Chen wenling: How Will the Pandemic Affect China’s Economy?

In response to the impact of the new coronavirus pandemic on China’s economy, Chen Wenling, Chief Economist of CCIEE, believes that we should be neither optimistic nor pessimistic. We should look at the economic data rationally, make more efforts to prevent and control the pandemic and lay a solid foundation for stabilizing economic development.

I. We should strengthen the prevention and control of the new coronavirus pandemic.

The impact of the new coronavirus pandemic on China’s economy may be greater than that of the SARS in 2003. 17 years ago, the impact of China’s economy on world economic growth was not so significant. Nowadays, however, China has become the world’s second-largest economy and an important driving force for world growth, and the relationship between China’s economy and the world economy has become closer than ever. Therefore, the outbreak of the coronavirus in China will have a great impact on the world economy and we should not be too optimistic about the pandemic.

We should maintain a cautious attitude to the pandemic. It will take us some time to figure out how to stop the spread of the virus, how to identify and diagnose new cases as soon as possible, and will the virus mutate continuously?

The United States, Italy and other countries have declared public health emergencies, many countries have stopped flying to China and more than 60 countries have announced restrictions on the entry of Chinese citizens. In the long run, China’s trade and export will also be affected by external pressures.

However, we should not be too pessimistic about the prevention and control of the pandemic because of the following reasons.

We should have confidence in our government and people. In the course of controlling pandemic, the Chinese government has great mobilization, deployment, organization and coordination, and the Chinese people are very united and are willing to cooperate, not all countries and regions have such kind of capability.

The WHO has declared the outbreak of the coronavirus pandemic a public health emergency of international concern, but this decision will be valid for three months only. The Director-General of the WHO has the right to meet early to lift the state of emergency if significant changes appear. The WHO also affirmed China’s actions to control the pandemic. I think that we will be able to slow down the spread of the pandemic in the next couple of months.

II. The impact of the real economy is mainly concentrated on the service and manufacturing industries. However, we should look at the temporary economic decline rationally.

At present, the pandemic is still in a complex and severe stage and thus, the prevention and control of the pandemic have become our top priority. We will see a sharp economic decline in the first quarter and the GDP growth will probably drop to 5%. The economic growth rate depends on when can we put the pandemic under control. The sooner the pandemic ends, the better chance we will have to make up the economic loss.

Despite the economic decline in the first quarter, we should remain clam. The emergence of public health emergencies is force majeure and the proper response is to take active actions and minimize losses. The Chinese economy is shifting from a high-speed growth stage to a high-quality development stage and consequently, the economic growth will be relatively slower than the previous years. Therefore, we should assess the economic decline caused by pandemic rationally. We should not take any irrational stimulus measures and have confidence in the future of China’s economic development.

The service and manufacturing industries are more affected by the pandemic and thus, it is necessary to make adequate preparations for uncertainties and risks.

Relatively speaking, the tertiary industry has suffered more than other industries, catering, tourism, exhibition, training, education, transportation, entertainment, film and television have experienced a significant decline in revenues and profits. Taking tourism as an example, the total number of tourists has reached more than 5.5 billion since last year and domestic tourism has increased significantly, especially during the Chinese New Year and other national holidays. Undoubtedly, the outbreak of the coronavirus will hit the tourism market particularly hard.

The impact of the pandemic on the manufacturing industry should not be ignored. When can the manufacturing industry resume operation depends on when can we put the pandemic under control. Our response to the pandemic and the duration of the pandemic will directly affect the work resumption of the manufacturing industry. Furthermore, many countries have started to evacuate their citizens from China (mainly Wuhan), which is understandable. However, we must also note that some countries use the pandemic as an excuse to withdraw their investment and even encourage their domestic companies to change their investment strategies. We need to plan ahead and prepare for such kind of uncertainties.

Due to the delayed work resumption, pressure on the capital chain, supply and demand, private enterprises, small and medium-sized enterprises and migrant workers will be affected by the pandemic.

III. Countermeasures

Firstly, we should attach great importance to the prevention and control of this pandemic. The next one to two weeks will be critical and we must demonstrate our strength and endurance to prevent any kind of recurrence of the pandemic.

Second, we should guide people to have a rational expectation of China’s economic development. At present, we are at a critical stage of preventing and controlling the pandemic and our primary goal is to protect the health of the people. Although there are concerns about the future economy, we must help the general public to understand that the safety of people is the most important thing.

Thirdly, intervention should be given in time for events that have a great impact on our people and society. For instance, there is a controversy on the re-opening of the domestic stock market. At present, the prevention and control of the pandemic have become China’s top priority and the US stock market has plummeted dramatically. If we open the stock market on February 3, a sharp fall or even collapse is likely to occur, which will not only affect shareholders and listed companies, but also will affect the international community’s expectation on China’s economy and market. The stock market should only be re-opened when the time is right.

 Fourthly, help should be given to industrial enterprises that are affected by the lockdown. We can consider introducing relevant policies and measures to help affected companies, such as tax reduction and exemption, and financial subsidies.

Last but not least, we can turn this “danger” to “opportunity”. We should have a comprehensive assessment of the occurrence and prevention of the pandemic so as to improve China’s modern governance in the future.