Chen Wenling: How to Avoid Economic Recession Amid the Coronavirus Pandemic?

The global spread and rapid deterioration of the coronavirus pandemic have brought severe challenges to the international community. On March 31, UN Secretary-General Guterres pointed out that the pandemic is the worst global crisis since World War II and the biggest test since the establishment of the United Nations. Previously, he also said that the world economy will move towards the Great Recession. At the meeting of the Standing Committee of the Political Bureau of the CPC Central Committee on April 8, General Secretary Xi Jinping emphasized that in the face of the severe and complex world economic situation and the pandemic, we must be well-prepared. The first quarter of this year was extremely unusual and the sudden breakout of the coronavirus pandemic has had an unprecedented impact on China’s economic and social development. We must fully aware of the risks and uncertainties, we must have a clear understanding of the current situation and be well-prepared.

The impact of the coronavirus pandemic exceeded our expectations.

The global spread of the coronavirus pandemic has led to various crises, including human life crises, public health crises, the ecological crises of the earth, financial crises, market crises and economic crises. The impact of the coronavirus pandemic exceeded our expectations in the following five aspects.

(1) The spread of the pandemic is faster than expected, the number of infected people is bigger than expected, and the harm it caused to humans is greater than expected.

As of May 7, 2020, there have been more than 3.7 million are infected with the coronavirus globally (China excluded), more than 1.2 million of them come from the United States. In total, more than 200 countries have confirmed cases. The damage the pandemic caused to the global economy is no less than a war. The epicenter of the pandemic has now shifted from China to Europe and the United States, and the third wave is spreading to developing countries, such as India, Turkey, Brazil, Indonesia, who have become an important part of the global industrial chain, or the location of global energy resources. In other words, the spread of the pandemic in these countries will have a serious impact on the global industrial and supply chains.

(2) The impact of the pandemic on the global economy is greater than expected.

The stock market in the US triggered a circuit breaker four times in just ten days, on March 9, 12, 16, and 18.  

Oil prices plummeted. The price of oil dropped from the previous US$147/barrel to negative US$37.63/barrel on April 20. Now, the price increased to $20/barrel. The cost of oil in Saudi Arabia is between $9 and $10, around US$20 in Russia and the cost of shale gas and shale oil is around $40 in the US. If oil-producing countries such as the United States, Saudi Arabia and Russia make compromises with each other, oil prices will continue to surge. The volatility of the commodities market is greater than expected.

Currency devaluation. When the stock market in the US triggered a circuit breaker for the second time, the United States injected $500 billion into the stock market every day for two consecutive days, followed by a zero interest rate on March 17th, and the quantitative easing policy of $700 billion. On March 23, the US started unlimited QE and 35 countries and regions followed the suit, including the European Union and Japan. So far, more than 40 countries have implemented monetary easing policies. By 2019, the negative returns of global government bonds reached $17 trillion, of which $3 trillion from the previous year, thus, the room for monetary policy is getting smaller.

Increased debt. The global debt has already reached $250 trillion. In the US, the Treasury bonds reached $23.3 trillion even before the pandemic breakout. The 2 trillion economic stimulus package launched recently will do little help to the economy. In the future, the US may continue to launch rescue plans by printing more money. Unfortunately, there is not much room for monetary policy.

Apart from the four challenges mentioned above, many other factors could trigger an economic crisis. We are facing the greatest challenges since 1929.

(3) The degree of global division and blocking exceed our expectations.

In order to prevent the spread of the pandemic, many countries have taken various actions to cut off personnel exchanges with severely affected countries, the flow of logistics and capital and normal social activities have also been affected. The impact of the pandemic is unprecedented, well beyond our expectations.

(4) The trend of anti-economic globalization exceeds our expectations.

The United States recently proposed a series of decoupling policies. On April 9, Lawrence Alan Kudlow said that the US government will pay all the direct costs in relation to bring the manufacturing back to the US, including plant equipment, intellectual property and decoration costs. Furthermore, the US government wants to withdraw China Telecom’s right to operate in the US, preventing it from providing telecommunications services for international communications entering and leaving the US. Many other countries have also followed the US to regain the so-called economic sovereignty. Recently, Japan launched an economic stimulus plan of 108.2 trillion yen, of which US$2.2 billion are being used to help Japanese companies in China bring their production lines back to Japan. The German government decided to amend the Foreign Trade and Payment Law to prevent foreign capital from acquiring Germany companies affected by the pandemic.

