China fine-tunes stimulus for economic recovery amid global recession concern

With a coronavirus-triggered recession looming large for the world, China has been taking greater efforts to fine-tune its stimulus policies to cope with not just short-term disruptions but lingering impact from the virus on its economy.

Workers are busy at the garment workshop of a foreign trade company in Neiqiu county of Xingtai city, north China's Hebei province, March 4, 2020.[Photo/Xinhua]

Buffer the blow to the supply chain

China has raised export rebate rates for more than 1,000 types of products starting March 20, as part of policy tools to help foreign trade firms secure orders and maintain market shares.

As overseas orders keep falling due to the spread of the pandemic, Polestar, a new energy vehicle producer whose products are sold to European countries, had worried about its cash flow.

The company's plant in the city of Chengdu, Sichuan province received 14.4 million yuan (about US$2.06 million) in export rebates shortly after it filed a report for refunding on March 25. With the money, the plant was able to run at full tilt again.

Thanks to the government efforts, 98.6 percent of major industrial firms nationwide had restarted work as of March 28 following containment of COVID-19 in China. Still, officials have warned about the severe downward pressure the country may face as the global spread of the pandemic hampers the cross-border flow of goods, personnel and capital.

The World Trade Organization predicted in its latest report Wednesday that the global trade will fall by between 13 percent and 32 percent in 2020 as the COVID-19 pandemic disrupts normal economic activity and life around the world.

Minister of Commerce Zhong Shan wrote in a signed article published recently in Qiushi Journal that China would work to streamline clearance procedures, improve logistic service and advance free trade agreement negotiations to boost trade.

The State Council on Tuesday decided to establish 46 new cross-border e-commerce pilot zones in addition to the existing 59 ones, and exempt retail export goods in all pilot zones from value-added tax and consumption tax.

Ward off financial risks

Affected by the pandemic outbreak overseas, the global financial markets have been roiled by broad stock sell-offs and tumbling of oil prices, raising concerns that a fragile financial system would further dampen firms' prospects to survive.

Liu Guoqiang, vice governor of the People's Bank of China (PBOC), said the country's financial system is sturdy enough to fend off risks that emerge.

As of the end of 2019, the non-performing loan ratio at Chinese commercial banks stood at 1.86 percent, far below the regulatory ceiling of 5 percent, demonstrating the banking system's capability of absorbing losses, said Liu.

The PBOC on Friday also announced a decision to cut the reserve requirement ratio for small and medium-sized banks by 100 basis points, as part of efforts to keep market liquidity reasonably sufficient.

China has been living up to its promise of opening up its financial sector. On April 1, foreign ownership caps on securities firms were scrapped, which has inspired many foreign companies to seek to set up wholly owned subsidiaries.

Opening up the financial sector did not mean increasing risks because China's systemic risk assessment and the financial supervision system have been continuously improved to forestall financial risks, said Chen Yulu, vice governor of the PBOC.

Nurture new growth drivers

While monetary and fiscal measures were taken to stem short-term shock brought by the pandemic, China is ready to take a long-haul approach in dealing with the external impact of the virus.

Instead of turning to the old playbook of investment stimulus, the country has been eyeing for the long-term, speeding up infrastructure projects that would generate both economic and social benefits.

A total of 25 provincial-level regions have put new infrastructure projects in their government work reports, with 21 intending to advance 5G network construction, which is expected to bring new engines for the economy.

In the next five years, the economic output indirectly driven by 5G businesses in China will hit 24.8 trillion yuan, the China Academy of Information and Communications Technology predicted in an industry report.

While China has ample tools to cope with short-term impact of the pandemic, policymakers should focus on unleashing the country's "structural potential" to pursue long-term high-quality development, said Liu Shijin, an economist with the China Development Research Foundation.

Liu suggested the country should facilitate the development of city clusters, which may contribute to improving people's living conditions and quality of life, expanding investment and consumption, as well as advancing innovative and green development.

Against the backdrop of a potential recession of the world economy, China can call it a victory as long as its economy withstands the tempest and maintain moderate growth, Liu noted.