On February 3, during a meeting of the Politburo’s Standing Committee, Xi Jinping told Party members that efforts to control the spread of coronavirus were overdone and advised local officials to avoid “more restrictive measures”.
That’s according to a pair of sources cited by Reuters.
Specifically, the retelling of the meeting suggests Xi believes measures including the shuttering of some public schools and factories, the curtailment of transportation routes and lockdowns imposed at residential compounds aren’t constructive and may be doing more harm than good by stoking fear among the populace.
Xi is, of course, concerned about the economy, which was already growing at the slowest pace in decades even before the virus hit.
Estimates vary, but, in a note out last week, Nomura’s Chief China Economist Ting Lu posited five possible trajectories that give you an idea of how dramatic (or not) the damage could be. Here is the summary paragraph and table from the longer note for anyone who missed it:
In all scenarios, we envisage a short-term growth slump followed by a V-shape recovery, driven by strong pent-up demand. The only difference lies in the scale of the growth slump and the timing of recovery. In the five scenarios, Q1 growth drops to 3.8%, 2.5%, 2.0%, 1.0% and 1.0%, respectively, from 6.0% in Q4 2019 but, thanks to the expected recoveries after the nCoV-related lockdowns end, annual GDP growth in the five scenarios slows to 5.6%, 5.3%, 4.8%, 4.2% and 3.9%, respectively in 2020, from 6.1% last year. Year-on-year growth could surge in Q1 2021 on a low comparison base. We revise down our real GDP growth forecast for Q1 and full-year 2020 to 3.8% and 5.6%, respectively, from 5.8% and 5.7%, as we assign the highest probability to the “good” scenario.
Although the PBoC has rolled out measures aimed at providing monetary policy support, and while new tax policies may help, none of that will matter if industry remains shut-in and commerce grinds to a halt.
In Zhejiang province on Monday, local officials were told not to close “shops of chain stores and convenience stores that sell daily necessities such as vegetables, cooking oil as well as meat, eggs and dairy products”. That’s according to a government release.
“Chinese retail and associated services have felt the immediate brunt of the virus”, ING said Thursday, in an e-mailed note. “From shops to restaurants, a lack of footfall is hitting sales, while a sharp fall in inbound tourism will also take its toll”.
On Tuesday, Beijing said regions not hard-hit by the epidemic should get back to work. The government didn’t quite put it that way, but the Party is angling for a ramp-up in industrial output after weeks of containment efforts effectively shut down the world’s second largest economy. The Ministry of Industry and Information Technology called the resumption of industrial production “very urgent”.
The Finance Ministry said Tuesday that local governments will be allowed to sell an additional 848 billion yuan in debt over the next two months. 290 billion of that is earmarked for “special debt”, normally reserved for infrastructure. Hopefully, this won’t worsen what is already an absurdly complex web of cross-holdings tied to China’s local government debt pile.
The virus death toll passed 1,000 today, and confirmed cases are now at 42,638. There are, apparently, signs that the spread is abating in and around the epicenter. Top officials in Hubei were removed.
Once the virus runs its course, the effects of China’s economic slowdown for the rest of the world will linger.
The outlook committee for the country’s agriculture ministry said Tuesday the outbreak might delay China’s farm purchases of US goods under the trade deal. They will probably be fulfilled by the end of the year – probably.
“What we find complacent is the idea among some market participants that Chinese economic weakness will have limited repercussions for the rest of the world”, JPMorgan said, in a note dated Friday, adding the following:
The importance of China today is much greater than in the past not only because China’s share in the world economy is three times bigger than at the time of the SARS outbreak in 2003, but more importantly because China plays today a central role in the supply chains of several industries such as autos, electronics, pharmaceuticals, machinery. So any delay in Chinese factory re-openings beyond next week would not only be detrimental for Chinese GDP growth in the current quarter, but it could also disrupt global supply chains and hit production outside China.
ING echoes those sentiments. “As time goes on, supply chain disruption will become a bigger concern globally”, they warn. “China is much more integrated into the global economy than it was back in 2003 when the SARS virus hit [and] a sustained drop in Chinese production of electrical components could quickly cause knock-on effects elsewhere”.