(5) The pride and prejudice in some countries exceed our expectation.

Some Western countries, especially the industrialized countries, often prejudice the culture of developing countries. During the pandemic period, such kind of prejudice became much worse than expected. Some countries only care about discrediting China’s practices and experience. China bought the West time, but the West did not cherish it. Led by the United States, many politicians in Western countries are still defaming China. They choose to ignore the contribution made by China to the world, and always blame China for the spread of the pandemic.

How should China respond to the pandemic?

Under the leadership of the Party Central Committee with Comrade Xi Jinping at the core, we have made great progress in fighting against the pandemic. At present, the pandemic is still spreading around the world. We need to focus on our tasks, make the best use of our advantages and further deepen reform and opening-up, so that China’s economy will remain strong. In general, we must prevent risks in the following five aspects.

Firstly, we must prevent the second wave of coronavirus breakout and minimize imported cases.

Although we have made continuous progress in stopping the spread of the pandemic, we should remain vigilant to the comeback of the pandemic. Different departments such as foreign affairs, consular, immigration, custom and border inspection should work together to prevent imported new cases.

Secondly, some people estimate that the United States will continue to release $7 trillion to the market, which will have a huge impact on China’s capital market. Thus, we need to make early preparation in the following areas.

(1) Providing precise support. In 2019, more than 40 central banks around the world have adopted loose monetary policies, and zero and negative interest rates have become a trend. So, China should adjust its monetary policy accordingly to enhance its credit capacity of banks and minimize the impact of the pandemic on the economy. Specifically, the financial industry should support the key areas of post-disaster reconstruction, such as helping Hubei to restore its economic and social order as soon as possible; supporting the manufacturing chain, industrial chain, supply chain, service chain, value chain, infrastructure construction and public health.

(2) Strengthening counter-cyclical adjustment. The difficulties caused by the pandemic are only temporary and thus, we should aim at the direction of the steady and long-term development of China’s economy and guide financial support in advance.

(3) Unblocking the transmission mechanism of monetary policy. We should make it easier for SMEs to apply for loans, establish a credit evaluation system, and create an online loan application for them.

(4) Adjusting the structure of financial supply. We should establish a new financial supply system that meets different consumer demands. For example, small and micro-enterprises should be handled by small banks. If large banks use big data and low prices to serve small and micro enterprises, this will create a new monopoly and affect the establishment of a financial ecosystem that matches financial supply and demand. Small and micro-enterprises should be served by middle and small banks. Small financial services providers such as Ant Financial, Suning Finance, WeBank can make a great contribution to small and micro enterprises. Therefore, we should make it easier for excellent financial technology companies to enter the financial industry.

(5) Making finance the engine for economic growth. Relying on consumer goods alone is insufficient for promoting economic growth. The vitality of real estate and other related industries should be restored as soon as possible. Financial credit should gradually return to normal and continue to play a role in driving economic development. On the one hand, financial services should be offered to meet the rigid demand for real estate. On the other hand, we must expand flexible demand and encourage demand for improved housing. Moreover, we should encourage the house-for-pension scheme and provide corresponding tax incentives, which is very important for the construction of a national health care system. Nationwide, the restriction on buying property should be adjusted according to different types of buyers.

Preventing supply chain breakage.

During the SARS period, China’s manufacturing output only accounted for 6.8% of the world’s total but now the figured has increased to 30.9%. Today, China plays a very important role in the global industrial chain, supply chain and service chain. The suspended production from January to February has affected the world industrial chain greatly. According to a survey conducted by a US enterprise, 39% of the 300 surveyed companies suffered from supply chain breakage because of their relation to China. China has gradually resumed production but other countries have started to shut down their production because of the spread of the pandemic. The result is reduced orders from other countries. Therefore, preventing supply chain breakage is very important for maintaining China’s economic growth.

In fact, China’s traditional manufacturing industries such as clothing, shoes, hats, bags, toys, and furniture have not been affected by the supply chain breakage. Industries that are experiencing transformation and upgrading, such as car engines, high-end chips in the semiconductor industry are vulnerable to the supply china breakage.

