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Wuhan shows the world how economies can recover

Three months after reopening its economy, Wuhan’s uneven recovery offers a glimpse of the difficult road back to normal for cities after containing the coronavirus.

In May, the city’s industrial production, retail sales and exports were nowhere near the same level as last year. This is despite some factories working during the blockade and normal activity resumed in April. Household consumption continued to lag behind production, mirroring the divergence observed across China.

The end of Wuhan’s quarantine on April 8 was a triumphant moment for China and an important demonstration of confidence that it had successfully contained the virus where the first outbreak occurred. Although factories and offices have returned to operation quickly, consumers are slow to return, with residents cautious and habits like cooking at home and shopping online persisting after the 76-day blockade.

As people began to venture more outside – with social detachment and temperature control becoming routine – the sudden appearance of a new outbreak in May put the city in focus once again. Restrictions have returned and the local government has tested the entire population of 11 million in just two weeks. Since then, the city has not registered a single case.

“The economic trajectory of Wuhan and the rest of China shows that the post-virus recovery will be rapid, albeit on a two-way street,” said Wen Bin, a researcher at China Minsheng Banking Corp in Beijing. “Small outbreaks of new infections are likely to continue to occur during the recovery, but are unlikely to affect the broader momentum of the economy.”

Recent torrential rains in Wuhan have also made it difficult to rebound consumption, Wen said. The rains and the resulting floods in southern China affected more than 30 million people and caused 61.8 billion yuan ($ 8.8 billion) in economic losses, according to China Central Television reported on Friday, citing data from the government.

The number of passengers on the Wuhan subway is still less than half the pre-virus level, although it is steadily increasing. One reason may be that people are choosing to drive instead of using public transport to avoid contact with strangers. Dealers told Bloomberg in April that they were seeing strong demand after the virus.

The authorities took a series of measures to stimulate growth, including 500 million yuan in shopping coupons, cash payments to some families and tax incentives until the end of the year. The government has also pledged to expand free trade zones in Hubei province, of which Wuhan is the capital, to attract investment back to the region.

Consumption habits

The mass testing campaign was also a major incentive to rebuild confidence, according to restaurant owner Xiong Fei, who operates five establishments in the city. His restaurants received the most customers in May the day after the test results were announced in Wuhan, he said.

“Even a small crisis can cause panic among people, which prevents them from dining out,” said Xiong, who has not yet reopened the five other restaurants he owns. Xiong said profits have dropped by up to 80 percent because he has to spend more money on marketing and promotions to attract hesitant customers.

On the other hand, the change in consumer habits is benefiting those who serve people who prefer to eat at home.

Yu Yang, owner of a factory that produces an instant version of “noodles”, returned to sell 7 to 8 thousand bowls a day, similar to before the virus. With more people buying the pre-made dish online, he expanded his online business and started selling in nearby Changsha.

Commercial dependency

Industrial center, Wuhan has seen an increase in international trade since the reopening. The value of Wuhan’s exports and imports increased 19.3% in May compared to the previous year, the fourth fastest pace in China, according to local customs data.

Orders for protective equipment and medical supplies helped drive the increase in shipments abroad, with masks and other textile products increasing sevenfold. Wuhan also houses technology companies, including memory chip giant Yangtze Memory Technologies and one of Lenovo Group Ltd.’s main plants, which helped increase imports of mechanical equipment like semiconductors and circuits by 21% in May.

But exporters who depend on consumer-fueled industries are suffering. Benny Xiao, director of international operations for Wuhan Boyuan Paper & Plastic Co., which mainly sells glasses to airlines and hotels, said his company did not have a single order from the US, Europe and Southeast Asia until at least August.

The outlook is better for Yao Jun, founder of Wuhan Welhel Photoelectric Co., which makes helmets and shields. South America’s orders for protective equipment doubled as coronavirus cases increased in the region, while its industrial customers in the US and Europe did not cut orders dramatically.

“Business is very good now,” said Yao. “Wuhan has finally come out of the fog of the virus.”

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