Measuring China’s COVID-19 Recession

This may be the best real time estimate yet on what COVID-19 has done to the Chinese economy. China’s power plants run mostly on coal. China’s coal consumption appears to be down between 20 and 45%.

This is measured in days since the Chinese New Year, which fell on January 25 this year. So, they’re usually down for about 10 days after that, and this slowdown has stretched on for almost a month now.

To get that to GDP we need to know China’s energy elasticity. A plausible value for any country is around one, estimates from 15 years ago suggest 1.5 is more suitable for China. Here’s the back of the envelope calculation:

• Choose a round number for China’s GDP like $20,000B/yr
• Coal consumption is down 20% to 45%
• The elasticity suggests a hit of 30% to 70% for GDP
• That’s $6,000B/yr to $14,000B/yr if it’s a discrete jump. It isn’t, so looking at that typical slope showing recovery by about day 25 in most years, that slope suggests effects so far that are perhaps half of that as China built up to a sustained shortfall.
• This shortfall is new and gradual, let’s say it’s about 1/25th of a year so far (about 2 weeks). That converts to a GDP loss of between $120B and $280B so far, or –0.6% to –1.4% of annual GDP in total.
• China’s economy in 2020 is roughly the size of the U.S. economy in 2008-9. During the worst parts of that recession, the U.S. economy was off $20B in 2008 III, $85B in 2008 IV, and $45B in 2009 I.

All of these numbers are sketchy, but the suggest that the effect of COVID-19 on China over a few weeks is already comparable to what a large recession did to the U.S. in a few quarters.

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