Feb 28, 2020 07:49 PM

Caixin Global Webinar: Rebooting the Economy amid Coronavirus

Caixin has been closely following the coronavirus issue from the beginning, and as its impact continues to grow, we presented a webinar on Feb. 27 to provide our clients with the information and insight they need, as well as an opportunity for discussion with relevant experts.

February 27, 10:00-11:00, Beijing Time

• Dr Wang Tao, Chief China Economist, UBS
• Mr Li Feng, Founding Partner, FreeS Fund
• Mr Huang Shan, Deputy Managing Editor, Caixin Media

• Li Zengxin, Deputy General Manager, Caixin Global


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Macroeconomic Assessment:

The coronavirus epidemic is far more severe than SARS

• The spread and severity of the coronavirus outbreak far outweighs the SARS epidemic 17 years ago. So forecasts must be based upon a new suite of metrics instead of just on a simple comparison with the SARS.

China’s first quarter GDP expected to grow 3.8% year on year, -0.15% quarter on quarter (Wang Tao)

• The current forecast is based on many assumptions, including that the virus will be controlled in the first quarter with very few new cases after March.

• After Q1, there will be a “V” shaped sharp rebound up to 10% in the second and third quarters. My annual average growth forecast is 5.4% for the whole year. But it’s also important to note that there are still many downside risks, with most economic activities still subdued. So the next two weeks are crucial.

Offline consumer services and retail-related sectors are affected most

• FreeS Fund conducted a survey on more than 100 of its portfolio companies. Among them, 1/3 are in consumer related sectors, which have suffered the most, especially offline businesses such as restaurants. Besides, non-necessity consumer goods are more vulnerable than daily necessities and durable goods during the epidemic.

SME’s most pressing concern is fundraising

• The surveyed SMEs are facing a difficult period. Many of them are trying to cut costs and protect their cash flow. Their existing financing problems have deteriorated during the epidemic. Besides, they are also uncertain about how soon and how strong the rebound will be. Cheap “epidemic loans” are on the way, but they are expecting more fiscal and monetary policies.

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Implications for industrial sectors:

Businesses need to diversify their supply chains

• The epidemic has highlighted the risks of supply chain concentration in China. Business communities need to step up diversification of supply chains. You cannot just put all your eggs in one basket.

Work resumption levels vary across sectors, provinces and sizes of companies

• Official data show some of the economic hubs have achieved high levels of work resumption. Top provinces include: Guangdong (82.2% as of Feb. 21), Jiangsu (80% as of Feb. 20), Shandong (84.1% as of Feb. 20) and Zhejiang (>90% as of Feb. 24). Meanwhile, in many areas, and especially at small companies, the work resumption rate is still low.


Source: UBS Research

• Provincial governments are now pressuring local governments to resume work and are trying to facilitate return of laborers. But at the same time, there is still concern over controlling the disease.

More online and offline integration expected in the long-run

• The epidemic has significantly altered consumer behavior and the trend of online and offline integration is inevitable in the mid- to long-term. For offline retailers and service providers, that integration has become a need rather than a want. Those who are slow to increase their degree of digitalization are probably going to lose business or even be forced out of the market.

Immediate and increasing need for automation

• According to surveyed companies that produce industrial robots, they have a lot of unfilled orders, especially for the next two months. This is probably a long-term and industry-wide trend, rather than a short-run phenomenon during the epidemic. The level of automation will improve across the whole manufacturing chain. And therefore the consolidation of the chain will be led by companies that automate best.

Artificial intelligence (AI) application is speeding up

• In various industries, artificial intelligence applications in “real-life scenarios” is accelerating, both at the industry and policy level. Not just for online health services and online education, which stood out during the epidemic, but also in the longer term for many other fields, including smart cities and smart logistics.

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Policy Response:

Policy support currently focused on liquidity provision and emergency response; government spending coming (Wang Tao)

• So far the policy response has mainly focused on liquidity provision, with the PBOC injecting liquidity and cutting rates. We also expect other measures to make sure that business and markets are functioning smoothly.

• These other measures will be emergency responses - I do not consider them stimulus. They are not meant to stimulate more spending or investment but to rescue companies.

• The government will, however, start to spend more on health care services, infrastructure and so on. These measures will probably come more in the second quarter.

Measures for housing won’t be a main part of the policy response package

• Some observers expect property policy easing will be a major stimulus channel. We don’t think so. Local governments are allowed to ease somewhat, but we don't expect any nationwide stimulus by the central government

Rebound speed will not be the same as that of the SARS period; stimulus package will be much more measured (Wang Tao)

• China is in a very different stage than it was in the SARS period. Now the economy is not facing potential overheating as it was during SARS, and instead it is slowing down.


Source: UBS Research

• With current debt levels and worries about property bubbles, we think the policy stimulus will also be more measured.

5G and other infrastructure investments are on the way

• Based on the investment practice of FreeS Fund, 5G infrastructure buildup is going to speed up since it is believed to be the easiest and highest most leverage way to drive up the whole technology sector. Huge traffic in video and teleconferences during the epidemic calls for faster and more reliable big data services. 5G infrastructure will foster technology innovation and boost economic growth.

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Global Outlook:

Economic impact in China will overflow to other countries, dampening their growth and inciting more policy easing (Wang Tao)

• Many economies in the region depend on China as their largest market. These include Taiwan Province, South Korea, Australia, Vietnam, Malaysia, and so on. Less economic growth and demand from China will also mean weaker export from these areas, and Japan will be somewhat affected too.

• From a global supply chain perspective, I don’t see multinationals pulling out of China in waves, as there are no good alternatives.

• We expect these impacts will lead to more policy easing from other economies’ central banks and more fiscal easing as well. Also, we expect the US Federal Reserve to cut the Fed fund rate three times this year.

China’s financial opening won’t be altered or delayed by Covid-19

• The financial service opening has two parts, the China part, and the foreign investor part. For the China part, there are neither signs of delay nor reasons to. China has been accelerating its opening of the financial services sector. The deadlines for policy implementation are not being postponed. For the foreign investor part, their investment plans may be delayed by travel restrictions, but that is temporary.

• On the other hand, despite the impact on foreign investment in China’s equity and bond market, cross border investment related policies are also unlikely to be affected.

China will improve economic relations with Europe

• Chinese leaders are shifting their focus on the U.S. to other regions, particularly to the European Union. This year will be a big year for China-EU relations. In September, the President Xi may head to Germany for the EU-China Investment Treaty, and China is accelerating its strategic diversification.

China is increasing its stake in international institutions

• In the wake of the epidemic, China will definitely try to work closer with international institutions with a focus on public health, as evidenced by coordination between China and the WHO during the epidemic.

The Belt and Road Initiative (BRI) could slow down

• As China puts more resources into solving domestic issues, BRI project stakeholders will think twice before moving forward. State-owned financial institutions, construction contractors and others will be more financially discerning when deciding whether to proceed with BRI projects.

This webinar is organized by Caixin Global Intelligence, the strategic advisory arm of Caixin Global. To get more insights from us, please contact, please contact us at stay connected to Caixin’s analysis, please follow our twitter @caixin_intel or sign up for our weekly newsletter here.

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