Japan warns about risks to economy as outbreak toll mounts

Chinese tourists wearing protective face masks wait to board a Tokyo train. Japanese exporters are worried the virus outbreak will hit earnings. (AP)
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Updated 29 January 2020

Japan warns about risks to economy as outbreak toll mounts

  • China is Japan’s second-largest export destination

TOKYO: Japanese Economy Minister Yasutoshi Nishimura on Tuesday warned that corporate profits and factory production might take a hit from the coronavirus outbreak in China that has rattled global markets and chilled confidence.

Asian stocks extended a global selloff as the outbreak in China, which has killed 106 people and spread to many countries, fueled concern over the damage to the world’s second-largest economy — an engine of global growth.

“There are concerns over the impact to the global economy from the spread of infection in China, transportation disruptions, cancelation of group tours from China and an extention in the lunar holiday,” Nishimura said.

“If the situation takes longer to subside, we’re worried it could hurt Japanese exports, output and corporate profits via the impact on Chinese consumption and production.”

China is Japan’s second-largest export destination and a huge market for its retailers. The Chinese make up 30 percent of all tourists visiting Japan and spent nearly 40 percent of the total sum foreign tourists used last year, an industry survey showed.

The outbreak could hit Japanese retailers and hotels, which count on a boost to sales from an inflow of Chinese tourists visiting during the lunar holiday.

Automaker Honda Motor, which has three plants in Wuhan, the epicenter of the outbreak, plans to evacuate some staff. Economists at SMBC Nikko Securities estimate that if a ban China has imposed on overseas group tours lasts another six months, it could hurt Japan’s economic growth by 0.05 percent.

Some expect the potential damage could be much worse.

Hideo Kumano, chief economist at Dai-ichi Life Research Institute, said the decline in tourists from China could hurt Japan’s GDP growth by up to 0.2 percent.

“The biggest worry is the risk the negative impact from the outbreak persists and hits (the economy) during the Tokyo Olympic Games,” when a huge number of Chinese tourists are expected to visit Japan, he said.


China bank overhaul frees up $56bn for virus-hit economy

Updated 17 min 23 sec ago

China bank overhaul frees up $56bn for virus-hit economy

  • Beijing cuts small and mid-sized banks’ reserves, releasing billions to support jobs and struggling businesses

BEIJING: China’s central bank said on Friday it was cutting the amount of cash that small and mid-sized banks must hold as reserves, releasing around 400 billion yuan ($56.38 billion) in liquidity to shore up the economy, which has been badly jolted by the coronavirus crisis.

The latest stimulus move comes as the world’s second-largest economy looks likely to shrink for the first time in 30 years and hopes for a quick recovery are being soured by the rapid spread of the disease worldwide, crushing global demand.

The People’s Bank of China said on its website it will cut the reserve requirement ratio (RRR) for those banks by 100 basis points (bps) in two equal steps, the first effective as of April 15 and the second as of May 15.

China has about 4,000 small and mid-sized banks. The latest cuts would lower their RRR to 6 percent.

In addition, the interest rates on financial institutions’ excess reserves with the central bank would be reduced to 0.35 percent from 0.72 percent, effective April 7, the PBOC said.

HIGHLIGHTS

● RRR cut by 100 bps for mid-sized, small banks.

● Frees up $56bn in cash to spur lending.

● Cuts rate on excess reserves for banks.

The RRR cut was flagged by the Cabinet on Tuesday along with other support measures as Beijing tries to cushion the economic blow from the pandemic, which is fanning worries about heavy job losses.

While most of the country’s factories are believed to be up and running again, though not at normal levels, a private survey earlier on Friday suggested services companies are still struggling to get back on their feet and cut jobs in March at the fastest pace since at least 2005.

Many are small, privately owned firms with less cash to see them through a prolonged downturn than large, state-owned enterprises.

The export sector is also facing a fresh shock, as the swift spread of the virus around the world prompts many countries to impose draconian containment measures similar to those used in China. Nomura estimates China could lose 18 million export-related jobs in the next one to two quarters as shipments contract 30 percent.

The latest RRR cut would be the third so far this year and the 10th since early 2018, when the economy was starting to slow under the weight of intensifying US-China trade frictions.

The central bank has been easing monetary policy since the virus outbreak escalated in January, cutting the benchmark lending rate and telling banks to offer cheap loans and payment relief to firms that have been hardest hit by the outbreak and anti-virus measures.

While demand for credit is believed to be falling in many countries as the disease takes a heavy toll on businesses, China still has strong control over its banking system.

Chinese banks issued new loans worth 7 trillion yuan ($989 billion) in the first quarter, said Zhou Liang, vice head of the China Banking and Insurance Regulatory Commission (CBIRC) earlier in the day.

The move to slash the interest rates on excess reserves for banks is aimed at boosting the efficiency for banks to use the funds and better serving small and micro-firms, said the PBOC.

The rate cut on excess reserves indicates that the PBOC is very keen to lower the credit costs for companies, said Commerzbank economist Hao Zhou. PBOC last reduced the rates to 0.72 percent from 0.99 percent during the global financial crisis in 2008.

“The rates for excess reserves are also seen as the floor of the ‘rates corridor’ in China. In this sense, today’s cut has opened a big door for further cut to MLF, which is the ceiling of the corridor.”

After widespread factory closures and travel restrictions imposed by Beijing to contain the spread of the coronavirus that has killed more than 3,300 in the country, businesses in the country have reopened and life for millions of people has started to slowly return to normal.

But economists are forecasting a steep contraction in China’s first quarter gross domestic product, with some expecting a year-year slump of 9 percent or more — the first such contraction in at least three decades.

Policy sources told Reuters that Chinese government could expand 2020 budget deficit to a record high and was considering lowering its economic growth target for 2020 given the prolonged impact of the pandemic. But one central bank adviser has suggested that a growth target not even be set this year due to all the uncertainty.