The fundamentals of the Chinese economy are fine and the novel coronavirus outbreak is not likely to affect cross-border investments in the long run, a German economics professor said on Tuesday.
The virus outbreak will have a short-term impact on the Chinese economy, especially in the first quarter of the year, but the basics of the Chinese economy are fine, said Horst Loechel, professor of economics at Frankfurt School of Finance &Management.
Business activities such as mergers and acquisitions (M&A), foreign direct investment (FDI), and private equity (PE) investment are related to the real economy, and the current crisis will not have an impact on the long-term forces behind these investments, Loechel said.
"So in the long run, I see the same development in M&A, PE and FDI in both ways as it was before," Loechel said.
As for the financial markets, the volatility of share prices is the market's normal reaction to uncertainty, Loechel explained, saying that once the crisis gets under control, prices will likely go up again.
"I don't think there is an issue of financial stability in China at this very moment," he added.
Meanwhile, Loechel said that the People's Bank of China, the central bank, can support the economy in this crisis by providing more liquidity as it has already been doing, and the government can use fiscal policy to stabilize the employment level and production level in the overall economy.
