Coronavirus: In Prez Xi’s visit to Wuhan, a sign that China believes it has turned a corner

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Updated: Mar 12, 2020 13:14 IST

President Xi Jinping’s well-choreographed visit to coronavirus epidemic ground zero, Wuhan, on Tuesday sent out two clear messages: The outbreak had turned a corner in China and it was time to crank up the economy.

In between meeting frontline medics, local residents and officials, and vowing victory over, what he had earlier called the “devil” virus, Xi made a proclamation: The epidemic will not affect the fundamentals of China’s steady and long-term sound economic development.

Xi called for firm and meticulous implementation of supporting policies and for adopting targeted measures to assist enterprises, stabilise employment and create more jobs.

Enterprises and employment – two aspects of China’s $14 trillion economy hit badly by the infection.

Within 24 hours of Xi’s visit, the worst-hit Hubei province government allowed Wuhan businesses involved in providing daily necessities, preventing and controlling the epidemic, or operating public utilities to resume work and production immediately – the first easing of tight restrictions in place since January 23.

Wuhan firms that are key to “global industrial chains” may do so as well, after getting approval, the government added.

Soon after Xi’s Wuhan visit, official news agency, Xinhua, released a news report on factories gradually resuming work in China.

“China has all the industrial categories classified by the United Nations. It also ranks first in terms of output in nearly half of the over 500 major industrial products in the world. Though the novel coronavirus outbreak has slowed the humming of the factories for a while, production has been resuming across the country as the outbreak is leveling off to ensure the smooth operation of the global supply chain,” the report said.

It’s a remarkable achievement for companies to resume work in a city that has been ravaged by the pathogen, reporting hundreds of cases daily until weeks ago.

However, the most powerful Chinese leader since Mao Zedong, Xi, 66, knows the path to economic rejuvenation for the world’s second-largest economy will be tough.

The human toll aside, the “devil” covid-19 has hammered the Chinese economy, which was anyway facing the twin gauntlets of a gradual slowdown and the trade war with the US.

Beijing has introduced countermeasures against the epidemic’s economic fallout.

It includes increasing government spending, lowering lending rates, and boosting credit support for companies.

In February, the People’s Bank of China, the central bank, injected some 1.7 trillion yuan ($242 billion) of liquidity in the market and launched a $300 billion re-lending funds for commercial banks.

“The Chinese government has cut down the tax rate for small and medium enterprises (SMEs), one of the sectors worst hit by the epidemic,” economist Zhang Ming from the influential, Chinese Academy of Social Sciences (CASS) said.

Companies in Tibet, Xinjiang and several provinces have even hired flights, trains and buses to bring back migrant labour to resume work at projects and factories.

Experts like Beijing-based economist Hu Xingdou told HT that the government needs to invest in infrastructure and in the health sector to spur growth.

It will take a lot more doing.

In January, the outbreak hit where it hurts a lot: The Chinese New Year festival rush and the holidays, a boom time for the Chinese economy.

The epidemic triggered massive losses in the travel and tourism industries besides dampening consumption during the most important holidays on the local calendar.

According to an estimate made by Zhu Min, former IMF deputy managing director and currently with the prestigious Tsinghua University (quoted by Hong Kong-based South China Morning Post) it is likely to have cost the tourism industry about 900 billion yuan (US$128 billion) in January and February compared with 2019 while general spending on food and entertainment was likely to have fallen by about 420 billion yuan (US$59.7 billion).

“The impact of the epidemic on consumption, manufacturing, construction, the export sector and on inflation mean that the GDP growth rate in the first quarter will be around 3% to 4%,’’ CASS’s Zhang said.

There are two broad problem areas that China will need to tackle, Chan Kung, chief researcher with the Beijing-based independent think-tank, Anbound, said.

“The first, which is the already-frustrating (state of) government finances, already extremely tight, and is known for its worryingly high levels of debt. With the covid-19 outbreak in the picture, the country will now require an even larger allocation in its budget to remedy the problem, thereby resulting in a heavier financial burden for the government,” Chan said

“The second is that a portion of China’s enterprises probably would face a flood of bankruptcies. This is not much an issue for government-backed SOEs, but for private enterprises, however, they are at severe risk of facing bankruptcy and it is predicted that these businesses will have insufficient cash flows to last for the Chinaquarter,” Anbound’s Chan added.

Experts say signs of a better economy are visible on the horizon.

“Only six weeks after the initial outbreak, China appears to be in the early stages of recovery. Congestion delays currently stand at 73% of 2019 levels, up from 62% at the worst part of the epidemic, indicating that the movement of people and goods is resuming. Similarly, coal consumption appears to be recovering from a trough of 43% to currently 75% of 2019 levels, indicating that some production is resuming. And confidence appears to be coming back as seen in real estate transactions, which had fallen to 1% of 2019 levels but have since bounced back to 47%,” the Harvard Business Review said in an insight piece on Tuesday.

And from amid the thorny bouquet of economic adversities, Chinese companies picked out opportunities – mostly in the online sector.

The Sars epidemic of 2002-03 was behind the fast development of e-commerce in China.

Similarly, the current crisis will give further impetus to the online industry, which is already more than robust in China, Beijing-based economist, Hu, quoted earlier said.

It’s still a hard road ahead.

“If the economy recovers after the first quarter, and we see a growth of 5.5% to 5.6%, it will be satisfactory,” CASS’s Zhang said.

Back in Wuhan on Tuesday, President Xi told a covid-19 patient: “What you should do now is stay confident. We all should be confident that we will win this war”.

The disease is likely on the wane in China but the economic debris it will leave behind will take more than just confidence to clear.