want to bring you in here on this story out of China because we've had so many firsts and records as this pandemic has gone on. We found ourselves often in uncharted water. Right now, the data coming out of China shows China's official GDP is shrinking for the first time since 1976. And we have looked to all the data coming from there, whether it is economic or it is data on actual case counts and death, to see what we might have in store for us. Is there anything we can take away from this news?

AKIKO FUJITA: I mean, I guess the first thing to point out here is that a 6.8% decline is certainly a big hit to the Chinese economy. But a few days ago, we were talking about the IMF projecting an 8% decline. So I guess there's a bit of a well, maybe it wasn't as bad as expected.

Now, having said that, I think you want to look to not just Q1, but obviously the next few quarters to see how quick that bounce back is for China. All indications have been that the manufacturing sector is coming back up. We're seeing consumers go back out. We got some additional data from the state council overnight that said 99% of manufacturing has resumed, and about 80% of small and medium-sized businesses have opened back up. Obviously, anything we get from the government you want to take with a grain of salt.

But I think the next few quarters are really where you want to look for the numbers because, you know, number one, if we-- the Chinese economy continues down this path, clearly it will drag down other countries with it. But also I think it's interesting to see where China is right now compared to where things were back in 2008 when we saw that half trillion dollar stimulus. The Chinese economy more than-- GDP-to-debt ratio is more than 300% right now. So clearly, the Chinese government knows that it also has its limits on what it can do.

So the next few weeks potentially we could see additional stimulus, but I'm not so sure that you look at the two-- the Chinese economy and the US economy and say, this is exactly how it's going to play out. But you know, I mean, this is the kind of hit that we're going to see here in the US in the first quarter and the second quarter. And so I think, you know, we'll want to look to the next few quarters to see how quickly that bounce back is and how it compares to the US in that way.

JEN ROGERS: And Akiko, what are people saying about the bounce back in China? I mean, as I just said, New York Fed President Williams saying that, you know, not looking for 2020, that second half to be that strong, whereas, you know, just a couple of weeks ago, we still had people saying, we're looking for the V shape and the rest of 2020 to be better. Are the expectations for China to come out of this ahead of we do since they got hit first?

AKIKO FUJITA: I'm not so sure of the bounce back is going to be as quick and optimistic as we heard some analysts say here in the US, largely because of what I just said, that the banks have their limits. It's not like they have the kind of ammunition they did 10 years ago. And the fact that we've seen the Chinese government very slow to act, in terms of the stimulus measures, tells you how complicated the recovery is going to be, even for the Chinese economy.

Now, some economists will say, well, you want to look at the property market, given that it's collateral for about 40% of the loans in the banking system. And on that front, things are starting to come back. But again, I think it really does come down to the medicine, the vaccination. And what we've seen with the Chinese economy, even just weeks after the epicenter, Wuhan, opened back up is the government has doubled down on the restrictions for travel and the restrictions for going out because the second wave is still a big concern.

JEN ROGERS: All right, Akiko on the China side of this story.