The first two weeks of February have seen the economic consequences of the Covid-19 virus multiply, along with the related shutdowns to factories and transportation networks, given limited population flows after the Chinese New Year holiday. The annual National People’s Congress meeting has been delayed, an unprecedented development. At the same time, authorities have unsurprisingly pledged a more aggressive policy response.
Assessing the overall economic impact from these two contrary forces—a weaker economy but a stronger policy response—will be difficult early in the year, particularly in the absence of timely and relevant data releases. But one clear trend is that property construction will meaningfully drag the economy weaker in 2020, even if policy toward the sector is more supportive, while infrastructure construction will benefit from additional funding from local government special revenue bonds. Overall, Beijing faces capacity constraints in stimulating the economy this year, even if the leadership attempts to support short-term growth regardless of the long-term costs.
