China Turns To State-Controlled Enterprises to Cushion Economic Shock

China_state expansion

As private manufacturers in China struggle to restore production, most of the country’s 20,000 industrial companies controlled by the central government have increased production of masks, medicines, steel, heavy machinery and other products to maintain employment.

China State Construction Engineering Corp. in Wuhan, for example,  created more than 20,000 jobs for construction workers, engineers and others to build two hospitals.  Other state enterprises provided power and construction materials. In about 10 days, a 1,000-bed hospital and a 1,600-bed facility opened.

In addition, to order to further cushion the demand shock, state firms reduced electricity bills and lowered rents.  Chinese state-controlled banks have issued hundreds of billions of dollars in low-cost loans.

The question now is can China’s system generate a sustained economic recovery, given the almost certain global recession, which will weaken demand and further hurt Chinese manufacturers already reeling from the U.S.-China trade war.  China will most likely have to tolerate a much lower growth rate for the next six quarters.

In the long-term, the country’s top-down emergency response threatens the market reforms many agree would advance China’s economy.  Ditto for the United States.