If the authorities decide to ease further restrictions on movements within and between cities, those migration flows will pick up pace. ANZ Research believes the authorities will remain cautious to minimise the risk of another contagion.
It will likely take around three weeks (compared with a mere one week, historically) for all workers to return to their workplaces by the end of March.
It’s worth noting a normalisation in economic activity over the first two weeks of April does not guarantee a sharp v-shaped economic rebound.
The impact on China’s economy in the past two months has been severe. To attain its growth targets over the rest of calendar 2020, China will need to run its factories at above-capacity utilisation rates for a long period to compensate for the void.
An orderly recovery rather than a growth surge is more likely. In addition, the outbreak has now spread to China’s key trading partners, including South Korea, Japan, Europe, and increasingly the US. China will need to brace itself for the challenging growth outlook.
Given the uncertain external demand, China’s growth outlook will be driven by domestic factors to a larger extent than in the past.
At this stage, there are few signs the Chinese government will deliver a huge stimulus plan to boost the economy. ANZ Research believes the government will adopt a targeted approach as they do not want to repeat the side-effects of the massive stimulus package in 2009, such as rapid debt growth and over-capacity issues.
With the US Federal Reserve’s interest rate cut and another possible move on the horizon, there is room for China to follow suit without worrying about depreciation pressure on the yuan. However, ANZ Research believes the People’s Bank of China (PBoC) will be more inclined to address corporate loan rates via adjustments to the loan prime rate (LPR).
Therefore, the next action by the PBoC will likely be a cut in the medium-term lending facility rate, probably in April, and a targeted RRR cut based on the annual dynamic assessment of inclusive financing in March.
The resumption of work across Chinese cities is underway. According to government data, large industrial enterprises in most provinces have already achieved work resumption rates of at least 90 per cent.
In provinces with high GDP growth, such as Guangdong, Zhejiang, and Jiangsu, the work resumption rates of industrial firms above a designated size have reached higher than 95 per cent.
White-collar employees have returned to work this week in major cities. ANZ Research expects blue-collar workers will return and complete health quarantine requirement by the first week of April.
Labour constraints should disappear by the first week of April. Assuming it takes one week for port clearance and inventory adjustments, Chinese factory production capacity will likely be normalised by the second week.