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Citi

Will China’s economy be able to recover quickly?

  • Back in 2003, China’s economic growth fell 12% QoQ annualized in 1Q to 3.5% in 2Q during the depth of the SARS crisis, but snapped back to 16% in 3Q. Currently, China is a much larger economy and growing more slowly at around 6%, and Citi analysts believe the negative impact from the coronavirus may be concentrated in Q1 and the return to trend may not take long.

 

  • Government and policy response. Government response has been quicker and stronger. As an example, no city was shut down like Wuhan during SARS. In terms of policy, the PBOC has already added system liquidity and cut the rates charged for that liquidity. Additional measures are likely, and 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.

 

  • Potential for easing quarantines. Many families have stopped receiving income and dug into their limited savings for daily needs during the quarantines. Contrary to some beliefs that the return to work would be slow, Citi analysts think that once the quarantines are eased, there may be a flood of workers seeking jobs. The backlogs in the global manufacturing supply chain could provide many of those jobs.

 

  • Similarly, demand for social gatherings and consumption associated with travel and tourism may also see a potentially strong rebound. In 2003, total visitors to Macau fell 43% from February to May, but rebounded 117% from May to July to higher than the pre-SARS level.
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  • There is likely to be downward earnings revision risks, but this may be contained in the tourism, transportations and energy sectors and China/HK markets have attractive valuations.

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