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China is trying to revive its economy without risking more lives. The world is watching – CNN

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The country where the pandemic began was almost completely shut down in late January as the number of coronavirus cases mounted. The drastic measures appear to have brought the virus under control: Locally transmitted infections have plummeted, and a lockdown on most of Hubei province — ground zero of the pandemic — is being lifted this week.
But the lockdown also brought activity in much of the world’s second biggest economy to a standstill for weeks on end, and is likely to result in China’s first contraction in decades. Analysts at Goldman Sachs recently forecast that China’s GDP may fall by 9% in the first quarter of the year, compared to the same period in 2019.
The Chinese government knows that its actions to contain the virus came at the expense of the country’s economic health. Now authorities are trying to ensure that those consequences are short lived.
“The economic losses have become intolerable,” Xingdong (XD) Chen, chief China economist for BNP Paribas, told CNN Business, adding that the government has to balance resuming work while remaining vigilant. “I don’t think it is right to restart business and production only when the virus has totally disappeared.”
China is really worried about unemployment. Here's what it's doing to avoid mass layoffs
Western nations are also weighing these enormous tradeoffs while the virus remains a global threat. In the United States — where unlike China, cases have yet to peak — President Donald Trump on Monday argued the country will have to reopen for business “very soon” even though the virus is “going to be bad.”
Beijing, meanwhile, has embarked on a campaign — backed by state-media — to persuade companies that life is returning to normal.
But restarting factories and returning to work puts China on a precarious path. The pandemic is still wreaking havoc on the rest of the world, raising fears of a potential second wave of infections as people return from overseas and bring the virus with them. Add to that the risk of another outbreak if the virus hasn’t been totally eradicated in local communities.
“In our view, the risk of a second wave of Covid-19 in China is rising,” wrote Ting Lu, chief China economist for Nomura, in a recent report.

Restarting the economic engines

China’s plan to save the economy rests on a slew of policies and campaigns meant to push people back to work, encourage business confidence at home and abroad, and protect as many companies from failing as possible.
In addition to the billions of dollars Beijing is spending on medical supplies and treatment, the government has pumped money into infrastructure projects to create jobs. It has also reduced taxes on small businesses and required banks to defer loan payments for troubled households or companies as a way to help them survive the economic fallout.
Chinese state media is amplifying the message that the country can bounce back strongly and that foreign companies and investors shouldn’t be scared off, either. China’s official news agency Xinhua in late February called Tesla (TSLA) a symbol of “foreign business confidence in China” after the US electric automaker reopened its massive Shanghai factory and announced plans to expand production capacity.
 A worker packs goods at a logistics center in Beijing, capital of China, March 12, 2020. A worker packs goods at a logistics center in Beijing, capital of China, March 12, 2020.
Now that the number of infections has slowed, many parts of the country are lifting their lockdowns, removing road blockades and allowing people to travel more freely in areas where the virus appears to have run its course — as long as they have documented proof that they are healthy.
In some cases, the government is making special arrangements for workers. For example, Beijing has ordered railway and airline companies to organize special trains and flights to carry migrant workers from “the door of their house to the gate of the factory,” according to the Ministry of Human Resources and Social Security. China’s 290 million migrant workers, who perform low paying but vital work, are critical drivers of the economy. And authorities in Hubei province, where the virus first broke out, said Tuesday that healthy migrant workers can be taken back to their places of work beginning later this week.
Small businesses drive China's economy. The coronavirus outbreak could be fatal for manySmall businesses drive China's economy. The coronavirus outbreak could be fatal for many
Beijing says its campaign is already working. More than 90% of industrial companies in most provinces were up and running as of March 17, according to the National Development and Reform Commission. Smaller companies are finding it harder, though — only 60% of small and medium-sized enterprises were open by the middle of March, according to government data.

Risk avoidance hampers efforts

Beijing has also acknowledged that its attempt to get back to normal is risky. The global pandemic is still accelerating, and China is still reporting dozens of cases per day — most of which are people who came to mainland China from other countries. Fears of a second wave are also growing in Hong Kong, where new cases have increased rapidly, with many imported from overseas.
A statement released this week by Beijing’s virus taskforce noted that “the risks for sporadic infections and localized outbreaks have not gone away.”
Some businesses have rushed back to work too soon, complicating the recovery efforts. A top titanium producer restarted its factories in February, only to halt work again because workers were infected.
Analysts and academics, meanwhile, warn that the intense pressure to resume work, coupled with fear of a second outbreak, might be creating a distorted picture of what’s really happening on the ground.
Chinese office workers wear protective masks as they cross a road during rush hour in the central business district  on March 12, 2020 in Beijing, China.Chinese office workers wear protective masks as they cross a road during rush hour in the central business district  on March 12, 2020 in Beijing, China.
Some companies in the eastern province of Zhejiang — where the government said almost all industrial work has resumed — have been turning on the lights and letting machines run idle so that it appears to government officials that they’re using electricity, according to the Chinese media outlets Caijing and Caixin.
Those manufacturers are struggling to resume production because of worker shortages, according to Caijing, while Caixin added that some local governments are reluctant to order companies back to work because they fear mass gatherings will lead to another outbreak.
“Because local officials and factories know that they would be punished severely by the government for allowing new infections to spread, they have played it safe by delaying the resumption of [real] economic activities,” said Victor Shih, an associate professor at the University of California at San Diego and the author of “Economic Shocks and Authoritarian Stability.”
“The threat of harsh punishment works to enforce self-quarantine, but will lead to risk avoidance behavior in the aftermath,” he said.
Faulty data about how much power companies are using has also been criticized heavily within China. Cao Heping, an economics professor at Peking University, warned in an article published earlier this month that faking data about returning to work would be fatal to China’s plans for an economic recovery.
If local businesses or authorities continue to fake data to give the impression of activity and do not actually resume production, it would be impossible for the country’s economy to grow at a strong pace this year, he said.

