China's economy is beginning to show some signs of normalisation after the full-blown shock caused by the coronavirus but stark risks remain, the International Monetary Fund said on the economic impact of the pandemic.
Most larger Chinese companies have reopened and many local staff have returned to work but infections could rise again as national and international travel resumes, the IMF officials said.
Outbreaks in other countries and financial market gyrations could also make consumers and companies wary of Chinese goods, just as the economy is getting back to work, they said.
The coronavirus, which has infected more than 270,000 people and killed more than 10,000, has wreaked havoc on the global economy. In China, the slowdown in the first quarter will be significant, leaving a deep mark on the full year, the IMF said.
"What started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand," the IMF said, highlighting very weak industrial production and retail sales data in January and February.
But it said China's response thus far showed that the right policies made a difference in fighting the disease and mitigating its impact, albeit with tough economic trade-offs.
China implemented strict constraints on movement at the national and local level at the height of the outbreak, devastating Hubei province where it originated but slowing the spread of the disease around the country, the fund said.
To mitigate the simultaneous shock caused to households, businesses, financial institutions and markets, Chinese policymakers quickly stepped in and supported vulnerable households and small businesses by waiving social security fees, utility bills and channeling credit through FinTech companies.
They also arranged subsidised credit to support scaling up production of medical equipment, backstopped interbank markets and supported companies under pressure, the officials said.
The authorities worked closely with banks too, incentivising them to lend to smaller companies and providing targetted cuts to reserve requirements, while continuing to lend generously to larger companies and state-owned enterprises, the IMF said.
Given the ongoing economic risks, Chinese policymakers needed to be ready to continue to support growth and financial stability, if needed, and to co-ordinate internationally, given the global nature of the outbreak, the IMF said.
One opportunity to co-ordinate the international response would be through the world's 20 major economies (G20), but divisions within the group could undercut those prospects, experts say.