China talks up post-virus rebound as world economy shuts

China’s government is talking up the prospects for a rapid economic rebound from the coronavirus, even as the global economy sees further lockdowns to curb the spreading disease.

Since Friday, Premier Li Keqiang, who leads economic policy making, and a senior central bank official, have pointed to the control of the outbreak and the resumption of activity as reasons for optimism with regards to China’s outlook.

At the same time, the nation is facing the risk of further job losses and slumping external demand as the US, the UK and the European Union all tighten restrictions on human activity as the virus exacts a rising death toll.

Economists expect China to post the slowest growth since the end of the Mao era this year.

“Economic indicators will likely show significant improvement in the second quarter and the Chinese economy will return to its potential output level rather swiftly,” People’s Bank of China Deputy Governor Chen Yulu told reporters in Beijing on Sunday.

Chen signalled that the government would continue its current moderate stimulus policies.

Consisting so far of adjustments to tax policy, trimmed interest rates, cheaper loans, and extra liquidity, China’s actions are in stark contrast to the trillions of dollars in fiscal support and steep cuts to interest rates being enacted in the US and Europe.

On Friday, Premier Li Keqiang said the government would “optimise” policies to help the rebound and ensure stable employment. He also earlier said that most of China is now considered to be at “low risk” from the virus and should return to normal work and life.

There’s indeed evidence that factories and workplaces are increasingly “back to normal,” with Bloomberg Economics estimating that 85 per cent of activity has returned, excluding the centre of China’s outbreak, Hubei province. People will continue to return to work but at a slower pace, as levels in the industrial sector are near normal, David Qu of Bloomberg Economics wrote. “The focus is now on tertiary industries and smaller manufacturing firms. The demand side, though, may be a constraint, particularly for the services sectors.”

Consumption

The return rate for services such as restaurants and hotels was at 60 per cent, according to the commerce ministry last Thursday, lower than for industrial firms.

In addition, almost half of China’s listed consumer companies do not have enough cash to survive another six months, with restaurants in the worst shape as the coronavirus outbreak has kept consumers at home, according to data compiled by Bloomberg and company reports covering 50 listed firms.

Consumption activity was about 1.5 trillion yuan ($211 billion) lower than normal in January and February, according an article in the People’s Daily Monday by Sheng Laiyun, a senior official in the statistics bureau.

Tourism, hotels, transport and entertainment were among the worst-hit sectors, he wrote.

Almost 70 per cent of key export and import firms have resumed work, with production capacity above 70 per cent, the Ministry of Commerce said last Thursday. However, workers might be returning to the production line just in time for a major hit to demand coming from the developed economies that are now shutting down.

It remains to be seen whether Beijing has done enough to save the legion of small businesses in China that form the backbone of employment.

The government will make “every effort” to ensure the survival of those firms, Li said Friday according to a statement.