Since January 2020, the outbreak of Novel Coronavirus in China has seriously impacted the economic development of China. Under the epidemic, the future direction of China's economy and insurance industry has become a key issue that has attracted widespread concern. This article by the Research Center for Big Data in Finance, THUIFR，summarizes the research views of experts and scholars from universities, think tanks and industry macro analysts in order to explore the impact of the Novel Coronavirus on enterprises and their countermeasures.
Research methods
The research methods on the impact of the epidemic on China's economy included comparative methods, investigation methods and data prediction methods.
Comparative Method
The comparative method includes the comparison of time series and cross sectional comparison. Time series comparison refers to the comparison of the Novel Coronavirus outbreak with the SARS outbreak in 2003. Cross-sectional comparison refers to the comparison between China and other countries, including the performance of financial markets at home and abroad, the epidemic prevention and control measures taken by governments, and the policy measures adopted by governments to deal with sudden negative shocks.
Research Survey Method
The research survey method refers to the investigation of the micro-enterprises affected by the epidemic via a questionnaire survey, as well as directly obtaining information of the front-line industry people the targeted pre-designed survey questions.
Data Forecasting Method
The data forecasting method refers to the use of available data obtained by the Bureau of Statistics and other sources to predict the macroeconomic impact on GDP through regression analysis and other methods.
The impact of Novel Coronavirus on the Chinese economy
The Novel Coronavirus will have a bigger impact on the economy than SARS.
At the early stage of the Novel Coronavirus outbreak, investors interpreted the outbreak as a short-term regional external shock. Foreign markets were less affected by the shock than the domestic market. However, with the spread of coronavirus around the world, the short-term shock was replaced by concerns about endogenous financial market instability and the possibility of systemic financial risk. Under a global epidemic, countries need to work together to meet the challenges together.
From the perspective of the bond market, although the US Treasury yields have rebounded with the equity market, yields have been unusually weak since mid-February. From the perspective of the exchange rate market, both the Japanese yen and the US dollar have appreciated since the outbreak of Novel Coronavirus. Commodity markets have also weakened, with metal and oil prices falling sharply. The performance of financial markets reflects the pessimistic expectations of investors.
Employees' salary and rent costs are the main sources of pressure. Most SMEs have respond the epidemic by reducing their staff, reducing their salaries, and suspending production and closing business. Enterprises’ demands from policy has mainly focused on demands for subsidies and reduction in costs of social security, rent, employee salaries and other costs.
This research surveyed 212 well-known large and medium-sized enterprises in China and found that the epidemic had a serious impact on the operation of these large and medium-sized enterprises. Although these businesses didn’t face the same level of cash flow interruption and business failures as small micro enterprise, due to the spread of Novel Coronavirus, orders declined, there were restrictions on construction, problems of understaffing as well as fixed cost burdens, supply chain disruptions, and increased credit and debt risks.
Policy proposals for responding to the outbreak of Novel Coronavirus
At present, the most important thing is actually implement the resumption of work, give policy support to logistics, the flow of people, capital, finance and other resources. The government must have a sense of urgency and race against time, to ensure epidemic prevention and control, as well as the resumption of work starting with key industries to resume industrial value chain production.
In terms of the source of financial funds, the government should intensify the issuance of special bonds, give full play to the role of housing fund in infrastructure construction, vigorously promote the financing of infrastructure REITs, appropriately transfer the equity of listed state-owned enterprises, and consider issuing special Treasury bonds whenever necessary. More tax cuts and spending policies are needed. Specifically, expanding the deficit, increasing outbreak related fiscal spending, expanding research, development, treatment and prevention materials and subsidies for frontline medical staff. Tax breaks and fee discounts for areas not affected by the outbreak, reducing social security contributions as also needed. Financial discounts for enterprises to promote new types of infrastructure construction are also needed. At the same time, it is necessary to supported by a prudent monetary policy (moderate cuts in the reserve requirement ratio and interest rates) and large-scale reform and opening up.
Monetary policy support includes cuts to the reserve requirement ratio, cutting interest rate, and quantitative measures. After the financial crisis in 2008, the world entered the era of low interest rates, and some countries even had negative interest rates. With the interest rate as a monetary policy tool restricted, the central banks of the US Federal Reserve and other countries adopted quantitative easing measures to massively expand their balance sheets and inject a lot of liquidity into the economy. In the decade after the crisis, although the world economy experienced a relatively strong rebound, the policy of crisis rescue could not be completely withdrawn, which limited the space of monetary policy. By comparison, China's monetary policy tools are relatively better placed to deliver the required support.
