Will China’s economy be able to recover quickly like in 2003? Back in 2003, China’s economic growth fell from 12% QoQ annualized in 1Q to 3.5% in 2Q during the depth of the SARS crisis, but snapped back to 16% in 3Q. Nearly 2 decades have passed since SARS outbreak, and in that time China has grown from the world’s sixth largest economy to the 2nd biggest today. China’s economy accounted for roughly 4% of global GDP in 2003; it now makes up 16% of global output.
Some speculate that this time, China’s recovery will be slower and the virus effect lasting longer. However, Citi analysts believe that the impact this time is likely to be shallower and shorter, as the government response has been a lot quicker and stronger. No city was shut down like Wuhan during the SARS episode.
A key driver of quick recoveries is policy. The PBOC has already added 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations. The government has also announced a flurry of fiscal measures ranging from tax cuts to subsidies to local bond issuance to mitigate the worst hit areas.•
While China’s 2020 GDP forecast has been revised down from 5.8% to 5.3%, Citi analysts continue to believe that the greater opportunity remains in the attractively valued China/HK markets. There is likely to be downward earnings revision risks, largely impacting the tourism, transportations and energy sectors.
Similar to the SARS episode in 2003, the hardest hit sectors are those related to tourism, hospitality and transportation due to massive travel restrictions and quarantines. Airlines, marine, hotels, restaurants & leisure and gambling slumped 9%-14% since Jan 20, when China first confirmed human-to-human transmission. Some industrial sectors also had notable corrections, as factories had extend holidays.
The most direct beneficiary is healthcare, especially those engaged in innovative technology and advanced sciences, such as healthcare technology, equipment & supplies, biotech and life sciences. Spending more time at home, most of the consumer activities have been shifted from offline to online. Online shopping, entertainment and cloud office software have outperformed.