China's Economy 'Shaken' in February Due to COVID-19 Spread... Will Additional Stimulus Measures Emerge? (Comprehensive)

[Image source=AP Yonhap News]

[Asia Economy Beijing=Special Correspondent Park Sun-mi] The fact that China’s manufacturing sector has been severely contracted due to the spread of the novel coronavirus infection (COVID-19) was confirmed in both the official government statistics and private announcements of the February Manufacturing PMI (Purchasing Managers’ Index). Opinions are gaining traction that the Chinese government is likely to implement additional economic stimulus measures within this month.

◆ China’s Manufacturing Sector 'Shaken' by COVID-19 Spread = On the 2nd, Chinese economic media Caixin announced that China’s manufacturing PMI for February recorded 40.3. This figure fell far short of experts’ forecast of 46.0 and marked the lowest level ever recorded. Caixin’s manufacturing PMI had recorded 51.1 in January.

The Caixin PMI is calculated by Caixin, a Chinese economic media outlet, mainly surveying small and medium-sized enterprises and private companies. With 50 as the baseline, a PMI below 50 indicates economic contraction. The February statistics symbolically showed the visible economic shock caused by the spread of COVID-19.

Earlier, China’s National Bureau of Statistics announced the official manufacturing PMI for February at 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 recorded during the global financial crisis in November 2008. The official manufacturing PMI is mainly calculated based on large enterprises and state-owned companies. The non-manufacturing PMI, which reflects the service and construction sectors, also dropped to a record low of 29.6 in February.

Chinese economic experts, after confirming the historically low manufacturing and non-manufacturing PMIs, are anticipating a clear contraction in China’s economy in the first quarter. Hong Kong’s South China Morning Post (SCMP) reported that while experts had previously predicted China’s first-quarter growth rate to be around 4%, the outlook has shifted to a possible maximum decline of 6% quarter-on-quarter.

◆ Possibility of Additional Economic Stimulus 'Rises' = Liu Xuezhe, an analyst at Bank of Communications, told SCMP, “We expect the Chinese government to inject more funds through relaxed fiscal and monetary policies in the coming weeks. The fiscal deficit target for this year is expected to be raised above last year’s level (2.8% of GDP) to allow for the issuance of more special-purpose bonds for infrastructure projects. Monetary policy easing, including further reductions in bank reserve requirements and interest rates, remains necessary to channel funds into the real economy.”

Li Huiyong, Vice President of Huabao WP Asset Management based in Shanghai, forecasted, “We expect stronger economic stimulus policies such as interest rate cuts and expanded fiscal programs to be introduced within this month.”

China has implemented a series of policies to invigorate the market amid concerns over slowing economic growth, but the spread of COVID-19 has increased the likelihood of stronger stimulus measures.

The People’s Bank of China lowered the bank reserve requirement ratio by 0.5 percentage points on January 6, injecting about 800 billion yuan of liquidity into the market. This was the eighth 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 poured in 4 trillion yuan and trapped local governments in debt, it is unlikely that stimulus measures will be introduced on a large scale all at once as in the past.

Meanwhile, China’s state-run media Global Times urged decisive global action in the fight against COVID-19 in an editorial, stating, “Economic losses caused by the epidemic spread are unavoidable. All countries should 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 so that the economy can function properly, and efforts should be made to protect industrial supply chains.”

◆ China’s COVID-19 Confirmed Cases Surpass 80,000 = On the 1st, China reported 42 additional deaths and 202 new confirmed COVID-19 cases. The cumulative number of confirmed cases exceeded 80,000.

On the 2nd, the National Health Commission of China announced that as of midnight, 202 new confirmed COVID-19 cases were reported in China. Of these, 196 cases were from Hubei Province, the known epicenter of the virus, and 193 of those were from Wuhan City. The newly added death toll was 42, all from Hubei Province, with 32 deaths occurring in Wuhan City alone.

The cumulative number of confirmed COVID-19 cases in China has surpassed 80,000, totaling 80,026 cases. More than half, 44,462 patients, have recovered and been discharged, while 2,912 have died. Currently, 32,652 confirmed patients are receiving hospital treatment, including 7,110 in severe condition.

The number of suspected cases stands at 715. The cumulative number of close contacts is 663,240, with 46,219 under medical observation.

Outside mainland China but within the Greater China region, confirmed cases have been reported as follows: Hong Kong 98 (36 discharged, 2 deaths), Macau 10 (8 discharged), and Taiwan 40 (12 discharged, 1 death), totaling 148 confirmed cases.

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