China could provide some answers

While the real extent of China’s economic restart is still uncertain, its ability to move past the initial phase of the outbreak could provide some hope — and a partial blueprint — for countries that are still in crisis mode.
Officials around the world are agonizing over how long to maintain curfews and quarantines that are essential to curb the pandemic but which are tipping the world into a deep recession, possibly even an economic depression.
Even democratic governments might be able to emulate some of China’s policies, including its plans to invest in infrastructure projects and healthcare systems, along with the tax cuts it is rolling out to fuel private demand.
“I think we will see most governments around the world implementing these kinds of stimulus policies,” said David Dollar, a senior fellow in the John L. Thornton China Center at the Brookings Institution. 
China boasts massive car and aviation markets. Both collapsed in FebruaryChina boasts massive car and aviation markets. Both collapsed in February
But China’s blueprint might only provide so much help, particularly for western economies that operate under less centralized government control.
Shih, the University of California professor, pointed out that China has an extensive system of state-owned enterprises that mobilized workers to help enforce the government’s quarantine rules.
One expert pointed out that China’s state-funded infrastructure system is also much larger than in other developed countries, and can be relied on as a major economic booster.
“The Chinese are resuming some large infrastructure projects which are largely funded by the state,” said Xiaobo Lü, a professor of political science at Barnard College at Columbia University, who added that sectors served by those projects are fairly easy to restart and can absorb idle labor.
By contrast, the private sector is more important in most Western economies, Lü and Shih said, where state orders aren’t as effective.
“The challenge in the West will be to incentivize people to go out to restaurants, theaters, and sporting events, rather than to get workers back to the factories,” said Shih. “The challenge is very different and consumer dependent.”

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People more important than the economy, pope says about Covid crisis – The Guardian

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By Philip Pullella

VATICAN CITY (Reuters) – Pope Francis said on Sunday that people are more important than the economy, as countries decide how quickly to reopen their countries from coronavirus lockdowns.

Francis made his comments, departing from a prepared script, at the first noon address from his window overlooking St. Peter’s Square in three months as Italy’s lockdown drew to an end.

“Healing people, not saving (money) to help the economy (is important), healing people, who are more important than the economy,” Francis said.

“We people are temples of the Holy Spirit, the economy is not,” he said.

Francis did not mention any countries. Many governments are deciding whether to reopen their economies to save jobs and living standards, or whether to maintain lockdowns until they are sure the virus is fully under control.

The pope’s words were met with applause by hundreds of people in the square, many of whom wore masks and kept several meters from each other. The square was reopened to the public last Monday. Normally tens of thousands attend on a Sunday.

The last time the pope delivered his message and blessing from the window was March 1, before Italy, where more than 33,000 people have died from the virus, imposed a lockdown. The last restrictions will be lifted on Wednesday.

Francis led the crowd in silent prayer for medical workers who lost their lives by helping others.

He said he hoped the world would come out of the crisis more united, rather than divided.

“People do not come out of a crisis like this the same as before. We will come out either better or worse than before. Let’s have the courage to emerge better than before in order to build the post-crisis period of the pandemic positively,” he said.

(Reporting by Philip Pullella; Editing by Susan Fenton)

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ANC Looks for New Levers to Boost South Africa's Economy – BNNBloomberg.ca

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(Bloomberg) —

The head of economic transformation in South Africa’s ruling party proposed a range of measures to bolster the economy, ranging from encouraging the use of pension funds and the central bank to finance infrastructure spending to the creation of a state bank and pharmaceutical company.

Enoch Godongwana’s recommendations to the African National Congress come as the government tries to revive an economy devastated by the coronavirus pandemic.

“The Covid-19 shock is posing unprecedented challenges, the economic crisis entailed by the pandemic is unique,” Godongwana said in the May 22 document seen by Bloomberg. “Globally, central banks have reverted to their original role as bankers to their governments.”

While business and investors have been calling for strong government action to support Africa’s most-industrialized economy, the document may heighten concerns about state intervention and so-called prescribed investment — mandatory funding by private companies of certain sectors.

In the document, Godongwana proposed changing regulation 28 of the Pension Funds Act to boost the funding of infrastructure projects spearheaded by state development finance institutions using private capital. South Africa’s main state-owned DFIs are the Industrial Development Corp. and the Development Bank of Southern Africa, of which Godongwana is chairman.

