Reduction of taxes and fees will help enterprises sail through difficult times, think tank report says

China’s economic size and key position in worldwide industrial links mean that while there can be significant disruption to crucial supply chains amid global spillover effects of the novel coronavirus outbreak, any negative impact will most likely be stemmed by measures for the national economy to get back on track, according to a major industry report.

Global supply chains may face “the biggest and most profound challenges” with the COVID-19 outbreak that first hit Central China’s Hubei province in the run-up to the crucial Spring Festival period, according to the latest report by the Shanghai Institutes for International Studies, a leading think tank.

For example, technology giant Apple recently lowered its revenue expectations, as the epidemic has both limited the production of its smartphones and curtailed the demands of Chinese mainland consumers, with Wall Street analysts even estimating a 10 percent drop in device shipments for the first quarter, the think tank reported.

A decline in services trade such as tourism and international education may also add to falling commodity prices in the immediate spillover effects, with a plunge in the number of outbound Chinese tourists dealing “the heaviest blow to the economies of China’s neighbors”, it said.

But judging from the current trends, “most provinces and municipalities are likely to call off the unconventional lockdown and control measures for the national economy to get back on track”, according to the report.

Industry estimates show that if all economic activities are fully resumed by the end of February, the global economy “will not suffer too much, with a potential drop of economic growth of 0.8 percent and 0.5 percent in the first and second quarters, respectively”, while the world GDP growth rate for 2020 might be 0.4 percent lower than previously estimated and could be 0.4 percent higher in 2021 than previous forecasts.

Revitalizing economy

The report pointed to the headway being made from Chinese authorities’ measures to cope with the economic impact of the virus nationwide and expressed confidence in the revitalizing of the world’s second-largest economy as it deals with the challenges ahead.

Government measures to help enterprises through the difficult times include four major, targeted policies-increasing liquidity and financial resources through monetary and fiscal policy, moderate deregulation to increase the accessibility of financial resources, cutting taxes and fees to lessen burdens on enterprises, and differential measures to maximize policy effectiveness.

“In all, the actual impacts of the COVID-19 epidemic on the world economy depend on how soon China can tame it and how closely the international community will bind together in the face of this common challenge to mankind,” according to the institutes’ president, Chen Dongxiao, who co-authored the report.

Impact on trade ties

In terms of the COVID-19 impact on globally significant China-US economic relations, that may be limited on the whole due to the huge size and market of the world’s largest economy, according to the report.

“Meanwhile, to hedge against risks caused by slowing world economic growth, international capital is flooding to the United States, leading to appreciation of the US dollar and falling US Treasury yields in recent weeks. In this sense, the epidemic is beneficial to the US economy,” it said.

However, the epidemic will still “to varying degrees harm American enterprises with large investments or close economic ties in China”, according to the analysis, pointing to the suspension of operations in China by other major US companies such as Starbucks and Disney, as well as airlines, including Delta and United, and auto giants such as General Motors and Ford.

“To those enterprises, losses of revenues from China will significantly decrease their total revenues for the whole year,” it said.

The biggest impact of the epidemic on China-US economic relations for now may be the delay in the implementation of the “phase one “trade deal between the two countries, according to the report.

“Recently, the Chinese government has adopted many measures-such as cutting punitive tariffs on $75 billion worth of imported US goods and expanding the scope of tariff exemption for US goods-to fulfill its commitment of increasing imports from the US.

Outbreak uncertainties

“Nevertheless, we should count in the uncertainties of the epidemic outbreak in the implementation.”

The disruption of China’s industrial operations and the expectation of any downward movement of economic growth may on the one hand reduce its demand for imported energy and electrical equipment in short run.

On the other hand, the US government’s imposition of rigorous travel bans on China “have already reduced transportation capacity between two sides”, the institutes reported.

“Worse still, the US government is contemplating further restrictions on high-tech exports to China, which will make it even more difficult for China to fulfill its purchasing commitment. Therefore, it is necessary for both sides to strengthen consultation and negotiation during and after the epidemic, in order to facilitate the implementation of the phase one deal.”

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