Coronavirus crisis: at this rate, how is China’s economy going to recover lost ground?
- The latest consensus forecast for the Chinese economy is rather upbeat, and must reflect expectations of further stimulus measures. However, the government’s virus containment efforts continue to hamper the resumption of economic activity
Even assuming a quick resolution to the crisis, followed by a decent recovery, the Chinese economy will probably struggle to deliver growth much higher than 5 per cent.
To the extent that much of China’s macro outlook will be driven by the epidemic, it is encouraging to see some progress in the fight against the coronavirus.
However, a rapid containment of the coronavirus is only a necessary, but by no means sufficient, condition for the realisation of the upbeat consensus forecast. Two other conditions are necessary: namely, an orderly resumption of the economy, and sufficient policy support.
On the first point, there are fewer reasons for optimism. The draconian restrictions imposed by Beijing to contain the outbreak continue to hamper both the movement of people and the resumption of economic activity.
Daily data on traffic congestion, coal consumption and property sales confirm this trend of economic anaemia, even a month into the new lunar year.
With regard to economic growth, the risk has gradually shifted from the direct impact of the virus to a general fear of the virus that is slowing the restoration of economic order. This fear is not only prolonging the initial shock, but also making it that much harder to recover lost economic ground later on.
Fortunately, official help is on the way. Numerous fiscal measures have been announced over the past weeks to resuscitate the economy, including a further front-loading of local government bond quotas to expedite infrastructure investment.
Many regional authorities have also cut or deferred taxes, fees and social security payments, provided subsidies and rental assistance, and asked banks to roll over debt at lower interest rates for businesses and individuals who have been hit hard by the outbreak. These measures could help keep some small businesses afloat in hard times.
Given that the turning point of the epidemic may be in sight, in China at least, the balance of official policy is likely to shift further from fighting the coronavirus at all costs to ensuring an orderly resumption of economic activity. Therefore, it is expected that there will be more policy easing to come in the weeks ahead.
Aidan Yao is senior emerging Asia economist at AXA Investment Managers