The coronavirus outbreak shuttered many factories, restaurants and shops in China, likely causing the economy to contract for at least the current quarter, and maybe longer. The question now is what might be results of that shock, as it works its way across the nation.To get more Shanghai economy news, you can visit shine news official website.

Rising Unemployment

The job market is a good place to see how the economy is dealing with the shock. The immediate effect in February was to throw 8 million people out of work, according to an estimate by economists at Australia & New Zealand Banking Group.

Reversing that trend of rising unemployment is a clear priority of the government, which still aims to end absolute poverty this year. The authorities already have a basket of measures to support jobs and hopefully stop unemployment going above the record 6.2% in February.However, while the domestic economy is returning to normal, the expected slump in global demand from the pandemic could hit Chinese factories again, endangering many manufacturing jobs, according to Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. The situation this time is different from the financial crisis more than decade ago, when China avoided the worst of the global recession with a vast stimulus plan.

“This time there’s much less appetite for major macro stimulus, even after the massive decline of GDP in the first quarter,” said Kuijs. “That means that the pressure on China’s labor market is set to be larger now than in 2009, and thus the challenge is for policymakers to stabilize it – by means other than giant stimulus – as well.”

Bankruptcy Risks

Even more than shuttered factories, the most immediate effect of the outbreak will be on the shops, restaurants and other small companies which were either forced to shut or make do with little to no business for weeks. While manufacturers can produce more now to make up for lost time, much of the shopping that didn’t happen won’t occur.

The question is how long smaller companies can survive with such a slump in revenue. Two-thirds of firms only had sufficient cash reserves to survive for a maximum of three months, according to a February survey by China Merchants Bank Co. of more than 20,000 mostly small- and medium-sized firms.Authorities have unleashed a raft of relief measures, including cheaper loans, a tax rebate and delays to loan payments to keep them afloat. But progress is slow. From Jan. 25, about one-fifth of SMEs got a reprieve on loan payments that were due, according to an official at a press conference on Sunday.

Non-Performing Loans

A prolonged emergency could cause China’s non-performing loans to increase by 5.6 trillion yuan ($790 billion), S&P Global estimated last month. That would more than triple the bad-debt ratio to about 6.3% of all loans. The ratings firm expects “questionable” loans to peak at 11.5% of total loans in the aftermath of the epidemic.

China has already loosened the standards for recognizing bad loans as part of its crisis response, allowing banks to hold them for longer without having to account for them. That should give companies in trouble more time before banks calls in loans.To be sure, China’s banks have 6 trillion yuan of loan loss reserves, but the pressure will increase if the economy doesn’t stage a V-shaped recovery in the second quarter.

Bank Stress

A recession will not only lead to more bad debt but also damage the quality of assets, hitting banks’ balance sheets. If economic growth slowed to 4.15%, 17 of 30 major banks would fail stress tests, according to the worst-case scenario in a central bank report last year. While that seemed unlikely then, with growth forecast at just 2.9% this year, it has become a much more immediate problem.

Smaller rural banks were already in a precarious position, with at least three being bailed out or rescued last year. Deteriorating asset quality and falling profitability increases the concern that more regional banks will come under pressure or fail.