China Counters Coronavirus with Stimulus

After being closed for weeks due to the Lunar New Year and coronavirus containment measures, many Chinese companies were set to resume business this week. However, many remain below normal capacity due to supply shortages, transportation restrictions, and employees staying home.

This shutdown is weighing on China’s economy and will slow global trade as well, as multinational companies are dependent on China for portions of their supply chain. Meanwhile, China’s flagging economy will hurt its demand for foreign goods.

To help counter these factors, the Chinese government is injecting stimulus into the economy, a measure that many economists warn may not work. Even if they cut interest rates, reduce taxes, and increase bank loans, the underlying causes of China’s economic problems are the psychological and physical restraints caused by the virus outbreak.

As a result, Chinese-dependent commodities are still wary. Prices continued rising this week on optimism that the virus will eventually be contained while stimulus boosts demand, but values are still far below pre-outbreak levels.

As of midday Friday, March crude oil futures were worth $52 per barrel and March copper fetched $2.60 per pound. March soybeans sat at $8.95 per bushel, while April hogs garnered 64.6 cents per pound.