How Will the "World Factory" Restart Under the Impact of COVID-19?

Affected by the COVID-19 outbreak, China needs to fight against the epidemic while resuming production. Could China continue to release its development potential, maintain momentum, and steadily promote production resumption to reactivate the global industrial chain?

According to data from the National Development and Reform Commission of China, industrial enterprises above a designated size in China have resumed production at a gradually increasing rate. The utilization rate of medical masks production capacity has reached 110 percent. Production has been restored at over 70 percent of grain supply and processing enterprises designated as providers of grain products during emergency times. The production capability of coal enterprises has been restored to 76 percent of the normal level, and the railway, civil aviation, ports and waterways are all operating normally.

Recently, China’s central and local governments have stressed economic stability. Several ministries and commissions, including the People’s Bank of China, the State Taxation Administration and the Ministry of Finance, have issued a number of special notices with a combination of policies to stabilize the economy. The current policies mainly include two aspects.

First, ensure ample financial fluidity in the market and increase credit support. China’s central bank will inject 1.2 trillion yuan (US$173 billion) into the financial market through reverse repos in an open market operation. The central bank added a 500 billion yuan (US$71.3 billion) quota of re-lending and rediscounting for banks, following the issuance of a 300 billion yuan (US$42.8 billion) re-lending fund earlier to support small and medium-sized banks to boost credit support for small and medium-sized enterprises (SMEs). Ample liquidity will lower capital cost, and the basic interest rate for lending will decrease, which will ease headwinds of the epidemic on corporate cash flow.

Second, increase support for SMEs. Measures include cutting 50 percent of the re-lending interest rate for key enterprises for epidemic prevention and control; exemption of value-added tax for revenues from the key emergency supplies for epidemic prevention and control; exemption of value-added tax for revenues from the public transport service, services related to daily necessities and delivery services; companies in the four major sectors affected by the epidemic, namely, transportation, catering, accommodation and tourism, will be allowed to carry over their losses logged this year to an extended period of eight years from five years. This means that those enterprises can allocate their losses arising from the epidemic for deduction from their pretax profit in the next eight years, and therefore reduce their tax burden.

Local governments in China have also efficiently adopted relevant policies according to their respective conditions. On the whole, local support policies have been specifically refined and derived from the central policy, and mainly focus on reducing the burden of SMEs. Measures include extended tax payment, exempted land rent, tax reduction, providing special loans, etc.

Although hit by the COVID-19 epidemic, as the world’s second largest economy, China’s huge domestic market, as well as its strength accumulated due to previous supply-side structural reform and consumption upgrade, will refrain China from losing its competitive advantage. The experience and achievements accumulated by its real economy should not be ignored.

A series of policies and measures are actively hedging the impact of the epidemic. The world has been stunned by China’s efficient and effective measures in epidemic prevention and control, and it will also be impressed by the great resilience of China’s economy.