Faculty & Research


As China continues its fight against the novel coronavirus(2019-nCoV)at the start of 2020,a crucial year for the country’s economy,Guanghua researchers size up its impact on China’s three main sectors while calling for high-precision monetary and fiscal actions,such as targeted rate cuts,to help businesses and communities recover.

A report,penned by the team of Yan Se,associate professor of applied economics with Peking University’s Guanghua School of Management,compares the current situation with the SARS outbreak in 2003 while taking into account China’s current aggregate economy and various structural factors to draw a full picture.


As a cousin of the SARS virus,the 2019-nCoV outbreak shares a lot of similarities with the 2003 one. However,back then, as China just joined the WTO and was in a phase of rapid industrialization and urbanization,its GDP still grew by ten percent despite the outbreak,up 0.9 percentage point from 2002. It will not be the same this time.

Caught between laggard demand and global uncertainty,the Chinese economy is facing considerable downward pressure and the outbreak might increase default and financial risks. The tertiary industry,with its ever increasing share of the country’s GDP,will suffer a heavier loss. In addition,the outbreak coincides with the travel rush around the Spring Festival holiday,dealing a heavy blow to consumer spending and tourism,and the postponing of the end of the holiday will delay nationwide work schedule and drag down production and investment.

It is our estimation that the country’s GDP growth in the first quarter will drop below five percent. The actual figure might hit 4.6 percent as the three major sectors drag down GDP by 1.5 percentage point from the previous quarter. However,the country’s economy will be able to absorb the blow if the outbreak is under control within the quarter. What is worrying is the possibility that the outbreak will extend beyond March and continues to affect the second quarter,leading to industrial chains transferring to overseas at a faster pace,hardships for medium- and small-sized businesses and employment pressure.


As the service industry usually involves outdoor and mass activities,the SARS outbreak hit the tertiary sector the worst,especially transportation,accommodation and food. However,the sector also rebounded first — one season ahead of the primary and secondary sectors. Meanwhile,its impact on finance and real estate lagged behind but also lasted longer.

This time’s outbreak might cut the GDP growth of the tertiary sector by more than two percentage points,leading to a 1.1 percentage point decrease in the country’s overall GDP. With the city of Wuhan closed off and many outside roads closed as well,the country saw a 16.5 percent year-on-year decrease in the number of passengers between Jan. 10 and 30. On Jan. 29 alone,the decrease hit a staggering 83.5 percent. With group tourism suspended,film screenings cancelled and dinner gathering called off,film,tourism and food industries are also under severe strain.

Meanwhile,we pin hope on real estate investment to continue to play a role in stabilizing the economy,just like it did in 2003 when the market still maintained high growth despite the SARS outbreak. In 2003,investment in residential buildings remained steady while investments in office and commercial buildings were affected before recovering to the normal level after the outbreak. Land purchases dropped 38.8 percent in March,28.8 percent in April before rebounding by 56.7 percent in May. It shows the real estate market’s tenacity in a health crisis.


We forecast a 0.8 percentage point decrease in the GDP growth of the secondary sector in the first quarter as a result of delayed back-to-work date and transportation limits. With WHO declaring the current outbreak a world health emergency,China’s import and export will be affected,with its negative impact transferring to the secondary sector. We estimate that the GDP growth of the secondary sector will slow by 0.8 percentage points,leading to a 0.3 percentage point decrease in the country’s overall GDP. The actual situation might get worse if the outbreak continues to spread and leads to further extending of the national holiday.

The outbreak will have limited impact on the primary sector,with mostly livestock and aquaculture industries suffering some losses. The road close-off are giving livestock industries a hard time getting in feed and sending out animals. However,as the Ministry of Agriculture stresses a green channel policy,the situation will improve. Meanwhile,forestry and farming industries suffered relatively smaller impact in 2003 and quickly recovered in the later half,showing strong self-repair capacities after such an outbreak. It is our opinion thatthe GDP growth of the secondary sector will slow by 0.1 percentage points,leading to a 0.07 percentage point decrease in the country’s overall GDP.


