China readies cushion for virus shock when markets re-open

China’s central bank announced plans Sunday to inject 1.2 trillion yuan (about $173 billion) into the economy to cushion the shock to financial markets from the outbreak of a new virus when trading resumes on Monday after a prolonged Lunar New Year holiday.

The People’s Bank of China announced several measures over the weekend aimed at stabilizing the economy as the impact of the virus spreads with cancelled flights, stepped up quarantines and other controls.

The death toll in China climbed by 45, to 304, and the number of cases by 2,590 to 14,380, according to the National Health Commission, well above the number of those infected in in the 2002-03 outbreak of SARS, or severe acute respiratory syndrome, which broke out in southern China and spread worldwide. It has spread to about two dozen countries, although most, like the United States, have few cases.

Beijing extended the usual week-long holiday by three days but markets are due to reopen Monday and many expect they will drop sharply. Elsewhere in the region. worries over the potential harm to businesses and trade from the outbreak have triggered wide swings in share prices.

On Friday, jitters over the virus caused share prices to plunge.

China’s central bank statement issued Sunday said the open market operation was aimed at ensuring sufficient liquidity.

In a separate statement Saturday, the PBOC said that while markets would reopen, financial institutions should follow local quarantine regulations and try to minimize gatherings to reduce risks of spreading the virus, which has infected more than 14,000 people and killed more than 300.

That includes allowing rotating shifts, working online from home and other strategies, it said.

Regulators have also urged banks and other financial institutions to boost lending and avoid calling in debts in areas severely affected by the pandemic.

Some cities, particularly the central Chinese city Wuhan where the disease first surfaced, and nearby cities, are still in lockdown. Shanghai authorities extended the Lunar New Year holiday until Feb. 9. Universities remain closed for now.

Mainland China’s main share benchmark, the Shanghai Composite index, sank 2.8%, to 2,976.53 on Jan. 23, its last day of trading before the Lunar New Year.

Chinese authorities have massive resources for intervening to staunch panic selling of shares and have deployed them in past times of crisis.

A large share of the 1.2 trillion yuan to be injected into markets will go to meeting payment obligations falling due on Monday, analysts said.

But it’s still a massive amount of funding.

“This is well beyond the band-aid fix, and if this deluge doesn’t hold risk-off at bay, we are in for a colossal beat down,” Stephen Innes of AxiCorp. said in a client note Sunday.

He noted that any major drop shortly after the markets reopen would be a “catch up.”

“It’s not the earthquake at the open but rather the aftershocks that will drive risk sentiment on Monday,” he said.

Stocks fell sharply in the United States Friday as fears spread through the markets that the virus outbreak would dent global growth.

The Dow Jones industrial average skidded more than 600 points and the S&P 500 index erased its gains for January.

Technology companies, which do a lot of business with China, led the losses. Airlines fell after Delta and American suspended flights to and from the country.

Hurting economy

Travel restrictions and business closures aimed at stopping the spread of the virus could end up causing ripple effects that harm the global economy, experts say.

“When you stop planes and ships, trains and and motor vehicles from moving, it starts to shut down the economy—and that can have a cascading effect throughout society,” Dr. Eric Toner, senior scholar at the Johns Hopkins Center for Health Security, said Saturday, after multiple airlines announced that they would suspend or cut back on flights to and from China, and several countries, including the U.S., imposed travel restrictions. “And it’s not just airline pilots who get out of work, I mean, it’s you know, it’s everybody that they depend on.”

It’s not just airlines that have cut back on business in China. Apple Inc. announced Saturday that it was temporarily close all of its offices and its 42 stores in mainland China. Google, Amazon and Microsoft previously announced plans to temporarily shutter offices, and Starbucks and McDonald’s have closed some chains.

Apple said it was acting “out of an abundance of caution and based on the latest advice from leading health experts.” Its stores will be closed until Feb. 9.

Toner said Apple’s decision could also be harmful to the economy and Apple itself, though he noted that many companies, including airlines, are trying to protect their employees.

Toner led a summit in October with World Economic Forum and the Bill and Melinda Gates Foundation to discuss the negative impacts of trade and travel restrictions during a pandemic. In a paper that came out of that meeting, the Johns Hopkins Center for Health Security concluded that “fear and uncertainty experienced during past outbreaks, even those limited to a national or regional level, have sometimes led to unjustified border measures.”

The U.S., Australia, Singapore and Japan have imposed travel restrictions and Vietnam suspended all flights to China. U.S. officials pointed to how quickly the virus has spread around the globe as justification, although world health officials have warned against such measures.

At least 24 countries have reported cases of the new virus, which is from the coronavirus family.

“Travel restrictions can cause more harm than good by hindering info-sharing, medical supply chains and harming economies,” World Health Organization Secretary-General Tedros Adhanom Ghebreyesus said.

Toner said governments are ultimately “trying to do something that has very little benefit but very real harm.”

“It’s been shown over and over again that putting up barriers to travel doesn’t stop contagious infectious diseases,” he said, pointing to past outbreaks of Ebola, Zika and even influenza.

Instead, he said, governments should educate people about the virus and urge people who may have been exposed to isolate themselves.