03/05/2020, 09.59
Send to a friend

Coronavirus: Beijing evaluates rate cut; risk of flight of foreign companies

After the Federal Reserve and Hong Kong, the intervention of the Chinese Central Bank is expected. With skyrocketing debt, China's leeway is not very large. Academy of Sciences: the effects of the crisis push foreign companies to move production to other countries. Timid signs of financial recovery.


Beijing (AsiaNews / Agencies) - After the cut of half a point in the interest rate decided by the Federal Reserve in the US, followed by the same move by Hong Kong, the intervention of the Chinese Central Bank (Pboc) is expected.

Expansive measures have also been taken by Japan, which has made repeated liquidity injections into the national banking system. The International Monetary Fund has made € 45 billion available for emerging markets; 11 billion euros have been allocated by the World Bank.

So far, Beijing's interventions have proved insufficient to restart production, as shown by several indicators. The Worker's Daily reports that 90% of large state-owned enterprises have reopened their doors, but 70% of medium-small ones (around 63 million) are still stuck at the stake.

The maneuvering space of the PBOC is not very large, however. The Chinese financial authorities have already propped up the country's banks with 800 billion yuan (about 104 billion euros) in February, so the decrease in rates (which are at 4.05 at the moment) cannot be of the same magnitude as the United States'. The risk to be avoided is that of an increase in national debt, which is already at very high levels (over 300%, if we also consider the private sector and families).

The Chinese economy faces a recession in the first quarter of 2020, and a sharp slowdown at the end of the year. The effects of the coronavirus may push foreign companies to consider moving their businesses out of China. The trend has already been going on for some years due to the rising cost of labor in the country and the trade war with the USA.

According to the Academy of Sciences, if the Beijing government does not quickly stop the spread of the virus, and return production to its full potential, the flight of foreign companies will be inevitable.

For example, F-Tech, a manufacturer of mechanical parts for cars, has already moved a portion of its production from the Wuhan plants to the Philippines. Textile manufacturers will try to reopen where they can find lower labor costs; electronic companies, and all those that do not require low-skilled manual work, will instead return to their countries of origin.

Nonetheless, the Chinese economy shows some signs of recovery, such as the recovery of stock exchanges (+ 10% after the collapse in early February) and the appreciation of the yuan against the dollar. Investors think that the Asian giant has passed the peak of the epidemic crisis and can start moving again

Send to a friend
Printable version
See also
Asian markets up but recession fears remain
Growing unemployment in the Philippines, also due to corruption and waste
Chinese leaders in panic over crisis and unemployment
International Monetary Fund: China will be "an oasis" of stability in the global crisis
The crisis in the dollar worries Riyadh, which is reconsidering the riyal-dollar peg


Subscribe to Asia News updates or change your preferences

Subscribe now
“L’Asia: ecco il nostro comune compito per il terzo millennio!” - Giovanni Paolo II, da “Alzatevi, andiamo”