This breakage has restrained the transformation and upgrading of China’s manufacturing, but it will not affect the internal circulation and supply of China’s domestic market. Fortunately, China has the most complete manufacturing system and we must conduct analyses of the manufacturing industry to create more room for economic development. Some industrial chains can find matching suppliers and industries within China and hence to form a complete industrial chain. For the industrial chains that may be affected by the pandemics in other countries, we should try to find alternatives. Furthermore, it is necessary to expand the supply chain. When the pandemic is put under control, we should link our supply chain with other Asian countries, such as Japan, South Korea, Myanmar and Cambodia, which will have a great positive effect on the recovery of the world economy. Finally, we must strengthen the supply chain, that is, to strengthen and optimize the industrial chain and domestic links, ensuring that our industrial and supply chains are controllable and sustainable. The composition of the industrial and the supply chains are very complicated and we must pay attention to details.

Preventing the economy from collapse.

The pandemic has brought great challenges to China’s economic growth. In order to minimize the impact of the pandemic on the economy, China has taken various measures and introduced fiscal and monetary policies to help small and medium-sized enterprises. Recently, the Executive Committee of the State Council made specific deployments and proposed supporting policies, with the focus of optimizing regional economic pattern and promoting economic recovery and development.

After several years of adjustment, China has made great achievements in regional economic development, including the “Belt and Road”, Beijing-Tianjin-Hebei coordinated development, Guangdong-Hong Kong-Macao Greater Bay Area, and the Yangtze River Economic Belt. Under the increasing external pressure and uncertainty in the world economy, how can we find new power, momentum and growth points when adjusting the regional economic pattern? How to make the best use of the resilience of the regional economy?

First of all, we should continue to promote the “Belt and Road”. After six years of work, we have made a great start with the Belt and Road project. In the next step, we should focus our efforts on the domestic market and improve the economic development and infrastructure of the provinces involved in the belt and road-related projects. For example, the China-Pakistan Economic Corridor starts in Kashgar, a southern city of Xinjiang, the China-Laos Economic Corridor and the China-Myanmar Economic Corridor start in Yunnan. It is necessary to improve the infrastructure construction and promote stable economic and social development in these provinces, so as to lays a better foundation for building the “Belt and Road” after the pandemic.

Secondly, we should further develop the domestic market based on the existing regional economic framework. The global pandemic has created various barriers and cut off economic links to some extent. At present, we should focus on the domestic market because part of China’s overseas consumption has been brought back to China, such as the money spent when traveling overseas. The domestic market is not only a great attraction for foreign investors, but also the greatest potential and motivation for restoring our economy. The consumer demand was suppressed during the pandemic period but will be unleashed when the pandemic is over. Therefore, we must firstly combine the domestic market with regional economic adjustments to form a stronger domestic market.

Thirdly, we should increase investment, especially investment in optimizing regional economic development. Five aspects of the new infrastructure are related to the next generation of digital infrastructure, which is very important for developing China’s economy in the long term. This kind of digital infrastructure will help China’s economic transformation. A large number of Chinese enterprises are very competitive and creative, we should help them to release their vitality and stabilize the micro-economy, especially private enterprises.

We should prevent some countries from passing on their economic crisis, financial crisis and pandemic crisis.

On the one hand, China should have legislation in place to protect the foreign assets of the state, enterprises and individuals. It is necessary to update the WHO about the development of China’s fight against the pandemic and publicize the important role played by traditional Chinese medicine in combating the pandemic. On the other hand, the process and effectiveness of China’s fight against the pandemic should be transparent, including the investigation of officials who ignored their duties. If the United States and other Western countries insist on blackmailing China, we should come up with necessary countermeasures.

The coronavirus pandemic is a disaster in human history and will lead to unprecedented changes in the future. This pandemic will change people’s way of thinking and trigger the evolution of international political, economic, and diplomatic pattern. The global spread of the pandemic will put China under great pressure to control the pandemic and bring new challenges to global growth. Meanwhile, the pandemic will change China’s industrial chain and trade structure. We need to improve our national governance and public health system to adapt to the evolution of the international political, economic, diplomatic and geopolitical pattern. In spite of the deteriorating economic environment, we must not panic. We should see the unique advantages of China and be confident about China’s future.