- China says coronavirus doesn’t threaten the Chinese economy. But it already tried to hide the seriousness of the epidemic itself.
- Three reasons China’s government is also being dishonest about this:
- 1 – It’s taking desperate measures to fight the disease. 2 – And drastic action to brace its economy. 3 – China’s stock market is crashing.
China’s Foreign Minister denied any major risks to China’s economy Saturday:
The Chinese economy is well-positioned to overcome all risks and challenges. The fundamentals sustaining sound economic growth have not changed and will not change.
But his remarks were not at all consistent with his government’s response to coronavirus. And the Shanghai Composite and CSI 300 indexes are registering far more risk than Wang Yi lets on. Unfortunately, we also can’t trust the official Chinese pronouncements about the epidemic and its effects. They tried to cover up the epidemic in the first place, and their official death toll from coronavirus is very questionable.
Here’s how we know China’s economic growth is in serious danger.
A Frantic War With Coronavirus
The panic and urgency in China’s response to coronavirus is unmistakable. While new cases mounted at an alarming rate, the South China Morning Post captured disturbing footage published Feb 12. The video shows workers hastily ransacking a student dormitory. Authorities are converting it into coronavirus isolation wards.
But that’s just one example of China’s frantic fight to treat patients and stop the disease from spreading. The world was stunned when China built a 1000-bed hospital in ten days. It actually “panic-built” two of them. After that, Popular Mechanics published amazing time-lapse footage of one being built.
Moreover, the Xinhua News Agency’s “New China TV” published video footage capturing “hundreds of trucks” fogging the air in Luoyang, China with disinfectant using heavy chemical spraying machines. Luoyang is a city in Central China with a population of 6.5 million people. But it’s not the only city getting the fogging treatments.
Authorities disinfect the streets of Wuhan twice a day.
Further, police have quarantined entire families by force that refuse to voluntarily quarantine themselves. Former Australian Prime Minister Kevin Rudd says Chinese coronavirus quarantine measures are “formidable by any global standard.”
China’s Drastic Bid to Save Its Economy
Meanwhile, China is taking drastic measures to brace its economy from the mounting financial losses. The People’s Bank of China injected a record USD $83 billion into the economy on Jan 17, just as the coronavirus epidemic started.
This Monday China’s central bank injected another $129 billion as the Chinese stock market cratered. The bank pumped the extra liquidity into China’s money markets through reverse repo operations. All of this is on top of the $115 billion China pumped into the economy at the beginning of last month.
Moreover, China’s government is using targeted fiscal measures to soak up coronavirus losses. ING Bank economist Iris Pang reports China is giving out tax breaks to affected businesses. She notes this is a specific response to the epidemic. It differs from “the usual broad-based policies” to support the overall economy:
Fiscal policies include tax concessions on companies that are directly affected by the NCP [Novel Coronavirus Pneumonia], eg, tourism and catering. Companies that manufacture medical supplies and medicines are exempted from taxes and are allowed to receive subsidies from the government.
If coronavirus really poses no risk to China’s economy, the Chinese government and central bank sure aren’t acting like that’s true.
Coronavirus Is Crashing China’s Stock Market
Meanwhile, coronavirus is racking up a massive economic cost. China’s Foreign Minister says China will emerge from the epidemic stronger, but it’s already weakened the Chinese economy. On Feb 3, after an extended Lunar New Year holiday, the Chinese benchmark CSI 300 Index crashed 9%. That was its worst open in nearly 13 years. It closed almost 8% lower. That prompted Neil Wilson, chief market analyst for Markets.com to say:
The situation in China looks pretty dire. This has the hallmarks of a black swan event in the making – we simply don’t know yet what the impact will be.
The Shanghai Composite Index also plunged by 8%. Nearly $400 billion in market capitalization was lost. And it isn’t just publicly-traded corporations that the epidemic has already badly shaken. China’s small businesses are in trouble too:
A third of roughly 1,000 small and medium-sized companies surveyed by academics from Tsinghua University and Peking University last week said they could only survive for a month with the cash they have.
Banks and analysts cut their Chinese GDP forecasts for 2020 this month. That includes Citigroup, Economist Intelligence Unit, Macquarie Group, Mizuho Bank, Natixis, Nomura Holdings, Richard Bernstein Advisors, and UBS. Even one of the Chinese government’s own economists forecasts a massive drop in GDP. Zhang Ming, of the Chinese Academy of Social Sciences expects first quarter growth to drop below 5%.
Bottom Line
China is remarkably resilient. And its economic growth since the 1970s and over the last two decades lifted millions out of poverty. It was nothing short of miraculous. China will survive the coronavirus epidemic and continue to get stronger. But sound economic growth in the next year is hardly a certainty. The fundamentals have profoundly shifted.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.
This article was edited by Samburaj Das.
