China Faces Inevitable Economic Stimulus Due to Wuhan Pneumonia... 1Q Growth Rate Expected to Drop by 4%p

[Asia Economy Beijing=Special Correspondent Park Sun-mi] To prevent a sharp decline in economic growth caused by the spread of the novel coronavirus infection (Wuhan pneumonia), the Chinese government is likely to implement a more proactive fiscal policy than last year. There are forecasts that China, which barely maintained a 6% growth rate last year, may show a growth rate in the 2% range in the first quarter.

On the 29th, Hong Kong's South China Morning Post (SCMP) reported, citing Professor Huang Yiping of Peking University, a former member of the People's Bank of China Monetary Policy Committee, that there is a growing call within China for active economic stimulus measures. Professor Huang advised that additional measures such as tax reductions for small and medium-sized enterprises, monetary policy easing, and increased infrastructure investment should be implemented to prevent the economy from falling. He also stated, "The establishment of an emergency support fund at the State Council level could also be a countermeasure."

He said, "The direct impact of the novel coronavirus is a reduction in people's outings, leading to decreased consumption," adding, "Consequently, production and investment will inevitably be affected. If the current situation continues, overall economic activities such as consumption, investment, and production will contract, and economic damage such as increased unemployment will be inevitable."

If the spread of the novel coronavirus does not affect the upcoming National People's Congress and Chinese People's Political Consultative Conference (the two sessions), scheduled for early March, the government's policy direction this year is likely to focus on recovering from the damage caused by the virus spread. Given the inevitability of economic damage, more proactive economic policies and expansionary monetary policies than last year can be expected.

China's economic growth rate is also likely to struggle to maintain 6% in the first quarter. The U.S.-based China research institute Plenum diagnosed that China's first-quarter (January to March) growth rate could drop by up to 4 percentage points. Considering last year's growth rate was in the 6% range, this opens the possibility of falling to the 2% range.

Plenum reminded that the Chinese government has already extended the Lunar New Year holiday by three additional days until February 2 due to the impact of the novel coronavirus and suggested that further extensions should be considered if the virus spread does not subside. It predicted that the extension of the Lunar New Year holiday would make normal economic activities in the industrial sector impossible, potentially causing a 2 percentage point hit to the economic growth rate.

Furthermore, with the complete lockdown of Hubei Province, including Wuhan City, the virus's origin, the economic growth rate could drop an additional 1.5 percentage points. The spread of fear nationwide is expected to further impact tourism, transportation, retail, and food and beverage sectors across the country, causing an additional 0.4 percentage point decline.

In fact, across China, economic sectors directly linked to economic activities are experiencing real damage, such as suspension of public transportation, closure of movie theaters, restaurant shutdowns, and cancellation of public events.

Oxford Economics recently reported, "China's resolute virus control measures and the ability to control the situation will influence minimizing the losses to the Chinese economy," and "It is expected that the government will prepare measures to stabilize the economy."

Meanwhile, during the SARS outbreak, the overall consumption slump caused China's economic growth rate to fall to 9.1% in the second quarter of 2003, down from 11.1% in the previous quarter, but it recovered from the third quarter when the situation calmed down.

This content was produced with the assistance of AI translation services.