COVID-19: Recovering Countries
The Chinese government implemented multiple financial and fiscal policies to help small and medium businesses recover from the coronavirus outbreak. Additionally, it has funded large infrastructure projects to fuel the economy. As of now, the majority of businesses that survived the lockdown have resumed operations, with companies having improved cash flow and more business transactions on their accounts. The "China Economic Recovery Index" by WeBank rose to 75% on March 13, compared to 65% two weeks before. While the number of new cases decreased significantly in South Korea, the economic impact of the coronavirus is still unknown, and there are no positive economic indicators yet.
Actions by the Chinese Government
Help for Small and Medium Businesses
- On March 1, the country's central bank and banking regulator stated that "small and medium-sized enterprises could apply to delay debt and interest rate payments due in the first half of the year. The SMEs’ lenders, in turn, will be able to postpone formal designations of the loans as non-performing."
- All Chinese financial institutions, including digital ones, were urged by the central bank to help small and medium companies with issues such as credit lines for resuming operations, reducing interest rates, and increasing renewal loans.
- Additionally, on March 13, the government announced its plan to release approximately $80 billion for commercial banks to help with lending to businesses affected by the pandemic.
- Furthermore, both central and local governments implemented a number of fiscal policies to help small and medium enterprises. They include tax cuts, fee exemptions, cost reductions, and subsidies.
- At the same time, the government enforced lowering the price of electricity to help resume production and encouraged local authorities "to waive urban land-use taxes."
- Examples of local governments that are actively trying to help small businesses include Beijing and Shanghai. They are offering subsidies to landlords and delaying tax and social security payments.
Large Infrastructure Projects
- Several Chinese ministries collaborated to increase domestic demand through significant infrastructure investments.
- Major projects in transportation, energy, and 5G have been launched thanks to "special local government bonds."
- The Chinese government is also seeking to find more funding to key companies that work on those projects to support local and global supply chains.
- Cumulatively, several local governments are planning to spend $3.6 trillion on large infrastructure projects in the next few years.
- Those projects are supposed to create jobs and help meet the target economic growth or at least get closer to it.
- Unlike other developed countries, China has a large state-funded infrastructure system, which increases the likely effectiveness of this measure in boosting the economy.
- Still, Bloomberg believes that the action will only mask the issues with supply chains and public investment model.
- While in South Korea, new cases are down from around 1,000 a day to about 100, the country is only planning to start going back to normalcy next month.
- On March 23, when the number of new infections dropped significantly, the government aimed to reopen schools in two weeks.
- Furthermore, as of early March, the economic impact of COVID-19 on the South Korean economy was largely unknown and unpredictable. Despite taking effective protective measures, the country was at risk due to its dependence on Chinese suppliers and decreased social activity.
- However, also at the beginning of March, manufacturing inside the country wasn't disrupted.
- South Korean Deputy Prime Minister for Economic Affairs expects negative growth for his country's economy in the first quarter of the year. However, he thinks that the global economy will recover fully in the coming two years.
- Overall, the South Korean model is considered successful in fighting the spread of the virus due to the country's testing policy, averaging 5,200 tests for million citizens (more than any other country except Bahrain).
- Also, the virus was controlled without drastic measures such as city lockdowns.
- The government used its experience from the Middle East Respiratory Syndrom (MERS) outbreak to effectively prepare for the COVID-19 pandemic.
- However, it is too early for economic indicators to show that the South Korean economy is recovering. For example, the consumer sentiment is still at its decade-low, having dropped 18 points since February.
- Similarly, the data on South Korean businesses focuses on the damage done by the pandemic and government actions to mitigate it but doesn't provide any tangible results so far.
- In early March, there were 29% more transactions in the accounts of Chinese micro- and small businesses.
- According to Zhou Liang, a vice-chairman of the China Banking and Insurance Regulatory Commission, both business activity and cash flow improved on corporate accounts.
- On March 17, more than 90% of industrial companies in Boejing were active.
- However, it is worth noting that small businesses were still struggling at that time, with only 60% back to operating. Many of them weren't able to adjust to strict health regulations.
- Similarly, in Zheijang, 90% of industrial enterprises resumed activity by late February.
- Overall, the resumption of the work rate in China is at least 70%. Most of the companies that survived the outbreak resumed operations.
- For large industrial companies outside Hubei, the rate rises to 95%.
Other Economic Indicators
- The "China Economic Recovery Index" (CERI) is an indicator based on data from mobile aggregators. It is compiled by the artificial intelligence team from WeBank, an online bank started by Tencent, a Chinese tech giant.
- As of March 13, CERI was 75% compared to 65% two weeks before.
- Also, according to the China Trade Recovery Index by FlexPort, shipments from China doubled between the first week after the Chinese New Year and mid-March.
- Between February and March, there was an improvement in freight shipping rates for dry bulk and crude oil.
- Overall, according to the analysis by a big-data company CargoMetrics, Chinese cargo flows have nearly returned to pre-pandemic levels, with container imports recording growth compared to data from before the Chinese New Year.
- It remains to be seen if the figures aren't skewed by reduced port congestion. However, the unquestionable economic recovery in China provides hope and inspiration for other countries dealing with the pandemic.
After analyzing multiple articles about South Korea's recovery from the COVID-19 outbreak in business and news media, including Forbes, BBC, The Wall Street Journal, and South China Morning Post, we concluded that there is not enough data on the economic impact of the virus on the country, much less about signs of economic recovery. Most articles either speculate on the damage to the South Korean economy and its government's image or focus on praising the model of containing the outbreak. Since the country is only planning to lift restrictions next month, we assumed that it is too early to provide metrics other than the drop in new cases.