How will the coronavirus epidemic affect China's economy?
Updated 07:44, 29-Feb-2020
Robert Lawrence Kuhn

I'm Robert Lawrence Kuhn and I'm feeling guilty watching China's valiant "people's war" on the novel coronavirus, Covid-19, from the safety and comfort of Los Angeles – while my friends and colleagues in China are enduring life disruptions, quarantines, as they strive to win the war and return to normalcy.

I departed Beijing on January 18, oblivious to the looming epidemic. I've been trying to do my small part, explaining what's happening in the international and Chinese media. Global self-interest, naturally, focuses on the epidemic's impact on China's economy, because China's economy affects every economy.

I explain that downward pressure is quite natural, because consumption is suppressed, the outbreak having come at the worst time, just before the Chinese New Year Spring Festival. 

But in fact, China's economic recovery, once the contagion is contained, is the easy part. The People's Bank of China expects a quick recovery, supported by a resilient economy and ample room for policy adjustments. 

China's economy has a broad range of industrial sectors, and as workers return to their jobs, production is gradually recovering. One need only review China's recent history to appreciate the potency and resiliency of Chinese workers, who are the foundation of China's historic transformation, and to recognize the depth and sophistication of China's industrial chain, the deepest and most comprehensive in the world. 

One need not be an economist to forecast that, once the contagion is contained, there will be "snap back", or a "make up" period, of strong growth driven by pent-up demand.

But the epidemic's impact on the economy is differential. Some industries will find it difficult to recoup past losses, like transportation, hotels, restaurants, gyms – but they can and will return to normal.

Other industries should have a "bounce", greater than normal, like housing and automotive. Although all business is down, e-commerce should do well, even accelerate its market penetration, because people will feel more comfortable, at least for a while, shopping online, not in public places — and as people get used to shopping online, the more permanent the change in behavior. 

Macroeconomically, the government had multiple financial tools, including preferential policies in banking and finance, especially to support small and medium-sized enterprises. 

That the government is addressing these concerns quickly is already a confidence boost. There is concern about international companies, some of which, even prior to the epidemic, felt their supply chains threatened by US trade tensions, and the virus may reinforce their risk-management sense to diversify away from China. 

Here is where China can take pro-active steps in accelerating further reform and opening up of domestic markets, which will encourage international companies to remain committed to China – and perhaps even upgrade to take advantage of new opportunities. The world is rooting for China. I am too. I'm Robert Lawrence Kuhn.

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