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Musing on Covid-10
 
Beijing Pushes 100 Projects Each For Infrastructure To Combat The Virus
March 02, 3030

The National Development and Reform Commission (NDRC), China’s top economic planner, held a press conference Monday  on plans to contain the coronavirus and boost economic activity. NDRC Secretary General Cong Liang said “I am convinced that the various targets and tasks for economic and social development in 2020 can be achieved if we … implement the plans of the Central Economic Work Conference, actively expand effective domestic demand and properly manage policy hedging.”

 

• Cong's statement is a strong signal to local governments that it’s time to get going and try all possible means to boost domestic demand: investment and consumption. But potential overstimulation could be problem.
• A number of local governments have already announced major investment packages, including 252.3 billion yuan ($36 billion) of a variety of projects for this year in Beijing, and 3.6 trillion yuan for infrastructure for the coming few years in Yunnan. 

Peking University professor Michael Pettis pointed out that Beijing has come up with a round number of 100 projects each for infrastructure, livelihood improvement projects and high-tech industrial projects in Beijing suggests the plans were “not developed organically based on what someone thought Beijing needed but are rather the result of someone ordering Beijing to come up with 100 of each.” Estimates that it might shave off a percentage point or two to between 4% and 5%, but that basically in the long run everything will be fine and it’s just a blip.
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• It may seem optimistic, given the visible impact on the ground. But there have not yet been many voices (particularly in China) discussing publicly the prospect of a much more severe slowdown, and the kinds of consequences that aggressive stimulus to meet targets regardless may produce. Zhang Anyuan, an economist at securities firm CSC Financial Co. Ltd., is one of the few to raise such possibilities (link in Chinese) in an article for the China Chief Economist Forum.  Originally, the 300 billion yuan was primarily meant to fund companies producing much-needed medical supplies to combat the coronavirus, but it’s now being made available to a much broader range of businesses. That has already drawn scrutiny, with some questioning, for example, why Meituan Dianping needs a 4 billion yuan loan to deliver food for medical workers in Wuhan. As loan issuance expands, so will the work of auditors to ensure the money is going where it should. While acknowledging the importance of the targets, Zhang cautions against blind faith in them, and says that: The economy may actually shrink in the first quarter of this year;

• If assumptions that the coronavirus is basically a blip become the basis of policy, that could be as damaging as mistakes handling the epidemic itself. Hopefully China’s economic position is better than Zhang thinks, but it is sensible to consider the possibility that he is right. The People’s Bank of China (PBOC) expanded companies’ access to cheap loans through a special relending program in a move to bolster struggling businesses.
• The central bank told the six biggest state-owned lenders to provide low-interest loans to selected companies shortlisted by 10 provincial and municipal governments, using a 300 billion yuan special relending fund set up Feb. 7.  
• The order makes far more companies eligible for such preferential loans. Previously, only companies on a national list from the NDRC and the industry ministry could access the cheap funding from state lenders.
• Beijing decided to have the monetary authority offer another 500 billion yuan (link in Chinese) in relending and rediscount funding.
• The PBOC has also said it will provide targeted reserve requirement ratio (RRR) cuts for more banks, and let lenders issue special-purpose bonds to fund expansion of credit to small businesses.

 
Other COVID-19 Commentaries
 
Apple reported significant financial impacts to its business due to supply chain disruptions and sales closures.  Yet Tim Cook said the following on suppliers: "iPhone is built everywhere in the world; we have key parts coming from the United States, we have key parts that are in China. ... When you look at the parts that are done in China, we have reopened factories." He added, "I think of this as sort of a third phase of getting back to normal. It feels to me that China is getting the coronavirus under control. You look at the numbers, they're coming down day by day by day. So, I'm very optimistic there."
 
We talked with some business relationships in China this week and they indicated that “people were going back to work and that production is expected to reach normal levels in 2-3 weeks.”