Xi Vows to Support Chinese Economy

EghtesadOnline: Chinese President Xi Jinping said on Monday that the government would prevent large-scale layoffs resulting from the coronavirus outbreak, Chinese state television reported, as Xi appeared among the public for the first time since the epidemic erupted in January.

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12 February 2020

China’s movie theaters were ramping up for one of their biggest sales seasons of the year—hiring extra staff and buying more supplies — when the coronavirus hit, Financial Tribune reported.

The pneumonia-causing virus that emerged in late December began to catch national attention in mid-January, just ahead of the week-long Lunar New Year holiday. Seven films pulled their planned releases for the period, and now, most theaters have been closed for about two weeks, CNBC reported.

It is the biggest shutdown in about 20 years—even the SARS epidemic of 2003 did not have such a great impact, according to a manager at a local theater operator in a major city in southwestern China. The manager asked not to be named due to the sensitivity of the topic.

The closures are part of an effort to limit the spread of the virus as it has already killed more than 1,000 people. But even when the virus is under control, it may be months before consumers have enough confidence to go out and watch movies in theaters again.

If authorities have tried in the last few years to talk up support for privately run businesses in a state-dominated system, the virus adds further pressure. Privately operated, smaller businesses contribute to well over half of economic growth.

Policymakers have less room for action than in 2003, since economic growth is slowing now, Bruce Pang, head of macro and strategy research at China Renaissance, said in a phone interview.

The services industries and their employees also play a greater role in the economy than 17 years ago, Pang said. He noted that the new virus primarily affects food and beverage businesses, while movie theaters will see an immediate loss in fees.

Furthermore, China’s coronavirus outbreak may peak soon, a prominent Chinese expert said on Tuesday, as the death toll soared past 1,000 and worry grew about the true extent of economic disruption to the world’s second-largest economy.

Companies

Pummeled Instead of Windfall

The Lunar New Year box office accounted for about 9% of last year’s overall sales of 63.6 billion yuan ($9 billion), according to public reports compiled by Wind Information.

For theaters in more rural areas, the holiday can account for a fifth or a quarter of annual sales, the manager said, since it is typically the only time many urban workers return to their hometowns.

The theater group has two other locations in more rural areas, including one that opened just before the Lunar New Year, the manager said. Each venue hired about five additional agents for the holiday, and the theater in the city used the occasion to complete needed equipment upgrades, the manager said.

Without moviegoers, the theater still must spend tens of thousands of yuan in rent a month, and tens of thousands of yuan more in salaries, the manager said. That’s at least several thousands of US dollars out the door a month in a country where movie tickets can run for about $5 or $6 each.

Hope for Policy Support

Like many theater operators, the manager said the business is in conversation with property management about a reduction in rent for this time period. Already, commercial property operator Dalian Wanda has canceled management fees and rents for its shopping center tenants from Jan. 25 to Feb. 29, a reduction of more than 4 billion yuan, the company disclosed last week.

There’s also expectations that the government will step in given the severity of the situation.

“Some companies may not be able to make money in the first quarter,” Zong Liang, chief researcher at the Bank of China said in a phone interview last week, according to a CNBC translation of his Mandarin-language remarks. As a result, he expects tax cuts, among many other stimulus measures.

The People’s Bank of China has announced it will provide 300 billion yuan in low-cost loans for banks to lend to businesses affected by the virus. Several municipal and provincial governments have also announced measures for supporting small and medium-sized enterprises.

Faster Assistance

The government’s efforts to support these businesses in recent years have not yielded optimal results.

Without an established credit score system, state-owned banks have preferred to lend to state-owned enterprises, rather than trying to determine how likely a privately run company could repay a loan. Analysts have also said attempts to boost support for these smaller businesses and lower interest rates have not always trickled through.

In the near future, Qian Wang, chief economist for Asia-Pacific at Vanguard, expects authorities will give more credit support to the private sector and small businesses.

“While these policy measures are unlikely to be enough to completely offset the impact of the virus, they will help to strengthen the activity recovery or at least cushion the magnitude of slowdown,” Wang said in a statement. She anticipates that when the virus is contained, business in retail and manufacturing may recover and help stabilize growth in the second half of the year.