How does the outbreak affect the economy?

Since December 2019, an infectious disease called Novel Coronavirus Pneumonia has arrived. At first, the Chinese people did not pay much attention to this. With the rapid expansion of the epidemic, the whole country gradually took action to carry out the “hunting and blocking” of infectious diseases. For the prevention of epidemics, a large number of quarantine measures are generally implemented in various places, which has led to a large number of enterprises being unable to conduct business normally.

In other words, the outbreak and epidemic prevention have had a double impact on companies.

In June 2011, the Cheung Kong Graduate School of Business began to prepare the preparation of the “CKGSB Business Conditions Index” (BCI), which collects first-hand data on business operations with questionnaires. The target audience is students from the company. Private SMEs, produced a series of indices reflecting the overall operating situation of China’s macro economy, from May 2012 to February 2020, a total of 94 data survey results were published.

Sure enough, the BCI in February 2020 hit a low value since its establishment, and many other subsidiary indexes have the same situation. The performance of the data was psychologically expected, but the actual number is still beyond imagination. The historical decline in the BCI and related indexes indicates that Chinese companies are under tremendous pressure and urgently need to improve the external environment.

Index down
The BCI in February 2020 was 37.3 (the index takes 50 as the cut-off point, above 50 represents improvement or improvement, and below 50 represents deterioration or deterioration), a significant decline from 56.2 in January 2020 .

The Cheung Kong Business School BCI is composed of 4 sub-indices, which are the corporate sales forward index, corporate profit forward index, corporate financing environment index, and corporate inventory forward index. Among them, three are forward-looking indexes, and only the financing environment index measures the current situation.

From the data point of view, the decline in BCI was mainly caused by the sharp decline in sales and profit indexes, the financing environment index only declined slightly, and the inventory forward index increased.

In February, the four sub-indices showed a situation of “three drops and one rise”. The forward sales index of enterprises dropped from 72.1 in January to 32.8 in February (Figure 2), and the forward profit index fell sharply from 60.0 in January to February 24.3 (Figure 3). The sales and profit figures were relatively good and stable in the past. Compared with January, the figures for February were “slashed”, and the surveyed companies were in crisis in terms of revenue.

The corporate financing environment index declined slightly in February, from 43.3 in January and 39.7 in February. In such a situation, we estimate that due to the impact of the epidemic, the financing demand of enterprises has declined, and the financing environment index has stabilized; the forward-looking index of corporate inventories has increased slightly, 47.9 in January and 51.2 in February.

The decline in sales and profit index indicates that the company currently lacks business, starts insufficiently, and does not run, there is no income. In this case, financing is not the most important, nor the most stressful. Improving inventory is not necessarily a good thing, because it probably means that the company is only selling existing inventory and not conducting new production.

Expected damage
In addition to BCI, we asked companies about their expectations for costs, prices, investment and recruitment.

The forward-looking index of corporate labor costs fell significantly in February from 84.7 to 69.6; the forward-looking index of total corporate costs also declined to a certain extent, from 80.6 in January to 73.7 in February. In the long run, the two indexes have been at high levels, and both showed significant declines in February.

The forward-looking index of consumer prices fell in February, with an index of 53.6 in January and 37.6 in February. It seems that it is rapidly moving away from the possibility of inflation, and it is a step away from deflation. The investment prospect index and the employment prospect index have remained high for a long time, and they have also performed weakly in the past few months, especially the employment prospect index. The investment prospect index in February was 43.7 and January was 64.4; the employment prospect index was 43.2 and January was 61.9.

The performance of the cost side is in the author’s expectation. The decline of the business of the enterprise is normal, regardless of the labor or the total cost. The price-side index needs to be vigilant, because the decline is very large, so if the trend continues for a period of time, deflation will get closer.

Another concern is the investment prospect index and the employment prospect index (Figures 4 and 5). The two indexes have performed well in the past and both declined in February and are currently around 43. This shows that companies have changed their attitude of expanding reproduction in the past, and have contracted.

In February, we attached four questions on the impact of the epidemic on companies (Figure 6-9). Unsurprisingly, the answer showed that the epidemic situation and the prevention of the epidemic had a huge impact on the operation of enterprises. Most enterprises have encountered huge difficulties, and now they urgently need to improve the external environment.

Taking the first question as an example, 45% of the companies surveyed are currently unable to start construction, and 49% are only half-started. Among the reasons for the difficulty in starting the work, the epidemic situation accounted for 40% of the serious cases, and the staff returned to difficulties accounted for 33%. The return of employees may be directly related to the epidemic situation and epidemic prevention.

The most important thing is that most companies believe that the company’s production capacity cannot be fully recovered by the end of February, and 61% of companies believe that by the end of February, the company’s production capacity will not recover to more than 60%, which means a huge waste.

