Coronavirus: does China have the financial power to repair the economic damage caused by the outbreak?

Production has been largely halted in a bid to contain the spread of the coronavirus, which has affected nearly 45,000 people and killed over 1,100 across the country

Retail, tourism, aviation and logistics are among the worst hit, with measures already announced seen as being too mild to offset the economic damage

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On Wednesday, a senior International Monetary Fund (IMF) official said that China has room to ramp up stimulus if its economy slows further due to the coronavirus outbreak, but should not lose sight of structural reforms to address rapid credit growth. Photo: Xinhua

Published: 6:15pm, 12 Feb 2020Updated: 2:12pm, 13 Feb 2020

The coronavirus outbreak is expected to significantly worsen China’s fiscal situation that is already under pressure from an economic slowdown, raising the question over whether Beijing can afford to loosen the purse strings to help, analysts said.

Production in the world’s second largest economy has been largely halted in a bid to contain the spread of the coronavirus, which has infected nearly 45,000 people and killed over 1,100 across the country.

Such measures have disrupted many of China’s industries, with retail, tourism, aviation and logistics among the worst hit, with many businesses and analysts calling for help from the government, which brought in 19 trillion yuan (US$2.7 trillion) of revenue in 2019.

China has already launched a few targeted measures in a bid to offset the damage caused by the outbreak, including waiving tax on overtime income earned by medical staff.

China has to rely much more on fiscal policy. So far we’ve seen some relief in tax cuts in the short term

Wang Tao

However, such measures are too mild to offset the economic damage, with analysts expecting the coronavirus to knock one to two percentage points off China’s economic growth in the first quarter of 2020.

Wang Tao, head of Asia economics and chief China economist at UBS, estimated that China’s gross domestic product (GDP) growth rate would plunge 1.5 per cent in the first quarter, assuming that all companies were able to resume operations at the start of April.

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