Chinese businesses are facing a liquidity squeeze as coronavirus outbreak ravages economy with Premier Li Keqiang calling for monetary easing ‘soon’

More than half of Chinese companies are facing a liquidity crisis as businesses saw declining sales after the coronavirus outbreak, underscoring the desperation for China's central bank to extend a lifeline to the business community.

Some 55 per cent of 480 corporate bosses in a Hurun Report survey said they were grappling with a cash crunch, while two thirds of them expected to report a drop in annual sales this year, according to the Hurun China Entrepreneurs Action Against Coronavirus 2020 survey in late February. Nine in every 10 said revenue fell in February, while one-third of them lost half of their business volume.

The virus originated from central Chinese province of Hubei in late 2019, forcing Beijing to keep more than 50 million people at home in more than a dozen cities and order factories to cease factory production temporarily to contain the epidemic. Those containment measures included closing down its major transport networks.

“Without enough cash to sustain operations, it is highly likely that a large number of small companies will collapse,” said Yin Ran, a Shanghai-based angel investor. “It will not be a surprise if many workers lose their jobs in the coming months.”

China’s cabinet has called for further reductions in the amount of cash some lenders are required to park at the central bank, as the government seeks to support the economy after reports since last month showed a slump in manufacturing, home sales and car sales, among others.

The State Council meeting chaired by Premier Li Keqiang wants reserve requirement ratio cuts “soon” so as to allow banks to fund small and medium-sized companies, according to an official statement. Additional cuts in the reserve ratios for joint-stock banks were also pledged at the meeting.

Both measures are aimed at releasing cheap capital back to banks to encourage them to lower the financing costs of enterprises. Usually such calls from the State Council herald action from the People’s Bank of China within days.