SIIS report: Importance of resilience as a key factor cannot be underestimated

The impact from the novel coronavirus outbreak will be short-term and not leave any lasting scars on the robust Chinese economy, leading economists said on Monday.

Xu Dingbo, a senior economist at the China Europe International Business School, said recent decision of the World Health Organization to term the virus outbreak as a global emergency will not lead to a substantial increase in China's economic risks, due to the central authorities' timely intervention measures.

The WHO on Thursday declared the novel coronavirus epidemic as a Public Health Emergency of International Concern, or PHEIC, citing confirmations of human-to-human infections in other countries.

"The most effective way to reduce any potential impact on the economy is to keep the epidemic under control since the PHEIC status will become due within three months and the WHO could change it at anytime, depending on the subsequent developments," said Xu. "Meanwhile, the central authorities have spared no efforts in restoring the business confidence."

The People's Bank of China, the central bank, launched a slew of measures on Saturday to stabilize the economy, including credit easing and liquidity injection, especially for private, small and micro enterprises as well as manufacturing companies.

According to a report published by the Shanghai Institute for International Studies (SIIS), 27.3 billion yuan ($4 billion) had been provided by governments across all levels as subsidies for controlling the epidemic as of Jan 29.

"The epidemic will drag down the first-quarter GDP growth by 1 percentage point, based on our primary calculations," said Xu Gao, chief economist with Bank of China International Ltd. "If China can keep the epidemic well under control in February, the overall impact on the annual GDP growth rate will be limited, probably around 0.2 percentage point."

The epidemic, Xu stressed, does not curtail all economic activities but only changes the patterns. The restrained consumption demand, such as travel and shopping, will see an obvious rebound once the epidemic is over, he said.

"The growth potential of China's economy is yet to be released, and there are still many policies the government can implement," Xu said.

Lukman Otunuga, a senior research analyst with FXTM, an international foreign exchange platform, echoed similar views.

"We expect the epidemic's economic impact to be short-lived," said Otunuga. "However, considering the expected decline in production, dampened retail activities, as well as travel restrictions, the cautionary mood over the global economic outlook appears warranted for the time being."

China's better-than-expected expansion in its January non-manufacturing Purchasing Manager's Index, along with the efforts by the authorities to contain the virus outbreak, will help push back against some of the fears surrounding the epidemic's impact on the country's economy, Otunuga said.

"Most of the negative shocks would reverse once it becomes clear that the virus can be effectively contained and sentiment impact fades," said David Wang, head of China economics at Credit Suisse, a Swiss multinational investment bank and financial services company.

However, the virus outbreak may also have some long-term impact. The quarantining of cities is unprecedented and will trigger a supply-side shock by negatively impacting labor productivity of Hubei in particular and surrounding provinces in general, the experts said.

"For supply-side shocks, recovery to the pre-outbreak level might take longer," Wang from Credit Suisse said.

According to the SIIS report, the novel coronavirus epidemic poses direct harm to three main sectors: the service sector, especially consumer industries such as tourism, catering, entertainment and logistics; the manufacturing sector, typically mobile phones, automobiles and electronic industries since Wuhan is a manufacturing center in China and there is no definite timeframe for resumption of operations, which may disrupt the global industrial chains to some extent; and the trade sector, due to potential cuts or even shutdown of airlines, sea routes and borders by some countries as a result of the prevailing panic or geopolitical considerations.

"Labor-intensive enterprises and small-and medium-sized enterprises may suffer more, given the epidemic's impact on the supply of migrant workers and logistics services," said Zhang Haibing, director of the Institute of Global Governance of the SIIS.

Nevertheless, the resilience of China's economy cannot be underestimated. Even in the short term, the epidemic is not just about negative effects on the economy, as it has also benefitted industries such as electronic commerce, online games and entertainment, as well as medical services, the SIIS report said.

"In the long run, the epidemic cannot undermine the nation's huge potential in consumption, urbanization, and emerging industries such as 5G and artificial intelligence as it (China) is the second-largest economy in the world," said Zhang.

Zhou Lanxu contributed to this story.