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China Combats Coronavirus by ‘Supplying Cash to Money Markets’

Since the first reports of the outbreak in January, the coronavirus continues to take a toll on the Chinese economy and, in turn, the global economy. On Feb. 3, The New York Times (NYT) cited statistics from Oxford Economics, predicting China's economic growth to fall from last year's 6.1% to 5.6% in 2020. By all accounts, such a dramatic decline would bring the global economic growth to 2.3%.

According to NYT, the virus has not only canceled flights to China, but also closed top-name stores such as Apple, Starbucks and Ikea. Nike, Under Armour and McDonald's are suffering as well because of the minimal foot traffic in shopping malls.

When something like this occurs, the same businesses located in other parts of the world feel the ripple effect; however, Bloomberg reported, the central bank in China is attempting to "aid companies hit by the coronavirus outbreak and also shore up financial markets," beginning Feb. 3.

"The central bank will supply cash to money markets and banks were told to lend more and not call in loans to companies in Hubei and other affected regions," Bloomberg reported on Feb. 1. "In addition, night trading sessions for futures were suspended, some share pledge contracts can be extended, and there was a relaxation of asset-management rules, which were forcing banks to remove implicit guarantees for trillions of dollars of investments."

Only time will tell whether the country is successful in fending off further economic loss, but Bloomberg Economists Chang Shu and David Qu said the move should provide the necessary economic support.

"The focus of this initial show of force is on providing economy-wide liquidity, ensuring regular functioning of the financial system and essential financial services, and targeted measures for the most affected regions and sectors," the economists said in a statement. "We think the focus will shift to more growth support once there are signs that the virus is starting to be contained—with deeper reductions in interest rates and the reserve requirement ratio, together with fiscal measures."

—Andrew Michaels, editorial associate

Strategic Global Intelligence Brief for February 3...
Strategic Global Intelligence Brief for January 31...

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Wednesday, 26 February 2020