Question

Assume that growing levels of Chinese debt, a trade war with the U.S., and uncertainties surrounding the COVID-19 virus are lowering MPK in China. What will be the effect on Chinese domestic investment, I? For each of the following three cases, derive the expected effects on Chinese and US interest rates, saving, investment, and net exports:

(a) China is a closed economy;

(b) China is a small open economy;

(c) the world consists of two large economies: China and the US.

Answer 1

Over the last decade and a half, China maintained an investment rate higher
than that of more advanced economies, including both Japan and the United
States.

Effect on china due to covid 19..
1.In terms of consumption: due to outbreak consumption of chinese product decreases people uses less products of chinese due to which china face a lot of problems.

2.In terms of investments: due to the outbreak, many businesses have been
unable to resume production on time and forced to have their production
orders cancelled, and investments are bound to shrink accordingly. However,
all considered, investments will suffer less as compared with consumption.

3.In terms of import and export trade: due to the slowing down of growth in
consumption and investments forced by the outbreak, and the implementation
of the first phase agreement in the Sino-US trade war, the import and export
trade will continue to further level off in 2020.

4.Culture, leisure and tourism...
After the outbreak situation became serious nationwide, the Ministry of Culture
and Tourism has issued a series of papers, and suspended the group travel and
“air ticket + hotel” package offerings of nationwide travel agencies and online
tourism companies. At the same time, various local cultural and tourism authorities have been busy deploying prevention and control measures.

5.Movies and entertainment...
Every year, the “Spring Festival” is a major target of the movie market. Eight
movies featured in the seven-day holiday last year raked in RMB 5.84 billion in box
office, setting a new record for the same period. In the 2020, nine movies had
been set to make a killing, with the box office expected to approach RMB 7 billion.

6.Catering and retail..
In this Spring Festival, a period when it would have been a big spending season,
the government has called on the general public to stay at home and minimize
venturing out to help control the outbreak. This measure is undeniably a heavy
blow to the catering and retail industries.

7.Transportation industry
The two months from January to February are usually the peak time of Chunyun,
the Spring Festival travel season in China. This year, however, the rising number of
cities adopting the “sealing up” measure, and the huge decline in the numbers of
people who have chosen not to return to their hometowns or travel to other places,
are having a telling impact on the transportation industry.

8.Manufacturing
As people take their Spring Festival holidays, the period from January to February is usually the “downtime” for the labor-intensive enterprises of the manufacturing industry.

9.Real estate..
As part of the nationwide efforts to control the spread of the disease, on January
26, the China Real Estate Industry Association issued the proposal to the real
estate development enterprises to suspend their onsite promotion activities until
the outbreak is over.

10.Medical supplies and pharmaceuticals..
One of the biggest issues laid bare in this outbreak is the inability to supply of
medical goods as needed, such as masks, protective clothing, and goggles.

They all are the efects that happened to china due to covid 19 due to which china face so many problems.
Over the same period, foreign direct investment (FDI) inflows to the
Chinese economy grew at an average rate of 19.97 percent per year, increasing
from $3.5 billion in 1990 to $92.4 billion in 2008.

China shows that they can stop coronavirus through containment - but at a significant economic cost.

Globally, the covid19 shock is severe even compared to the Great Financial Crisis in 2007–08.

Policymakers must support vulnerable households and smaller businesse to mitigate the impact of this severe problem.

China’s experience so far shows that the right policies make a difference in fighting the disease and mitigating its impact—but some of these policies come with difficult economic tradeoffs.

The impact of the covid 19 is having a profound and serious impact on the global economy and has sent policymaker looking for ways to respond.