60 Finance & economics The EconomistFebruary 29th 2020
21to unload some of their holdings—creating
yet more volatility. Some exchange-traded
funds whose value is linked to thevixsaw
outflows. It is likely that at least some in-
vestors have been betting on continued
near-dormant volatility. The resilience of
such strategies could be tested.
A bigger worry is credit markets and in
particular corporate debt, which has
soared over the past decade. A sharp rise in
borrowing costs would hurt firms that
need to roll-over maturing bonds and
would also rattle America’s huge private-
credit markets. The last big global growth
scare, in late 2018, caused a panicky sell-off
that briefly threatened to become a credit-
crunch. So far the interest-rate spread over
Treasuries demanded by investors to hold
high-yield corporate paper has widened to
4.3 percentage points, with much of the
impact felt by energy-sector bonds (see
chart 2). That is cause for concern, not
alarm. But new issuance has halted—by
February 26th Wall Street had gone three
days without any high-grade offerings, ac-
cording to Bloomberg. If that continues
there will be a corporate liquidity squeeze.
Interest-rate cuts cannot do much to
remedy the disruption. But they can help tosoothe credit markets. Easier policy from
the Federal Reserve has in the past—nota-
bly in 1998—been fuel for a late-cycle rally
in risk assets in the face of formidable
headwinds. A fortnight ago, just a single in-
terest-rate cut from the Fed was priced in
by the markets, says Kit Juckes of Société
Générale, a French bank. Now two are. “We
may be pricing in a third, if not a fourth,
within a few weeks unless there’s a dramat-
ic change in the covid-19 news.” 7Resource curse
US bond yields, spreads over ten-year Treasuries
Percentage pointsSource: Datastream from Refinitiv21086420
2019 2020Bloomberg Barclays
UShigh-yield excl.
energy indexBloomberg Barclays US
high-yield energy indexI
f china isthe world’s factory, Yiwu In-
ternational Trade City is its showroom. It
is the world’s biggest wholesale market,
spacious enough to fit 770 football pitches,
with stalls selling everything from leather
purses to motorcycle mufflers. On Febru-
ary 24th, as is customary for its reopening
after the lunar new year, performers held
long fabric dragons aloft on poles and
danced to the beat of drums, hoping to
bring fortune to the 200,000 merchants
and buyers who normally throng the mar-
ket each day. But these are not normal
times. The reopening was delayed by two
weeks because of the covid-19 virus, the
crowd was sparse and the dragon dancers,
like everyone else, donned white face-
masks for protection. The ceremony com-
plete, business began. All those entering
the market had to pass health checks and
were told to be silent during meal breaks,
lest they spread germs by talking.
The muted restart of the Yiwu market
resembles that of the broader Chinese
economy. The government has decided
that the epidemic is under control to the
point that much of the country can go backto work. That is far from simple. More than
100m migrant workers remain in their
hometowns, and officials are trying hard to
transport them to the factories and shops
that need them. Yiwu has chartered trains
and buses to bring in workers from around
the country. It also wants to lure in buyers
from around the world: it has offered to payfor their flights and accommodation if they
arrive before February 29th.
The market is, little by little, getting
busier. But merchants have a big challenge
in fulfilling orders. Wang Meixiao, who
sells plastic jewellery, says her factories do
not yet have enough workers to operate.
Many are unwilling to trek across the coun-
try only to endure 14-day quarantines at
their destinations. “I tell my customers
they just have to wait another couple of
weeks, but that’s a guess,” she says.
Since the outbreak of the virus, econo-
mists and investors have tried to grasp the
basics of epidemiology, analysing such
matters as the potential incubation period
of the disease. Recently, they have turned
back to more familiar terrain, tracking the
state of the economy. To gauge whether
output is resuming, economists have been
examining an array of daily figures, includ-
ing coal consumption, traffic congestion
and property sales. All have started to rise
(see chart), but remain far below healthy
levels. One gauge has been far more up-
beat—unrealistically so. China’s stock-
market fell by more than 10% after the co-
ronavirus spread in late January but has
since recovered that ground, partly on a be-
lief that the government will unleash a big
stimulus to boost growth. So far, though, it
has only offered targeted support: loan ex-
tensions, tax cuts and subsidised rents.
Yet China has unquestionably shifted
its focus, as underlined on February 23rd
when President Xi Jinping spoke via tele-
conference to 170,000 cadres around the
country. In areas where the virus is no lon-
ger a big danger, it is time for companies to
resume operations, he said. So along with
reporting the number of new infections ev-
ery day, officials now report on the number
of reopened businesses. The province of
Zhejiang, a manufacturing hub and home
to Yiwu, leads the country, with 90% of its
large industrial firms having restarted. But
many of these are running at low capaci-
ties. “The government, enterprises, work-
ers—everyone is making a gamble in re-YIWU
With its epidemic slowing, China tries to get back to workCovid-19 and China’s economyMarching orders
Vital signs
ChinaSources: cqcoal.com; Wind Info *By six largest power companies †Five biggest cities ‡30 major cities8006004002000
3020100-10Average daily coal consumption
for power generation*
tonnes ’0002020 2020 20202016-19
average2016-19
average
2016-19 averageChinese
new year1.91.61.31.03020
Days before/after Chinese new year100-10Congestion index†, 1=average
non-rush-hour journey time
6004002000
-10 3020100Purchased floor space‡
’000 sq metres