China's macro-policy ammo sufficient to counter coronavirus hit

A press conference on China's economic policy to counter the impact of the novel coronavirus is held in Beijing, capital of China, Feb. 7, 2020. The Chinese government is mobilizing billions of yuan to aid those affected by the novel coronavirus outbreak and assures that ample economic levers are at hand to handle the epidemic impact. (Xinhua/Jin Liangkuai)

BEIJING, Feb. 7 (Xinhua) -- The Chinese government is mobilizing billions of yuan to aid those affected by the novel coronavirus outbreak and assures that ample economic levers are at hand to handle the epidemic impact.

The People's Bank of China is analyzing the impact of the outbreak on the economy and will increase counter-cyclical adjustments and ensure adequate liquidity to provide a supportive financial environment, Pan Gongsheng, vice governor of the central bank, told a press conference Friday.

Considering the coronavirus impact on the economy as "temporary," Pan said the economy showed strong resilience, and the country had sufficient policy space to stabilize economic growth.

The epidemic might disturb economic activities in the first quarter of this year, but the economy is likely to steady shortly after the epidemic is contained, as the unleashing of pent-up demands will make up for previous weak economic performance, Pan said.

The pneumonia-causing virus was first identified in the city of Wuhan in central China's Hubei Province in December. It has since killed more than 600 people on the Chinese mainland and spread overseas.

While racing to contain the spread of the virus, the Chinese government is stepping up support for the epidemic-affected economy, as extended Lunar New Year holidays and preventive travel restrictions in some cities took a toll on business activities.

The Ministry of Finance said Friday that as of 5 p.m. on Thursday, finance ministries at all levels of government had allocated 66.74 billion yuan (9.56 billion U.S. dollars) for the prevention and control of the epidemic.

The ministry also unveiled a policy for the government to subsidize the personal treatment costs incurred by those with confirmed cases of the virus and pay allowances to medical staff working on the frontlines of epidemic control.

The country will also cut taxes and fees, Yu Weiping, vice finance minister, said at the press conference.

Preferential loans of 300 billion yuan will be given to enterprises that produce, transport or sell medical supplies and life necessities to ensure that their loan rates are lower than 1.6 percent, compared to a market level of between 2.4 percent and 3.15 percent.

These measures will reduce production and financing costs of related firms and help them to weather this difficult period and increase medical supplies, Yu said.

To boost liquidity and stabilize financial markets, China's central bank added a total of 1.7 trillion yuan into the banking system this week via reverse repurchase agreements (repos) and lowered the repo rates by 10 basis points (bps).

"The Chinese authorities have policy space to respond and have announced a sizeable injection of liquidity, which should help mitigate the costs to economic growth," the World Bank said in a statement Monday.

Also on Monday, the International Monetary Fund expressed its support for China's efforts to tackle the outbreak and said it is confident that China's economy "remains resilient."

Pan Gongsheng said the central bank will continue to use policy tools such as targeted reduction of the reserve requirement ratios (RRR), re-lending and rediscount to provide further support for the economy.

"We see more liquidity offerings from the central bank, at least additional 100-bps RRR cuts, 15-20 bps rate cuts in medium-term lending facility and a less tight regulatory environment on shadow credit," said UBS analyst Wang Tao.

With immediate virus control as the priority, Goldman Sachs expected the country's current policies to focus on ensuring financial resources flow to the places needed for "firefighting" and keeping the broad policy environment supportive.

Once the epidemic is under control, senior policymakers will shift their focus to the economy, with fixed-asset-investment-driven stimulus and measures to support consumption likely to be unveiled, it said.