BEIJING — The Chinese government is beginning to pour out billions to help those affected by the new coronavirus, and analysts expect more support for the economy overall is likely to come.
A pneumonia-causing virus emerged about a month ago in the city of Wuhan in the Hubei province. The disease has since killed more than 200 people and spread overseas, prompting the World Health Organization to call the new coronavirus a global health emergency.
The virus is beginning to disrupt China’s economy, although it’s unclear whether the impact will extend to the full year.
“We expect Beijing to introduce a raft of measures to provide liquidity and credit support for the economy,” said Ting Lu, chief China economist at Nomura, said in an email Thursday.
“However, we don’t think these (monetary and fiscal policy) measures would turn the economy around in the near term, as the virus outbreak may further weaken domestic demand and thus render the upcoming policy easing less effective,” he said.
After saying little about the virus when news of it emerged in late December, Chinese authorities have stepped up their response in the last two weeks.
Wuhan and many cities in the region are under quarantine. The national rail and aviation authorities announced the respective transit operators would refund tickets, primarily those for the travel-heavy Lunar New Year that officially began on Jan. 24. Rail trips on Thursday alone was down 77.6% from the same holiday travel date last year, according to state media.
Chinese citizens were also supposed to resume work on Friday, Jan. 31, but the central government extended the holiday by three days, and several provinces have postponed the resumption of business to at least Feb. 10. The nationwide delay alone could hit January and February industrial production by 1.5 to 2 percentage points, Morgan Stanley economists said in a note Tuesday.
And in contrast to comparisons with the short-lived economic impact of SARS in 2003, Larry Hu, chief China economist at Macquarie, said there are three differences in China today. Consumption plays a far bigger role in the economy than it did then, the property market is already under pressure and global demand for Chinese goods is not as strong, Hu said in a report.
Back in 2003, the Chinese economy was the sixth-largest in the world versus the second-largest today, and in a period of increasing growth. Official, although frequently questioned, figures showed China’s GDP expanded by 9.1% in 2002, 10% in 2003 and 10.1% in 2004. In recent months, the rate of quarterly GDP growth has slowed, bringing China to 6.1% growth last year.
Rolling out subsidies
China’s Ministry of Finance said that as of 5 p.m. on Wednesday, finance ministries at all levels of government have issued 27.3 billion yuan ($3.94 billion) in subsidies for the prevention and control of the virus.
On Thursday, the finance ministry and National Health Commission also made public a plan for authorities to cover the personal costs incurred by those with confirmed cases of the virus, as well as subsidize medical personnel and other workers in virus prevention with 200 yuan to 300 yuan each a day.
To help alleviate what officials have called a “severe shortage” of medical supplies, many Chinese factories have remained open despite the Lunar New Year holiday — and receiving government support to do so.
Shandong-based face mask and protective suit manufacturer, Sanqi Medical, said in a statement to CNBC it has more than 200 employees working around the clock. They’re receiving a salary of 200 yuan a day, in addition to an unspecified amount per piece, with a government subsidy of 100 yuan ($14.50) per worker, per day, the company said.
“On the fiscal policy front, we believe Beijing will be bolder on fiscal deficits and increase the transfer of central govt revenues to affected local govts, especially for supporting medical services and medical instrument production-related projects in the near term,” Lu said.
He expects the government to raise its fiscal deficit target for the year from 2.8% of GDP in 2019, to 3% this year. Lu also forecasts Beijing will substantially raise the quota for net local government special bonds to 3.4 trillion yuan this year, up from 2.15 trillion yuan last year.
Monetary policy support
The People’s Bank of China said in an online statement Tuesday it will use open market operations and other monetary policy tools to ensure sufficient liquidity, in light of the delayed resumption of the market open to Monday.
“In our view, RRR cuts, rate cuts, various lending facilities, and open market operations all are possible options,“ Lu said.
”We believe the PBOC may also roll out some targeted credit-easing measures to help corporates and households that are likely to suffer more from the virus outbreak.”
Earlier this week, China’s Banking and Insurance Regulatory Commission also encouraged financial institutions to support businesses and households affected by the virus, with a number of measures such as lowering loan interest rates for distressed enterprises.
In the face of increased economic pressures, China will likely need to add to its debt levels, especially since Beijing has been trying to boost financing to privately run businesses. These firms account for the majority of growth in China, but often have a more difficult time than state-owned enterprises in accessing financing from the major state-owned banks.
“The fact that coronavirus is set to hit the economy hard this quarter does not lessen Beijing’s worries about funding for private firms and SMEs; in fact, the coming hit to demand will exacerbate them,” Leland Miller, chief executive officer of China Beige Book, said in an email. The firm publishes a quarterly review of the economy based on a survey of more than 3,300 Chinese businesses.
Survey data has pointed to an increased use of less regulated “shadow lenders” in the last half year, and Miller expects the trend to pick up under the stress caused by the virus.