An employee inspects the electrolytic cells at the United Initiators Hefei Co., Ltd. at a circular economy demonstration park in Hefei, east China's Anhui Province, Feb. 18, 2020. (Photo by Zhou Mu/Xinhua)
Given the stimulating policies taken by China and the gradual resumption of work and production, consumption there could bounce back quickly after the outbreak concludes, said Gene Ma, chief economist for China at the Institute of International Finance.
by Xinhua writers Yang Chenglin, Gao Pan
WASHINGTON, Feb. 26 (Xinhua) -- As the world financial markets tumbled amid the spread of COVID-19, the Chinese market could be one of the best places to diversify risk as the epidemic there was somewhat contained, a senior U.S. economist said on Tuesday.
Additionally, given the stimulating policies taken by China and the gradual resumption of work and production, consumption there could bounce back quickly after the outbreak concludes, Gene Ma, chief economist for China at the Institute of International Finance, told Xinhua in an interview.
A PLACE TO DIVERSIFY RISK
The benchmark index Dow finished nearly 880 points or 3 percent lower on Tuesday, as a senior U.S. health official warned that the spread of COVID-19 may cause severe disruption in the country.
One day earlier, the index dropped 1,000 points, marking its third worst daily point drop in financial history.
European stock markets also tumbled, as the spread of the virus overshadowed the outlook for global growth.
As a veteran in the global investment sector, Ma believed markets took such a beating due to "too much uncertainty at this moment," and the impact on the global economy was difficult to estimate.
"It's very difficult to put a number on this, because we did not know how badly it will spread, how soon it would be contained, how many countries will be affected, what kind of counter-cyclical policies policymakers want to put out," Ma said.
Staff members work at a workshop of Skyworth in Guangzhou, south China's Guangdong Province, Feb. 10, 2020. (Xinhua/Deng Hua)
As the risk of a global outbreak piles up, Ma stressed the unique value of China's market amid the epidemic.
"There are four things you're looking at, China's GDP (gross domestic product), inflation number, equity returns and fix-income returns, all four indicators are the least correlated with the global market among all major economies," said Ma. "So that means this is one of the best places to diversify the risk."
Market data have supported Ma's theory. When major indexes like the Dow and S&P 500 plunged over 3 percent on Monday and Tuesday, the two benchmark indexes in China, the Shanghai Composite Index and Shenzhen Stock Exchange Composite Index, both showed less movement during the same period.
Even though it is still early to define Chinese equities as risk-off or safe-haven assets, Ma said diversification in the Chinese market could greatly help investors lower overall volatility.
Specialists with General Hospital of Ningxia Medical University and Xiangyang Polytechnic Affiliated Hospital in central China's Hubei Pronvince cheer for each other after tele-consultation at the remote medical consultation center of General Hospital of Ningxia Medical University in Yinchuan, northwest China's Ningxia Hui Autonomous Region, Feb. 17, 2020. (Xinhua/Wang Peng)
REBOUND OF CONSUMPTION
Ma as well as many other economists have noticed the impact of COVID-19 on the economy, especially the temporary shock over the consumption side in the hotel industry, box office, travel, auto sales and other sectors, but most economists believed the negative impact would diminish quickly after the epidemic is over, and new service demand has already been generated.
Even though it is hard for sectors like catering and travel to fully recover the economic losses generated by the outbreak, Ma believed the affected industries might bounce back immediately after the outbreak concludes.
"Once (the outbreak is) over, the activity could rebound very quickly to a normal level," said Ma, noticing that industries such as the film and travel industries would soon bounce back to a normal level.
Besides, some of the consumer demand in China during the outbreak had already transitioned from traditional consumption activities to new service sectors like telecommuting, online learning, video streaming, online games, etc.
"In fact, financial markets are very swift to pick up on this transition," said Ma. "So all the related stocks are doing very well."
Ma also said that capturing these new online service activities in GDP statistics requires more work.
Since China's GDP statistics are very good at capturing investor activities, it usually needs to revise up its service sector output number after major consensus surveys, Ma said.
A worker works at Changan Ford transmission plant in southwest China's Chongqing, Feb. 10, 2020. (Xinhua/Wang Quanchao)
SUPPORT SMALL BUSINESSES
As China was restarting its economic engine, the world was watching its policy moves closely.
In Ma's opinion, the first raft of policy packages, including rate and tax cuts, mainly worked as a relief for small businesses.
"The first wave of policy reaction that we saw in the past two or three weeks aimed more at relief, rather than stimulus to growth, as it helps small businesses to repay loans, so that small businesses would not go bankrupt, so that they could pay the workers' salaries," Ma said.
The People's Bank of China (PBoC) has recently pledged a big increase in the issuance of special bonds to provide sufficient funds to commercial lenders for supporting smaller enterprises.
It also vowed to moderately raise its tolerance for non-performing loans from local financial institutions with adequate provisions to cover bad loans and the capital adequacy ratio remaining high.
Ma said fiscal policy is playing an increasingly important role in China's policy package while the easing process on the monetary side remained relatively slow and gentle.
"It's the right thing to do, because on the monetary side, PBoC has already done a lot in the past few years," said Ma.
For the next raft of policies, Ma recommended that new policies should continue to aim at restoring and strengthening small businesses' confidence since it will give them courage to go out to invest, hire and do more business. ■