COVID-19 - trade impact on the machinery sector by market 2020

Currently, China manufactures about 20 percent of intermediate products traded in the global supply chain and Chinese products represent a critical part of the global value chain of the electrical machinery sector. For this reason, the disruption caused by COVID-19 in China alone is expected to reverberate on the economy of many other countries worldwide. In the European Union, the electrical machinery industry is expected to lose about 1.2 billion U.S. dollars from a two percent reduction in China exports of intermediate inputs. The European chemical and automotive sector are also expected to suffer similar impacts.

China's role in the global economy

Since the beginning of the 1990s, China started to open up its markets with attractive incentives to foreign investors. Three decades later, the country has become the second-largest economy in the world with the highest absolute catch-up effect observed during this time span. For instance, between 2003 and 2019, China's semiconductor consumption market share increased at a high pace, reaching 60 percent in 2019. Besides, the export value of machine tools from China reached roughly four billion U.S. dollars in 2018, up from 1.4 billion U.S. dollars in 2009. With solid economic strategies, the country could quickly reduce the wealth gap with the developed countries. At the moment, the country is highly specialized in various industries and continues its progress to strengthen its international export position. China’s exports of high-tech goods represented 27 percent of its total exports in 2018.

Impact of COVID-19 on the Chinese economy

For the first time since the 2000s, the Chinese real gross domestic product (GDP) experienced a negative growth rate in the first quarter of 2020 because of the coronavirus (COVID-19) pandemic outbreak. The economy is expected to grow only by one percent in 2020. Yet over the past few years, the average annual real GDP growth rate in China was around seven percent. To take a closer look at how the COVID-19 pandemic affected the Chinese economy, a multidimensional approach is necessary since the country has a vastly diversified economic activity. For instance, between January and February 2020, the total industrial production in China declined by 13.5 percent compared to the previous year. But Chinese industrial production started to recover quickly. By April 2020, the total industrial production in China reached a positive year-on-year change, roughly 3.9 percent. Although the country experienced a large economic shock caused by the coronavirus outbreak, it started to recover quickly thanks to strong economic policy responses. By the fourth quarter of 2020, the Chinese business and government purchases of technology goods and services are expected to grow by about seven percent.