Advertisement
Advertisement
Central banks
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
View of a semi-deserted commercial street in Beijing on March underscores the financial distress experienced by a majority of respondents in Hurun survey. Photo: EPA-EFE

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 480 corporate bosses are grappling with cash crunch after sales dwindled amid viral outbreak: Hurun Report survey
  • Nine in every 10 respondents saw lower sales in February, one-third of them has lost half of their business volume

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.

China’s car sales post biggest monthly drop ever as coronavirus hits demand

“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.

Coronavirus: China set to cut interest rates along with other countries to offset Covid-19 damage

“We expect the PBOC to rotate between cuts to the reserve requirement ratio (RRR) and medium-term lending rate in [the] near-term,” Ding Shuang, chief Greater China and North Asia economist at Standard Chartered in Hong Kong, wrote in a note. “With the upcoming targeted reserve-ratio cut in March, the PBOC may choose to cut the medium-term lending rate in April.”

The projected RRR cuts will inject at least 300 billion yuan ($43.1 billion) into the banking system, he said, while the window for a benchmark deposit rate cut will only open in the second quarter. Additional reduction for joint-stock banks is not expected.

It indicates increased efforts to help small and medium-sized banks, as their clients are mainly small companies and the quality of these banks’ assets has deteriorated since the virus outbreak, according to Wen Bin, a researcher at China Minsheng Banking Corp in Beijing.

Coronavirus: China manufacturing collapse confirmed as private sector factory survey hits record low

At the State Council meeting, Li also called for a shortening of the so-called “negative list” that marks areas foreign companies are forbidden from entering. China will actively prepare for the Canton Fair, slated to open this spring, even as worries about the coronavirus epidemic is still mounting.

Hurun Report said the epidemic has imposed extra expenditure on companies, having to buy protective gear and pay extra costs for logistics services.

Rupert Hoogewerf, chief researcher and chairman of Hurun Report based in Shanghai, said companies would need to cut costs and be innovative in wading through the current economic turbulence.

“Companies which can survive the epidemic will prove to be more efficient in operation,” said Hoogewerf. “Many of them will arrange remote work, slash unnecessary expenditure as well as actively innovate on products and services to minimise the negative impact from the epidemic.”

This article appeared in the South China Morning Post print edition as: Firms’ cash crisis highlights need for PBOC lifeline
Post