Looking at the SARS outbreak,the impact of this time’s outbreak on China’s economy might yet turn out to be limited. In 2003,the SARS outbreak only affected the GDP growth in the second quarter,and rapid growth in the later half lifted the annual GDP growth to 10 percent,higher than that in 2002. Many experts expect the 2019-nCoV outbreak to peak around mid-February and become largely under control in March. If so,its impact on the country’s GDP will be roughly limited to the first quarter and the economy will recover afterwards. With a prosperous e-commerce industry that was in its infancy in 2003,online retail is expected to pick up the pace later in the year and make up for the loss during the outbreak. In addition,many privately-owned businesses habitually start operations two weeks after the Lunar New Year anyway,so the impact of the extended holiday might be limited — especially compared with 2003 when the outbreak hit after holiday ended and production fully resumed. Despite a greater infection rate,efficient control measures and a low fatality rate will help build up confidence.

It should be noted that anti-outbreak measures should be kept within a reasonable level as heavy-handed policies tilting to the extreme side might lead to even harsher measures at the local levels,and the ensuing accumulative negative impact on the society and the economy will be unnecessarily severe. For instance,complete road bans will result in secondary damage to the primary industry. Road checks that target potential virus-related movements while allowing the flow of wholesome animal feed,vegetables and agriculture production materials should be recommended.


We call for high-precision monetary policy tools to address particular parts of the economy to guard against risks such as inadequate liquidity and excessive fluctuations. Targeted cutting of interest rates,RRR as well as targeted relending are especially recommended to help hardest-hit small- and micro-sized and privately-owned businesses to recover. Already,the central bank has made similar moves. It said in late Jan. that,considering the large scale of funds due after the opening of the market on Feb. 3,it will use monetary policy tools such as open market operations to release sufficient liquidity to maintain reasonable and sufficient liquidity in the banking system.

We urge fast actions to reduce financing costs for firms,especially those in virus-affected areas,including structural policies to cut rates and extend loan period. Fortunately,many commercial banks across the country have already adopted such measures starting in late Jan. Meanwhile,despite a board RRR cut in Jan.,the central bank should consider a targeted RRR cut in Feb. to reduce costs for banks and unleash more liquidity for small and privately-owned firms. Targeted relending should also effectively reduce the burden for small and agriculture-related businesses.

Meanwhile,it is our opinion that the central bank should refrain from comprehensive easing monetary policy such as board RRR and rate cuts in the immediate future. As most companies haven’t resumed operations yet,they will not have a strong demand for credit loans anytime soon,and board cuts will not have notable effect. Also,the virus outbreak immediately followed inflation in pork prices,leading to wider and bigger inflation pressure. Indicative policy such as board cuts in the near future are not necessary.


As the outbreak’s impact on China’s macroeconomy is still obscure,fiscal tools should be most effective in the current situation to help companies resume production and relieve their loan issues. We call for greater countercyclical adjustment measures and more active fiscal policies to boost tax cuts and infrastructure investment to counter the outbreak’s impact on the economy.

We recommend a moderate increase in the deficit. Before the outbreak,China’s deficit in 2020 is estimated at about three percent of GDP. Now that the virus hit,the country could lift it to slightly above 3 percent to enable the central fiscal to shoulder more burdens for local governments. Following a deleveraging push in 2018,the country’s leverage ratio remains stable and its financial system is in a sound state to absorb various risks.

Many hardest-hit industries,such as tourism,transportation,retail and entertainment,are labor intensive,and many of those workers might lose their jobs after the outbreak,boosting the country’s unemployment rate. We call for further tax and fee cuts on top of the current policy to these hardest-hit industries,just like the country did in 2003 after SARS,in order to stabilize employment and boost growth.

It is our opinion that fiscal policies should focus on new technology infrastructure,guiding funds to go into fields that benefit both supply and demand and stimulate further growth to make up for the loss in the outbreak. In particular,efforts should be made to improve products and service innovations in 5G,big data,artificial intelligence,cloud computing and other new technologies. The country should seize 5G technology as a huge opportunity that could help stimulate investment,optimize industrial structures and boost growth potential in the long run.

Meanwhile,fiscal efforts should also focus on public service such as medical service,residential community upgrades and poverty relief,especially in virus-hit areas as the outbreak has exposed medical service inadequacy in many regions. Public service is a key field that can boost people’s livelihood and living standards and thus deserves special attention when it comes to infrastructure investment.

© 2019 Guanghua School of Management Peking University