Virus could cost China 1 percent of growth: Government think-tank

The coronavirus outbreak could be as costly to the Chinese economy as the 2003 SARS outbreak, warns a researcher.

People wearing masks pass by portraits of Chinese President Xi Jinping and late Chinese chairman Mao Zedong as the country is hit by an outbreak of the novel coronavirus, on a street in Shanghai
Streets in large Chinese cities such as Shanghai and Beijing remain quiet as some workers continue working from home to curb the spread of the coronavrius [File: Aly Song/Reuters]

The coronavirus outbreak could trim China‘s full-year economic growth rate by as much as 1 percentage point in 2020, a senior member of a Chinese government think-tank said in comments published on Tuesday.

Zeng Gang, vice chair of the National Institute for Finance and Development, compared the current crisis with the SARS epidemic of 2003 when China’s growth declined by about 2 percentage points in a single quarter.

“The impact of this epidemic on the economy in the first quarter is expected to be comparable,” Zeng said in a commentary published in the 21st Century Business Herald newspaper.

“At present, according to different scenario assumptions, researchers expect the negative impact of the epidemic on full-year GDP (gross domestic product) growth to be in the range of 0.2 percent to 1 percent,” he was quoted as saying.

If the official response to the epidemic is timely and effective at limiting its spread, long-term growth trends would not be significantly affected, Zeng said.

“But in the short term, the epidemic’s impact on economic activity cannot be ignored, especially with tertiary industries and small enterprises with tight cash flows facing greater pressures,” Zeng said.

China’s economy grew by 6.1 percent over the whole of 2019, its slowest expansion since 1990. For the fourth quarter, GDP grew by 6.0 percent compared with the same period a year earlier. 

Zeng is not the first government-linked analyst to forecast a decline in China’s growth due to the coronavirus. Chinese government economist Zhang Ming said last month that China’s economic growth rate could drop to 5 percent or lower in the first quarter of 2020.

Zhang, an economist at the Chinese Academy of Social Sciences – a top government think-tank – said his forecast was based on the assumption that the outbreak will peak in early to mid-February and end by the end of March.

Zeng said difficulties for small companies could prompt a rise in bankruptcies and put upward pressure on the unemployment rate in the first quarter.

“The employment situation is not optimistic. This will also pose a serious challenge to the macro policy goal of ’employment first’,” he said.

Chinese President Xi Jinping said on Monday that the government would prevent large-scale layoffs, Chinese state television reported. The country’s human resources ministry later said it has implemented specific measures to stabilise employment and that the overall jobs situation was stable in spite of the virus outbreak.

But Chinese firm Xinchao Media said on Monday that it has laid off 500 people or more than 10 percent of its workforce to survive the effects of the coronavirus outbreak.

Xinchao Media, which places advertisements in lifts, announced its job cuts in a post on its official WeChat account, which carried the transcript of an internal speech given by its Chief Executive Officer Zhang Jixue.

“I brought in a team to defeat the SARS outbreak in 2003 and overcome the 2008 (Sichuan) earthquake but I’m afraid of losing to 2020’s new coronavirus because the streets are deserted and thus there are no consumers,” he said, referring to two other national crises faced by China in the past.

“To overcome the epidemic, you have to step on the brakes, jam the cash flow, reduce costs, to ensure survival … China’s bosses, they have at this time become a helpless and disadvantaged group. While usually strong, they also hope they can gain understanding and care,” Zhang said.

China’s central bank has taken steps to support the economy, including reducing interest rates and flushing the market with liquidity. It has also said it will provide special funds for banks to lend to businesses.

Analysts at Citi said they expect growth to slow significantly despite expectations of more proactive fiscal policy and a more accommodative monetary policy.

“Assuming the virus is contained by the end of March, we revise down our 20Q1 (first quarter) GDP growth forecast considerably to 3.6 percent and the annual growth modestly to 5.3 percent,” Citi analysts said in a note. Citi previously forecasted first-quarter growth of 4.8 percent and full-year growth of 5.5 percent.

Source: Reuters