One of the most pressing economic questions at the moment is certainly how much Chinese economic growth will be slowed down by the corona crisis. China is still in a state of emergency. Public life is still lying idle in large parts of the country, and the start of production in industry has been extremely slow after the extended New Year break. Many migrant workers are struggling to return from the Chinese hinterland to the production facilities on the east coast, and when they arrive there, they are usually threatened with a two-week quarantine.
There are currently hardly any reliable economic figures that would allow the extent of the economic damage to be reliably quantified. The few indicators that are available (daily passenger numbers, apartment sales or weekly coal consumption) suggest, however, that the giant tanker China is currently travelling at half speed at best. Inevitably, the depth of the slump in growth depends mainly on how long the epidemic will continue. The significant decline in the number of new infections gives some hope here, but it is far too early to give the all-clear.
In China, this would normally be the hour for large-scale economic stimulus packages. But China currently has a supply problem, not a demand problem. Fiscal policy in Beijing is currently very tight. Where would the workers who build roads, bridges or homes come from? How should materials or equipment be transported? For the time being, the only thing left for the Chinese government to do is to provide sufficient financial resources to prevent the economic standstill from turning into a dangerous downward spiral. Beijing has significantly increased the local governments‘ scope for borrowing. This means that more than twice as much money is available at the provincial level in the current quarter as at the same time last year. Monetary policy has also been eased further in recent weeks. So far only in triple steps, but with that the political leadership presumably wants to counter the impression of panic. We therefore expect further expansion measures in the coming weeks. China’s central bank will provide ample liquidity on a broad front for the time being.
It is by no means certain that Beijing will resort to the typical government stimulus measures later in the year. We expect significant economic catch-up effects once the wave of infection has subsided. If we succeed in getting the health crisis under control in the coming weeks so that the economy returns to normal by the end of March, this could already be the case in the second quarter. It is questionable whether additional government stimulus will then be needed to support growth.
And finally, there is another question: to what extent will Beijing even reveal the extent of its economic losses in the official growth figures? They are still a political issue in China. If the worst of the health crisis is over in April, when the data are due to be published, the political leadership will certainly think twice before it again unsettles the population with weak growth figures. And for the current year there is still the promise to double the economy compared to 2010. This will require growth of 5.7 percent this year. At present, we do not believe that we will officially see a lower growth rate for 2020.