- As a deadly viral outbreak halts activity across China, millions of businesses are struggling to stay afloat.
- In a recent survey of small- and medium-sized businesses across China, a third of respondents said they would only be able to cover fixed expenses for one month.
- Another third said they expected to run out of cash within two months, while only 10% said they would be able to hold out through the second half of the year.
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As a deadly viral outbreak halts activity across China, millions of businesses are struggling to stay afloat.
Efforts to contain the novel coronavirus have led to costly travel and commerce restrictions, creating a crunch that could shut down some of the most vulnerable businesses in the second-largest economy.
The roughly 30 million small- and medium-sized businesses across China have been hit particularly hard by the outbreak, which has killed more than 2,500 in the nation and sickened tens of thousands more.
In a February survey of small- and medium-sized businesses in China, the epicentre of the coronavirus, one-third of respondents said they would be able to cover fixed expenses for only one month.
Another third said they expected to run out of cash within two months, according to the February survey conducted by the Chinese Association of Small and Medium Enterprises. Only 10% said they would be able to hold out through the second half of the year.
“China started returning to work on February 10, but high frequency data suggests the economy is far from running at full capacity,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management.
Against a backdrop of a crackdown on lending and a trade dispute with the US, Chinese businesses not backed by the government were already under pressure before the coronavirus outbreak began to escalate in early 2020.
The blow could be significant in the second-largest economy, which forecasters said this year could post its first quarterly contraction in decades. Private businesses in China fuel about 60% of gross domestic product, 80% of jobs, three-quarters of technological innovation and more than half of tax revenue,according to state estimates.
Seeking to soften the blow, the Chinese government has cut interest rates and asked banks to offer more credit. But the moves may not be enough to keep small- and medium-sized businesses up and running.
“China will respond to the coronavirus with extra monetary and fiscal stimulus,” Andrea Cicione, the head of macro strategy at TS Lombard, said in a research note this month. “This will matter little in the end unless earnings start growing again.”
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