‘Financial Plumbing’

He also suggested that the Reserve Bank help finance DFIs through the creation of a 500 billion-rand ($29 billion) fund. Money should also come from the Public Investment Corp., a 2.13 trillion-rand fund manager that oversees civil servants’ pensions, Godongwana said.

“While it faces increasing continental competition, the South African financial-services sector can rightly be said to endow our emerging-market nation with ‘the financial plumbing of a rich place’ with deep, liquid markets,” he said.

While the document is a break with the thinking of some ANC leaders that the state should be responsible for much of the investment in the economy, it does advocate increased government “guidance.”

“A narrow and flawed understanding of what the developmental state is has led to the erroneous conclusion that it is only about public investments and public ownership, with a related over-emphasis on the limited funds of the state,” he said. “A developmental state does not necessarily mean higher levels of state ownership, but high levels of guidance.”

State Bank

In an interview with Johannesburg’s Business Times, which reported on the document earlier, Godongwana said the proposals didn’t amount to advocating for prescribed assets. They merely meant that regulations should be changed so that pension funds can invest in DFI’s if they wish to.

Godongwana didn’t answer a call to his mobile phone. Neither did Pule Mabe, the spokesman for the ANC.

The document also proposed the formation of a state bank, a pet project of Finance Minister Tito Mboweni, and a national pharmaceuticals company.

It also advocated, in contrast to the drive of some government departments, a swift move away from coal-fired energy to renewable power. The state-owned Central Energy Fund should be used to partner private investors in new projects, Godongwana said.

©2020 Bloomberg L.P.

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Bond Traders Glimpse Yields' Liftoff Potential as Economy Wakens – BNNBloomberg.ca

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(Bloomberg) — Investors in the world’s biggest bond market are starting to see what the other side of America’s worst-ever economic downturn could mean for their portfolios.

With more U.S. regions gradually reopening and investor sentiment picking up, the Treasuries yield curve from 5 to 30 years ended May close to the steepest since the height of the virus-fueled market panic more than two months ago.

Traders are betting short-to-medium term rates will be anchored by Federal Reserve stimulus, including potential steps such as capping yields. Meanwhile, they see scope for higher longer-maturity yields amid signs that the most dire economic reports may soon be in the rear-view mirror. Data suggesting the labor market was beginning to rebound last month could cushion the blow from this week’s labor report, which is forecast to show the highest jobless rate since the Great Depression.

“We are going to get the last of the big job-shedding numbers, and that will be important context to help investors judge the depth of the contraction, and what the process of coming out of it will look like,” said Ian Lyngen, a strategist at BMO Capital Markets. “The steepening trade is going to be thematic over the course of the next 12 to 18 months.”

The gap between 5- and 30-year yields surged to end last week at 110 basis points, touching the widest since mid-March. Benchmark 10-year yields were barely changed on the week, ending at around 0.65%.

Last week delivered a reminder of what could limit the upside in yields, with U.S. President Donald Trump intensifying his confrontation with China on Friday. An escalation of tensions between the world’s two biggest economies threatens to curb demand for risky assets and bolster the appetite for Treasuries.

There’s also the obvious uncertainty over the coronavirus pandemic’s trajectory and the risk of a second wave of infections. Fed Chair Jerome Powell warned on Friday that a full economic recovery “will really depend on people being confident that it’s safe to go out.”

But green shoots are emerging. Continuing jobless claims fell in the most recent week, the first decline during the pandemic. And St. Louis Fed President James Bullard said the unemployment rate could fall below 10% by December. Data this week are forecast to show it reached 19.6% in May, a level unseen since the Depression.

Even so, bond strategists are coalescing round the view that the Fed later this year will implement a policy of yield-curve control — partly as a way to reinforce guidance that it will keep its main policy rate low for an extended period. The consensus expectation revolves around capping yields on maturities from two to five years.

Although the Fed is about to slow its Treasuries buying again, investors will get a reprieve on the issuance front this week, with only bills on the auction docket. So any move toward further steepening in the days ahead could be telling.

“It would signal the curve may be steepening more so for economic reasons,” said Chris Ahrens, a strategist at Stifel Nicolaus & Co. “The long end seems to be pricing that we are getting to the worst of the bottoming of the economy.”

What to Watch

  • Friday’s release of May jobs data is the focus for the economic calendar:
    • June 1: Markit U.S. manufacturing PMI; construction spending; ISM manufacturing
    • June 2: Wards vehicle sales
    • June 3: MBA mortgage applications; ADP employment; Markit U.S. services PMI; factory orders; durable goods; ISM non-manufacturing
    • June 4: Challenger job cuts; trade balance; nonfarm productivity; jobless claims; Bloomberg consumer comfort
    • June 5: Nonfarm payrolls; consumer credit
  • The Fed calendar is empty before the June 10 policy decision
  • Auction calendar:
    • June 1: 13-, 26-week bills
    • June 2: $40 billion 119-day cash-management bill; $65 billion 42-day CMB
    • June 4: 4-, 8-week bills

©2020 Bloomberg L.P.

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