China takes major steps to prop up coronavirus-hit economy

(Reuters) – Chinese policymakers have implemented a raft of measures to support an economy jolted by a coronavirus outbreak that is expected to have a devastating impact on first-quarter growth.

The People’s Bank of China (PBOC) is attempting to restore investor confidence, while global markets are shuddering at the potentially damaging impact of the virus on the global economy.

Below are some fiscal and monetary policies put in place by the government and the central bank since the outbreak:

** The People’s Bank of China (PBOC) said on Feb. 17 it was lowering the rate on 200 billion yuan ($28.65 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions by 10 basis points (bps) to 3.15% from 3.25% previously.

** Firms in Hubei province, the epicentre of the outbreak, will not have to pay pensions, jobless and work-injury insurance until June, state television quoted the cabinet as saying on Feb. 18.

Small firms in other provinces will be exempt from paying pensions, jobless insurance and work injury insurance until June, while payments by large firms will be reduced by half until April.

The government will also keep the minimum purchase price for rice stable this year, it said. It will accelerate hog production and increase state reserves of frozen pork, it added.

** China’s Ministry of Finance said on Feb. 12 that it would reopen an issue of 1-year bonds from Jan 9, auctioning an additional 26 billion yuan ($3.7 billion) on Feb. 19.

The bonds will be issued from Feb 19 to Feb 20 and begin secondary market trading on Feb. 24.

** China’s southern province of Hainan has launched the first specially-designed insurance product to cover losses incurred by businesses as a result of the coronavirus outbreak in the country, the banking and insurance regulator said on Feb. 17.

** On Feb. 3 and Feb. 4, the People’s Bank of China (PBOC) pumped in 1.7 trillion yuan ($242.74 billion) through open market operations.

** China’s central bank unexpectedly cuts some key short-term money market interest rates, and analysts predict more are likely. A central bank adviser says the possibility of a cut in the country’s benchmark loan prime rate (LPR) on Feb. 20 has significantly increased.

** The central bank said on Feb. 6 that it will use tools such as targeted reserve requirement cuts, re-lending and rediscount, to support key sectors.

The cost of special re-lending, at 300 billion yuan, from the PBOC to commercial banks is relatively low, it said.

The PBOC has told banks to cap rates on loans for selected firms at 3.15%, 1 percentage point lower than the latest LPR. ** China’s finance ministry said on Feb. 9 that all levels of government had allocated a total of 71.85 billion yuan ($10.26 billion) as of Saturday afternoon to fight the virus. ** China’s finance ministry said on Feb. 1 materials directly used for epidemic control will be exempt from import tariffs from Jan. 1 to March 31.

Workers wearing face masks sort textbooks at a warehouse for Xinhua Bookstore, after students’ return to school was delayed due to the novel coronavirus outbreak, in Fuzhou, Jiangxi province, China February 17, 2020. Picture taken February 17, 2020. China Daily via REUTERS

Imports of donations including ambulances and disinfectant products will also be exempt from tariffs, value-added tax and consumption tax, the finance ministry said.** China’s bond market regulator said on Feb. 5 it will actively support debt financing and debt issuance by companies heavily affected by a fast-spreading coronavirus outbreak.

The National Association of Financial Market Institutional Investors (NAFMII) also said it would support companies that have participated in containing the spread of the virus.

The association also said it would allow virus-hit firms to issue bonds and raise funds via other instruments including asset-backed notes.

Compiled by Saumyadeb Chakrabarty, Bernard Orr and Shailesh Kuber

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