Wuhan Pneumonia: If Economic “Grey Rhino” Meets Epidemic “Black Swan”Factory or “difficult to start”

Chinese people stay at home this Spring Festival, all kinds of consumption plummeted. CITIC Securities analysts believe that this can be seen as the impact of the demand side on the economy. At present, the big shock from the demand side is a foregone conclusion.

Accordingly, the epidemic will also affect the economy from the production side. And this part of the impact is starting to show up-with the coming of the Spring Festival repatriation tide, if the population in the central and western provinces’ labor force can not return to the coastal manufacturing center for a long time, it may cause “difficult to start”.

Compared with the SARS period in 2003, the time of the new crown virus outbreak was similar, and the initial cases were discovered in December of the previous year. However, during the SARS period, the Chinese government had been maintaining stability and concealing reports, denying the seriousness of the virus. Until April 19, then-Prime Minister Wen Jiabao had warned local officials that concealing reports would be severely punished. 37 cases increased suddenly to 339 cases.

The new crown virus has attracted enough attention throughout the country during the Spring Festival. Generally speaking, the “re-work tide” of Chinese laborers has peaked after the 15th Lantern Festival of the first month. Ultimately, the impact on manufacturing companies will depend on the duration of the epidemic.

According to investment bank Morgan Stanley, China’s tourism, entertainment and retail industries may be the most affected, and extended plant shutdowns may weigh on industrial production and trade. If the epidemic peaks in February or March, China’s economic growth in the first quarter may be weakened by 0.5-1 percentage points.

Bank of America lowered its forecast for annual GDP growth in 2020 to 5.6% from 5.8%.

The bank ‘s chief economist for Greater China Qiao Hong believes that the worst case scenario is that if further deterioration of the epidemic interrupts industrial production for a longer period of time, the annual growth rate of GDP in 2020 and 2021 may drop to 5.0% And 5.5%.

“Aggravated by the downward pressure”

2In 2003, despite the impact of the SARS epidemic, the Chinese economy even achieved double-digit high growth (10%) for seven years, which was unexpected by many economists.

In retrospect, China’s accession to the WTO in 2001 was the heyday of China’s enjoyment of the globalization dividend and demographic dividend. It was from 2003 that China’s economy accelerated year after year to 14.2% in 2007, and then fell to 9.7% due to the impact of the financial crisis. 2003 to 2007 also became the “golden five years” of China’s economic development. Under such development momentum, the impact of the epidemic on the economy can be easily dissipated. If you only look at the annual data, it will be difficult to detect.

However, the Chinese economy is currently under pressure from a slowdown. The entire system has a high leverage ratio. This “gray rhino” continued to rush to the Chinese economy, but encountered a “black swan” on the way.

The Bank of Communications Financial Research Center released a report that if consumer demand is difficult to recover as soon as possible, postponed rework delays will seriously affect the resumption of work and revenue growth of some physical enterprises, and some small and medium-sized production and service companies may face pressure for survival.

Once a large-scale corporate failure occurs, the output of investment is unfavorable, causing a wave of debt defaults, which is then transmitted to the banking system, and systemic financial risks will increase sharply.

Reuters quoted Sheng Songcheng, former director of the Department of Investigation and Statistics of the People’s Bank of China, as saying that precautions should be taken to prevent large-scale outbreaks of corporate credit risk. While fully responding to the epidemic, we must also attach great importance to the weak links in the economy, and take effective measures to help enterprises, especially small and medium-sized enterprises, overcome difficulties, stabilize employment, and protect people’s livelihood.

However, compared with other major economies in the world, China still has a lot of room to cut interest rates. The policy tools to regulate the economy are far from exhausted, and will to some extent offset the negative economic impact of the epidemic.

For example, the central bank has announced the launch of a 1.2 trillion yuan open market reverse repo operation to ensure sufficient liquidity supply. The overall liquidity of the banking system is 900 billion yuan more than the same period last year.

Qiao Hong predicts that China will launch targeted subsidies and reduce financing costs to support the economy.

IMF spokesman Rice also said that China currently has enough fiscal space to support its economy through the crisis when necessary and to ensure that households and businesses have access to credit.