China, Facing 'Worst' Indicators, Hints at Possible Economic Stimulus Within This Month

[Asia Economy Beijing=Special Correspondent Park Sun-mi] The Chinese government is increasingly likely to implement additional economic stimulus measures within this month as the economic shock from the spread of the novel coronavirus infection (COVID-19) becomes evident through various indicators.

On the 2nd, Chinese economic experts, after confirming the historically lowest levels of manufacturing and non-manufacturing PMI (Purchasing Managers' Index), are anticipating a clear contraction in China's economy for the first quarter. The Hong Kong South China Morning Post (SCMP) reported that while experts previously predicted China's first-quarter growth rate to be around 4%, the sentiment has shifted to expecting a maximum decline of up to minus 6% quarter-on-quarter.

China's manufacturing PMI for February, announced by the National Bureau of Statistics, recorded 35.7, significantly lower than January's 50, marking the lowest level ever. This is even lower than the previous record low of 38.8 during the global financial crisis in November 2008. The non-manufacturing PMI, which reflects the service and construction sectors, also dropped to a historic low of 29.6 in February, about half of January's 54.1. Generally, a PMI below 50 indicates economic contraction, and the February statistics symbolically demonstrate the economic shock caused by the spread of COVID-19.

Liu Xuezhe, an analyst at Bank of Communications in China, said, "We expect the Chinese government to inject more funds through relaxed fiscal and monetary policies in the coming weeks," adding, "The fiscal deficit target for this year is expected to be raised above last year's 2.8% of GDP to allow for the issuance of more special-purpose bonds for infrastructure projects. Additionally, monetary policy easing, including further reductions in bank reserve requirements and interest rates, remains necessary to ensure funds flow into the real economy." Li Huiyong, Vice President of Huabao WP Asset Management based in Shanghai, forecasted, "More robust stimulus policies such as interest rate cuts and expanded fiscal programs are expected to be introduced within this month."

The People's Bank of China lowered the bank reserve requirement ratio by 0.5 percentage points on January 6, releasing about 800 billion yuan of liquidity into the market. This was the eighth reserve ratio cut since early 2018. The central bank also cut the Loan Prime Rate (LPR), which effectively serves as the benchmark interest rate, by 0.1 percentage points last month, lowering the one-year rate to 4.05% to reduce financing costs for companies and small businesses. The Ministry of Finance authorized local governments to issue an additional 290 billion yuan in special-purpose bonds.

However, some argue that given the experience after the 2008-2009 global financial crisis, when the Chinese government injected a massive 4 trillion yuan and local governments fell into a debt trap, it is unlikely that a large-scale stimulus package will be rolled out all at once as in the past.

Meanwhile, on the same day, the Chinese state-run media Global Times urged decisive actions in the global fight against COVID-19 in an editorial, stating, "Economic losses caused by the epidemic spread are unavoidable. All countries must prepare for financial losses far greater than expected." It added, "At this stage, it is undesirable to be fixated on GDP figures. Priority should be given to securing supplies to enable the economy to function properly and to protecting industrial supply chains."

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