Chinese economy normalising but risks remain: IMF

China’s economy is beginning to show some signs of normalisation after the full-blown shock caused by coronavirus but stark risks remain, International Monetary Fund officials said in a blog on the economic impact of the pandemic.

Most larger Chinese firms have reopened and many local staff have returned to work but infections could rise again as national and international travel resumes, the officials said.

Outbreaks in other countries and financial market gyrations could also make consumers and firms wary of Chinese goods, just as the economy is getting back to work, they said.

The coronavirus, which has infected 250,000 people and killed more than 10,000, has wreaked havoc on the global economy. In China, the slowdown in the first quarter will be significant, leaving a deep mark on the full year, the IMF said.

“What started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand,” the IMF blog said, highlighting very weak industrial production and retail sales data in January and February.

But it said China’s response thus far showed that the right policies made a difference in fighting the disease and mitigating its impact, albeit with tough economic tradeoffs.

China implemented strict constraints on movement at the national and local level at the height of the outbreak, devastating Hubei province where it originated but slowing the spread of the disease around the country, the blog said.

To mitigate the simultaneous shock caused to households, businesses, financial institutions and markets, Chinese policymakers quickly stepped in and targeted vulnerable households and small businesses, waiving social security fees, utility bills and channeling credit through fintech firms.

They also arranged subsidised credit to support scaling up production of medical equipment, backstopped interbank markets and supported firms under pressure, the blog said.

The authorities worked closely with banks too, incentivizing them to lend to smaller firms and providing targeted cuts to reserve requirements, while continuing to lend generously to larger firms and state-owned enterprises, the IMF said.

Given the ongoing economic risks, Chinese policymakers needed to be ready to continue to support growth and financial stability, if needed, and to coordinate internationally, given the global nature of the outbreak, the IMF said.

One opportunity to coordinate the international response would be through the world’s 20 major economies (G20), but divisions within the group could undercut those prospects, experts say.

Meanwhile, China’s cabinet announced more measures on Friday to support employment in the world’s second-largest economy, which is expected to shrink for the first time in four decades because of the coronavirus outbreak. China’s jobless rate rose to a record 6.2% in February and any rapid rise in unemployment could pose a big challenge to China’s stability-obsessed leaders.

China will speed up targeted tax cuts for firms, return more unemployment insurance premiums to companies that save jobs and subsidise small firms to hire college graduates with contracts longer than a year, the cabinet said in a statement on Friday.

The government will also accelerate the resumption of operations at key firms and projects, especially in manufacturing, construction, logistics and public services, the cabinet said.

Small- and medium-sized firms with few or zero layoffs, could get back up to 100% of the unemployment insurance premiums paid in the previous year, the cabinet said.

China will also help migrant workers to find jobs and support flexible employment, allow more street vendors and markets, stalls and other business outlets, it said.

Premier Li Keqiang said China would spare no effort to help small, medium-sized and private businesses to survive, adding that fiscal and monetary policies that have been rolled out should be aimed more towards small companies, according to a statement posted on the cabinet’s website.

Small and private firms in China account for 80% of urban employment.

“The current epidemic situation is spreading globally and the international market is very volatile”, the official Xinhua news agency quoted Li as saying.

The premier said China’s macroeconomic policy coordination should track changes in the world economic situation, and study and improve countermeasures in a timely manner to boost the economy’s recovery, according to Xinhua.

Agencies