The nation is further upgrading the measures to promote production recovery after the extended Lunar New Year holiday in light of the novel coronavirus outbreak, with experts expecting stronger financial stimulus to hedge downward risks.

"The novel coronavirus epidemic has affected the macroeconomy, and part of the service sector has been hit severely during the Lunar New Year holiday. After the holiday, some industrial enterprises, especially the small-and-medium-sized firms, may face operational difficulties," said a statement issued by the Ministry of Finance on Feb 9.

Measures are required to stabilize economic growth, Finance Minister Liu Kun said at a teleconference over the weekend, asking financial departments to prepare for "complicated and difficult scenarios", and to facilitate financial and tax support for businesses affected by the epidemic.

"The central government will continually launch new supportive measures, in terms of fiscal and tax policies," according to the trajectory of the viral outbreak and its impact, Liu said.

As of Feb 8, financial departments at all levels have allocated 71.85 billion yuan ($10.29 billion) to prevent and control the epidemic, with 17.29 billion yuan coming from the central government, according to the minister.

Affected by the extended holiday and quarantine to control the epidemic, many enterprises have stopped production, and the raw material supply chains have been blocked. "Pressure on some regions' medical supply and daily necessities is intense. It is necessary to encourage enterprises to return to work as soon as possible and expand production capacity," said the minister, calling for immediate allocation of fiscal subsidies.

Economists expect the government to step up easing measures to support the economy, as the negative effect of the virus outbreak has led to a revision in their forecasts for the country's GDP growth in the first quarter.

"The travel restrictions and activity controls put in place look to be strict and widespread," said Shan Hui, an economist with Goldman Sachs (Asia). "Company feedback suggests that extra biosecurity measures in place for returning workers are likely to lead to further delays in (post-holiday) activity."

On Feb 10, the Chinese central bank delivered the first batch of special re-lending funds of 300 billion yuan for a group of banks, supporting enterprises that supply goods and services for controlling the novel coronavirus outbreak.

Banks, including nine national large banks and local banks from 10 provinces, should use the special re-lending funds to provide loans to companies on a list. The companies were selected by central and local governments, and funds must be used directly to contain the coronavirus epidemic, said Liu Guoqiang, vice-governor of the People's Bank of China, the central bank.

The bank loans under the special facility have a maturity period of one year. The interest rates on these loans should be up to 3.15 percent, or 100 basis points below the one-year loan prime rate, the new benchmark for the lending rate. "We encourage banks to lend at even lower rates," said Liu, in a statement on the PBOC website.

Last week, the PBOC indicated that it might cut the medium-term lending facility rates later in the month and said that it is considering postponing the implementation of the new asset management rules. The rules are part of the government's efforts to rein in financial risks, issued in 2018 and scheduled to take effect in 2020.

"In a more severe scenario that the outbreak is not brought under control until May and travel restrictions persist into the second quarter, additional policy support would be required to put a floor under GDP growth," said Shan, the Goldman Sachs economist.

"In this alternative scenario, we would expect additional cuts of the reserve requirement ratio, cumulative 60 basis points cuts to the loan prime rate and medium-term lending facility rates, and a seven-day repo rate averaging closer to 2 percent. In addition, we would expect an even wider augmented fiscal deficit and even faster total social financing growth," Shan said.