January 28, 2020

China Is Perfectly Prepared to Fight the Last Virus
(Bloomberg Opinion) -- China has a bigger and more sophisticated toolbox to combat any economic slowdown from the coronavirus than in 2003, when it battled the SARS pandemic. The challenge now is a worsening backdrop both domestically and abroad, and how both hamper the effectiveness of Beijing's response.It's hard to be precise about the damage given the situation is still unfolding. Bloomberg Economics is likely to downgrade its projection for China’s first-quarter growth from its current forecast of 5.9%. When Severe Acute Respiratory Syndrome raged in the second quarter of 2003, China's expansion cooled to 9.1% from 11.1% in the prior three months.Trouble is brewing beyond China's shores, too. With trade wars, heightened tension between Iran and the West and declining demographics, there were plenty of challenges before this outbreak. The International Monetary Fund is penciling in growth of 3.3% this year, after crawling along at 2.9% in 2019. Yet that pace has stalled from the 3.4% estimate just a few months ago. In 2003, the world economy expanded more than 4% and approached 6% in 2007.China has changed dramatically in the past 17 years. For starters, its economy is roughly eight times the size. But on a more granular level, key elements of monetary- and currency-policy frameworks have evolved. Most notably, the country has a more flexible exchange rate, to put it mildly. While the central bank still manages the contours of the yuan's moves, the currency was pegged at 8.3 to the dollar for a decade until July 2005. Moreover, the People’s Bank of China now uses an array of rates to manage borrowing costs. In 2004, it was considered almost revolutionary when China raised interest rates, a measure that hadn’t been deployed as a tool of economic management in nine years.These changes allow policy shifts to come more frequently. Faced with the trade war and a cooling domestic economy, the PBOC began 2020 with a statement of intent: The central bank cut the required reserve ratio for lenders by half a percentage point, the latest in a series of reductions. This signals that officials were aiming to shore up liquidity in the private sector well before the Wuhan outbreak. Damage from the coronavirus might conceivably tip the central bank's hand.Yet China’s perilous corporate-debt burden could remain a constraint. Over the course of last year, worries that a benchmark interest-rate cut wouldn't reach the private sector kept the PBOC from acting, despite expectations it would do so. Whether easier monetary policy in China would trickle through the rest of the global economy remains an open question. Many multinational firms have already started to relocate their supply chains as a result of the trade war.When SARS broke out, China was still basking in the glow of its entry to the World Trade Organization in late 2001. Six years later, growth reached a peak of 15%. Executives and officials the world over marveled at the mainland economy and Beijing’s decision-making prowess. Globalization was still very much in vogue and China became shorthand for a flattening world. Few dared offending Beijing, let alone consider imposing tariffs. (The idea of a trade war horrified President George W. Bush’s administration.) American economic diplomacy amounted to the Treasury Department’s gentle prodding that maybe China could, pretty please, end the yuan's hard peg to the greenback.Many of the people who went out of their way to praise China also urged it to rebalance its economy, to focus less on exports and investment and more on consumption. That shift has largely happened. But now China is more susceptible to changes in household sentiment — precisely the slice of the economy that a fresh outbreak will hit hardest. Since late last week, travel has been curtailed and Lunar New Year holiday activities were curbed in many parts of China.The good news is that Beijing can deploy more weapons to address this slowdown than in 2003. But given the scale of the changes since then, that may not matter much. Nor will this arsenal be particularly effective if the global economy, which China feeds and relies upon, remains a shadow of its former self.To contact the author of this story: Daniel Moss at dmoss@bloomberg.netTo contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.netThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Related Stories
Latest News
Top news around the world
Coronavirus Disease

Coronavirus disease (COVID-19) is an infectious disease caused by a newly discovered coronavirus.

Most people infected with the COVID-19 virus will experience mild to moderate respiratory illness and recover without requiring special treatment. Older people, and those with underlying medical problems like cardiovascular disease, diabetes, chronic respiratory disease, and cancer are more likely to develop serious illness.

Around the World

Celebrity News

> Latest News in Media

Watch It
Ryan Seacrest's most memorable and awkward red carpet moments | Page Six Celebrity News
February 26, 2021
sBRaNgLgSlM
Prince Harry says British media was ‘destroying my mental health’ | Page Six Celebrity News
February 26, 2021
aQy3VdcLYs8
Police audio reveals moments following shooting of Lady Gaga’s dog walker Ryan Fischer | Page Six
February 25, 2021
GdAO14utLsc
"Counting On's" Justin Duggar & Claire Spivey Are Married
February 27, 2021
5l0d9pA3yPY
"Minari": A Powerful American Story
February 27, 2021
jPAUYwCwUJM
Lady Gaga's Dogs Recovered Safely 2 Days After Armed Robbery
February 27, 2021
Ti8B2NSAojc
Bong Joon Ho and Lee Isaac Chung Talk ‘Minari,’ Family and Working With Steven Yeun
February 26, 2021
1BugGSvhxII
ViacomCBS Reports Q4 Earnings and Announces Paramount Plus Details
February 25, 2021
DSd9OAnNGaA
Ruth E. Carter Receives Her Star on the Hollywood Walk of Fame
February 25, 2021
vjoKY0uliDo
Viral Skateboarder 'Doggface' Has Rental Cars Broken into in San Francisco | TMZ
February 28, 2021
OkNTqZ3OmoE
Howard Univ. Prez Grateful for $20 Mil Donation, Wants Female Successor | TMZ
February 26, 2021
0xqiyeK6zpU
Jeff Ross Backs Michael Che's 'SNL' Joke About Israel, Weighs in on Potato Head | TMZ
February 26, 2021
t6mc3WNN1LY
TV Schedule
Late Night Show
Watch the latest shows of U.S. top comedians

Sports

Latest sport results, news, videos, interviews and comments
Find us on Instagram
at @feedimo to stay up to date with the latest.
Featured Video You Might Like
zWJ3MxW_HWA L1eLanNeZKg i1XRgbyUtOo -g9Qziqbif8 0vmRhiLHE2U JFCZUoa6MYE UfN5PCF5EUo 2PV55f3-UAg W3y9zuI_F64 -7qCxIccihU pQ9gcOoH9R8 g5MRDEXRk4k
Copyright © 2020 Feedimo. All Rights Reserved.