Obviously, the current epidemic prevention is an overriding task, and the biggest difficulty for enterprises is the epidemic situation. To help enterprises overcome this crisis, they must also start from these aspects. Relatively speaking, the epidemic situation will gradually decline, and economic concerns will gradually pick up.

Policy can be optimized
We know that the service industry has been hit hardest by the epidemic (shops in many cities are unable to operate normally), and industry and agriculture are relatively better. According to the survey, 60% of enterprises believe that the recovery rate of production capacity by the end of February will not exceed 60%.

The epidemic situation is still severe, and the dawn of mitigation has already appeared. Enterprises in some regions have gradually resumed their work. According to the news from the Development and Reform Commission on February 19: The above-mentioned industrial enterprises have a return rate of more than 50% … Small and medium-sized enterprises and small and micro enterprises still face many problems, such as insufficient returning workers, poor transportation and logistics, and difficulty in supporting the industrial chain. Related parties are actively seeking solutions. ”

What if we make a more detailed estimation of each month’s situation according to the working day?

First, the working days in January, February, and March 2020 are 17 days, 21 days, and 22 days, respectively. Due to the characteristics of the industry, many sales in the tertiary industry occur on weekends, and work days are counted as natural days. Assume In January, the operating rates of the three industries were 100%; in February, the operating rates of the primary and secondary industries were both 40%, and the tertiary industry was 20%; in March, the primary and secondary industries rose again to 100 %, The tertiary industry is 40%; the economy will no longer be affected by the epidemic in the next three quarters.

Under simpler assumptions, we estimate that in the first quarter of 2020, the operating rate of the primary and secondary industries will be 79%, and the operating rate of the tertiary industry will be 54.1%. From this, the first quarter GDP (measured at constant prices in 2019) will reach 14.05 trillion yuan, down 35.6% year-on-year.

This will be a grim situation. If the growth target of 6% in 2019 is achieved, the GDP growth rate in the next three quarters must reach 17.7%; if there is only 6% growth in the next three quarters, the annual GDP There will be a slight decline.

? The estimates are only hypothetical, and the actual operating rate is much higher. Even so, the impact of the epidemic on China’s economy will be huge, and it is necessary to improve some existing policies. The most important are two aspects. One is to improve the cost-effectiveness of the epidemic prevention policy, and the other is to promote economic growth.

First of all, in terms of isolation, we may have the possibility of optimization.

Regarding isolation, everyone in the industry knows a concept called R0. Its Chinese name is Basic Reproduction Number. It refers to epidemiology, in the absence of external intervention and all people are immune. The average number of individuals infected by an infected patient. The larger the number of R0, the harder it is to control the epidemic.

To control the epidemic of infectious diseases, the key is to reduce their R0. One of the best ways is to isolate them in a targeted way. For example, once an infected person is found, immediately trace the person who has had close contact with him for a period of time, and then immediately isolate it. The large-scale blockades and restrictions on the movement of people are now costly.

Second, on the basis of effective control of the epidemic, we must create conditions to help enterprises resume work. In addition to a series of costs such as rent, loans, labor, etc., the biggest challenge for enterprises is that they cannot start business. Small and micro enterprises have been greatly affected.

The key now is to let enterprises have something to do. Only when they open their doors to do business can they have enough income to pay the cost of rent and labor. As long as they are given breathing space, they will naturally seek their own way of life, and they must fully rely on the survival instinct of the enterprise. Of course, the premise of this is that the local epidemic situation has been effectively controlled. For example, the pace of Wuhan may be slower, and Shanghai may be faster.

For businesses, outbreaks generally cause two types of damage.

First, general business injuries, such as the loss of non-core personnel, temporary blockage of logistics, etc., are relatively easy to repair, and the company is not too afraid; second, major business injuries, such as if the shop is closed for too long and production cannot be carried out for a long time, etc. The enterprise may be in deep liquidity crisis and face the risk of bankruptcy. At this time, it may be more difficult to rescue the enterprise. Now, we are very worried about the second situation, especially small and micro enterprises.

Therefore, we can consider increasing financing to small and micro enterprises. Small and micro enterprises are small in size, but they dominate the job market. To help them is to help them get jobs. Past experience shows that even if the government releases water, it is difficult for money to flow into the hands of small and micro enterprises. So, can we innovate this time? For example, involving some new institutions and using some new methods to issue loans to small and micro enterprises, even if the non-performing rate has risen slightly, it is worth trying.

At present, decision-making is actually facing multiple goals. Epidemic prevention is the top priority of current public policies. Maintaining the effective operation of the national economy can both stabilize the people’s hearts and provide a solid material foundation for epidemic prevention. It is the responsibility of modern governments to find a balance among multiple goals. We have the ability to defeat the plague, and we are able to resume the effective operation of the national economy as soon as possible.