Observer: Why the economic impact of nCov-2019 on China will be temporary and limited
By Ni Tao, People's Daily app
As of Sunday, the overall number of confirmed cases of
nCov-2019 infections on the Chinese mainland reached 17,205, and a total of 361
people had died of the disease.
Amid the epidemic’s outbreak, China’s stocks plunged more
than 8 percent at market open as trade resumed on Monday after the Spring
Festival holiday. Experts believe there are many irrational factors behind the
pessimism, including panic caused by the "herding effect."
Across the globe, this sentiment has also been reflected in
some media’s reports, suggesting concerns that the economic impact on China
could be severe.
However, as the fundamentals of China's long-term and high-quality
economic growth have not changed, several investment banks including Swiss UBS
have also indicted the epidemic’s economic impact will be temporary.
Why will the impact be temporary and limited?
First, the epidemic’s impact is mainly inflicted on the first
quarter, during which the Chinese Lunar New Year is celebrated. Usually, the
proportion of Q1’s economic growth in the whole year is relatively lower than
other quarters.
Though it is imprudent to judge the economic impact of the
epidemic by historical experience, some analysts have compared the nCov-2019
outbreak with the 2003 SARS epidemic and made economic loss projections on this
basis, with the presumption that the economic blow this time will be much
bigger.
It’s true that the SARS resulted in a sharp decline in
China's GDP growth in the second quarter of 2003, but the negative impact was
largely offset by higher growth in the following two quarters, and the annual
growth rate was about 10 percent.
It’s also important to notice that today’s Chinese economy is
not what it was 17 years ago. It is much bigger, healthier and more balanced in
structure. China's current economic strength, resources and ability to deal
with emergencies have all been significantly strengthened since that time.
Second, economic activities after the epidemic will much
likely be stronger than normal, to a certain extent, to make up for the gap
left by the economy during the epidemic.
The epidemic will surely put a damper on the services sector,
especially such consumer industries as tourism, catering, entertainment and
logistics. It will also harm the manufacturing sector in the mobile
phone, automobile, and electronic industries, as well as the trade sector.
On the other hand, the epidemic will not completely eliminate
economic activities, but instead largely bring about a postponement of economic
activities.
For instance, if you don't travel during the Spring Festival,
it doesn't mean you won't travel, but you're likely to reschedule at a later
time. Once the epidemic disappears, consumption of goods and services that can
be delayed will rebound.
A report released Saturday by the Shanghai Institutes for
International Studies noted even in the short term, the epidemic has not caused
a negative effect on all the sectors but has benefited industries such as
electronic commerce and online games and entertainment.
From the supply-side, the short-term impact is reflected in a
pause of some production activities. Once the epidemic subsides, production
will resume, with above-normal efficiency and speed.
Third, China has adopted a series of robust macro polices to
support the economy and boost confidence.
In an epidemic, small and micro enterprises, because of their
small scale and weak anti-risk ability, may face difficulties. Among them, the
continuity of the capital chain is the biggest risk.
On Monday, China's central bank sent a powerful message about
its intent to support the economy, with a larger-than-expected injection of
$173.8 billion of liquidity into markets and a deep 10-basis-point cut to its
regular reverse repos.
This open market operation will drive the overall interest
rate down, which is conducive to reducing the cost of capital, easing the
financial pressure on enterprises, and supporting the real economy, especially
small and micro enterprises.
Meanwhile, fiscal policy has also been utilized. As of
Monday, China’s Ministry of Finance has earmarked a total of about $769.8
million to support local governments across the country to prevent and control
the epidemic.
On Sunday, the city of Suzhou, East China's Jiangsu
Province, announced measures including financial support and tax cuts to
help affected small- and medium-sized firms. Many other cities in China
have also offered similar favorable policies.
At the moment, the most urgent task for China is to put the
epidemic under control, which will bring confidence and vitality into the
Chinese economy.
In its latest economic forecast in January, the International
Monetary Fund (IMF) revised upward China’s 2020 gross domestic product (GDP)
prediction to 6.0 percent from the previous 5.8 percent.
Gerry Rice, director of the IMF's communications department,
believes that China is a large economy with the resources and the resolve to
effectively meet the challenge of the nCov-2019 outbreak.
Observer: Why the economic impact of nCov-2019 on China will be temporary and limited
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