The Economist 29Feb2020

58 Finance & economics The EconomistFebruary 29th 2020

2

1

tounloadsomeoftheirholdings—creating

yetmorevolatility.Someexchange-traded

fundswhosevalueislinkedtothevixsaw

outflows.Itislikelythatatleastsomein-

vestorshave been bettingoncontinued

near-dormantvolatility.Theresilienceof

suchstrategiescouldbetested.

Abiggerworryiscreditmarketsandin

particular corporate debt, which has

soaredoverthepastdecade.A sharprisein

borrowing costs would hurt firms that

need to roll-over maturing bonds and

wouldalsorattleAmerica’shugeprivate-

creditmarkets.Thelastbigglobalgrowth

scare,inlate2018,causeda panickysell-off

thatbrieflythreatenedtobecomea credit-

crunch.Sofartheinterest-ratespreadover

Treasuriesdemandedbyinvestorstohold

high-yieldcorporatepaperhaswidenedto

4.3percentagepoints,withmuchof the

impact felt by energy-sector bonds (see

chart2). Thatis cause forconcern, not

alarm.Butnewissuance hashalted—by

February26thWallStreethadgonethree

dayswithoutanyhigh-gradeofferings,ac-

cordingto Bloomberg. Ifthat continues

therewillbea corporateliquiditysqueeze.

Interest-rate cutscannot domuchto

remedythedisruption.Buttheycanhelpto

soothecreditmarkets.Easierpolicyfrom

theFederalReservehasinthepast—nota-

blyin1998—beenfuelfora late-cyclerally

inrisk assetsin theface of formidable

headwinds.A fortnightago,justa singlein-

terest-ratecutfromtheFedwaspricedin

bythemarkets,saysKitJuckesofSociété

Générale,a Frenchbank.Nowtwoare.“We

maybepricingina third,ifnota fourth,

withina fewweeksunlessthere’sa dramat-

icchangeinthecovid-19news.” 7

Resourcecurse

USbondyields,spreadsoverten-yearTreasuries

Percentagepoints

Source:DatastreamfromRefinitiv

2

10

8

6

4

2

0

2019 2020

BloombergBarclays

UShigh-yieldexcl.

energyindex

BloombergBarclaysUS

high-yieldenergyindex

I

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 back

to 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 pay

for 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 work

Covid-19 and China’s economy

Marching orders

Vital signs

China

Sources:cqcoal.com;WindInfo *Bysixlargestpowercompanies †Fivebiggestcities ‡30majorcities

800

600

400

200

0

3020100-10

Average daily coal consumption

for power generation*

tonnes ’000

2020 2020 2020

2016-19

average

2016-19

average

2016-19 average

Chinese

new year

1.9

1.6

1.3

1.0

3020

Days before/after Chinese new year

100-10

Congestion index†, 1=average

non-rush-hour journey time

600

400

200

0

-10 3020100

Purchased floor space‡

’000 sq metres