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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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