Bloomberg Businessweek - USA (2020-06-29)

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e now facing plunging incomes as Covid-19 swept

h the economy. Surely the day of reckoning was nigh.

r some in the Trump administration, it seemed like a

moment for a victory lap. China’s outbreak would

celerate the return of jobs to North America” said

lbur Ross, the commerce secretary. Back at the end

January, when China had the virus and the U.S. did

t, that seemed tone-deaf to human suffering. A few

onths later, with China in recovery mode and the

S.reporting 2.2 million cases, it’s clear that it was

o off-base on where the economic costs would fall.

Beijing took action on Feb. 1, a Saturday. For more

n a week, China’s financial markets had been closed,

xtended break as policymakers kept the 1.4 billion

lation on lockdown for the Lunar New Year holiday.

nday, they opened again. With traders scrambling

ina plethora of bad news—from a rising case count

markets in the U.S. and Europe—there was only one

markets could go: down.

howof strength, the People’s Bank of China, the

nking and Insurance Regulatory Commission, and

Administration of Foreign Exchange issued a joint

t, committing to stabilize the market and extend

morecreditto small businesses stretched to the breaking

pointbythelockdown. More action followed. The People’s

Bank of China injected 1.7 trillion yuan into the economy—a

record slug of cash aimed at calming nervous markets.

Interest rates were cut. Bearish short sellers faced new reg-

ulatory constraints. And cash-rich insurance funds were given

a clear signal: Buy stocks now.

It worked. A drop in stocks was inevitable, but with the

assurance of strong support from Beijing the market quickly

regained lost ground. The yuan, a crucial gauge of investor

confidence, moved back to the strong side of 7 to the dollar.

China’s seven-day repo rate, the beating heart of the finan-

cial system, stayed low and stable, showing banks had no

shortage of funds.

With the financial system steady, policy focused on plug-

ging the gaps for businesses and households—preventing the

lockdowns necessary to control the pandemic from triggering

a downward spiral of bankruptcies and unemployment.

Banks were told to go easy on borrowers. Nationwide, small

enterprises and companies got a holiday on loan repayments.

In Hubei, the epicenter of the outbreak, big ones were off

the hook too. Fiscal policy shifted to reduce the burden on

business, freeing up cash flow. An accountant at a cinema

in the northern metropolis of Tianjin says breaks on taxes

and social security contributions helped keep the lights on

through the lockdown.

Major corporations, from state-owned dinosaurs to gleam-

ing new tech titans, swung into action. From long experience,

state-owned companies know the crisis drill—no letting work-

ers go, no turning off the investment taps, keep money flowing

through the system. Tencent Holdings Ltd. and Alibaba Group

Holding Ltd., tech giants whose payment and messaging apps

are the digital arteries of China’s economy, created add-ons

that enabled the government to judge who could leave the

house safely. Leveraging its payments network, Alibaba pro-

vided cut-price loans to small businesses and street vendors,

helping keep them afloat through the lockdown.

The outcome will be far from perfect. China is poised for

the lowest growth of the reform era. Bloomberg Economics’

forecast is for GDP to expand 2.1% in 2020, down from 6.1% in

2019 and the lowest since the start of Deng Xiaoping’s reform

and opening in 1978. But a system-shaking crisis has been

avoided. Markets are stable. Banks are still standing.

How did China manage once again to defy the doubters?

The answer—as I argue in my new book, China: The Bubble

That Never Pops—lies in the strengths of a system that are hid-

ing in plain sight: rock-solid funding for the banks, state inter-

vention that can be more strength than weakness, and the

competitive edge that comes from enormous size.

Let’s start with the banks. Much ink has been spilled on the

risks in China’s financial sector. Since November 2008, when

then-Premier Wen Jiabao pressed the “go” button on the four-

trillion-yuan stimulus, bank assets have more than quadru-

pled in size. Reviewing the history of credit bubbles, the IMF

found none that had expanded so quickly, but plenty of

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 REMARKS Bloomberg Businessweek June 29, 2020

Bank
regulator
says small
firms can
postpone loan
repayment

OfficialPMI
business
survey
dropsto
recordlow

WHO

declares

Covid a

pandemic

Wuhan

begins

easing

lockdown

Reserve

requirement

ratio cut

again

Wuhan

quarantine

lifted

Statisticsbureau

reportsrecord

6.8%dropin GDP

PBOC

cuts rates

by an

additional

20 basis

points

Premier Li Keqiang

abandons growth

target, promises

expanded stimulus

PBOC

announces a

new 400-billion-

yuan instrument

to support bank

lending

Beijing

returns to

lockdown to

control local

outbreak

Reserve

requirement

cut,freeing

bankfunds

forlending

June19, 2020

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