Chinese economy under the pandemic

“We are not ready for the next pandemic.”

Bill Gates reminded everyone in a 2015 TED talk

However, at this moment, beside controlling the pandemic, China must draft an economic strategy for the recovery of the crisis.

Looking back at the epidemiology history, from the Black Death (the plague) in Middle Ages that almost destroyed Europe, to the 1918 flu pandemic in the last century that infected 0.5 billion people around the world, a pandemic not only leaves us with medical problems, but also the recovery of politics, economy, social order and public opinions.

In the beginning of 2020, Chinese people experienced a long calm holiday. It was a sudden pause for the entire Chinese society.

After WHO listed the COVID-19 as a PHEIC, people kept complaining on social media and self-media. With pessimistic and illogical public opinions, we are asking the same question, will this pandemic make the Chinese economy plunge?

Looking Back in History – Not Much Reference

History is the reference when predicting the future. Let’s look at SARS in 2017.

During the SARS pandemic in 2003, China’s GDP increased by 11.1%, 9.1%, 10% and 10% respectively in four quarters, in which the second was the most influenced. From this data, SARS did not have a great impact on China’s economy, yet we cannot deny two facts. Concerning the scale of the economy, China’s GDP in 2003 was just merely 120 billion, while in 2019, it was almost 1 trillion. Concerning industries, in 2003, tertiary industry took up 30% of the GDP, and it was over 50% in 2019.

Before 2017, the Chinese economy was in a developmental phase. After overcoming the pandemic, the economy rebounded strongly in the later half of the year. Yet, in 2019, Chinese economy was in a transitional period from high-speed to moderate-speed. We have to face the negative influence of the pandemic objectively.

We all understand that the longer the pandemic, the worse is the economic influence. Compared to 2003, another problem that we must face is the difference in information technology. This is a double edged sword. With excessive information, it is harder to dig out the truth and easier to cause panic, increasing the difficulty of governance.

For instance, speeches induced by the Wuhan lockdown mostly were illogical and lack common sense, yet due to a free flow of information, these false information spread rapidly on the Internet. Therefore, during the Spring Festival, there were panic buying and illogical stocking in many supermarkets in Beijing.

Comparing to SARS in 2003, a major difference was the lack of the concept of online shopping and “Internet + industry”. Data shows that 10 years ago, a 1% increase in economy will lead to 900,000 jobs, while in 2019, every 1% increase will lead to 1.3 – 1.5million job opportunities. The increment came from “Internet+industry”, delivery, food delivery, online education, remote working…a strong online consumer community has always supported the Chinese economy.

Living in the Moment – Great Pressure on Enterprises

The pandemic mostly affected the offline economy and traditional supply chain. Before the outbreak, these industries already faced various challenges due to the transition of economy.

Heng Da Yan Jiu Yuan points out in a study – Study on the influence of the pandemic to Chinese economy and policy suggestions – that the macroeconomic demands and products decrease, causing damage in investments, consumptions and exports, of which food and beverage, tourism and movie industry are the most affected.

In 2019 Spring Festive, the total sales of retail, food and beverage industry was 100.5 billion. In this year’s Spring Festival, the loss will reach up to 50 billion.

Take the example of a chain fast food shop in Xi Bei. After the outbreak, 400 restaurants were closed, expected loss in 1 month before and after the Spring Festival will be 700 – 800 million, leaving around 20,000 staff unemployed. According to government policy, monthly salary expenses is 150 million. If the pandemic cannot be controlled soon, Xi Bei will face great pressure on its cash flow.

Xi Bei is merely an epitome of the Chinese service industry at the moment. If big chain restaurants suffer like this, we can only imagine the impact on SMEs. This is one of the toughest problems faced by the country now. We can see that due to the continual spread of the pandemic, enterprises close, and the risk of unemployment increases.

With the development of the pandemic, overcapacity of traditional manufacturing industries such as metal, metallurgy and car parts become more serious. At the same time, due to the limited flow of workforce among cities, factories will soon be unable to employ staff. Since market demand decreases, some factories may struggle to open. Consumers cannot go to actual stores, causing the rapid plunge of spending ability, affecting especially small businesses and personal businesses.

Looking Forward – Policy Assistance Should be Prompt

In this century, WHO announced 5 PHEICs, including the US Mexico H1N1 flu in 2009, West African Ebola and Poliovirus Eradication, Zika Virus in 2016 and African Congo Ebola virus in 2019.

Compared to the previous 5 pandemics and considering the economy, quality and efficiency of China, we can believe and trust that China will recover its economy the fastest among the 5 PHEICs.

PHEIC is not definite, its status can changed. WHO will re-evaluate the pandemic in China again after 3 months, as long as the pandemic control work is running smoothly and the weather at that time (May) will be warmer, it will be beneficial to the coronavirus control work. The pandemic will probably be no longer listed as a PHEIC.

After the pandemic ends according to a medical definition, the real challenge for the government and enterprises will be a bigger “pandemic” of economy and employment. To China that promotes mass entrepreneurship and innovation in the last 5 years, to a society amid economic transformation, and to entrepreneurs and economic game changers, this will be a long-term challenge.

In a crisis like this, central and local governments should adjust its enterprise assistance policy and execute a feasible, efficient and effective Plan B, aiming to lower production cost and offer easing policies and interest rates to relieve the pressure on SMEs. In case of large-scale close down or high unemployment rate, the consequence will be disastrous. The cost for repair work will be much higher then.

According to the latest trend of the pandemic with several factors considered on a national scale, some proposals should be made:

The ideal situation would be, in late February and early March, when the outbreak is steadier, the government should launch a series of policies to stop the economy from worsening and encourage economic growth.

If the pandemic continues to spread for over 3 months, the government should set up a special task force to control the economy.

If the pandemic continues for over 6 months, a committee should be set up to re-develop the economy and launch war-time economic policies like national purchase, fixed-amount ration etc.

At the same time, focusing on the current situation, the government should adjust the supply-side structural reform used since 2016 and loosen the control over the economy; start re-launching infrastructure projects; economic reconstruction should be prioritized over real-estate, finance, environment protection, or even anti-corruption, party building and diplomatic work; provide aids to SMEs and local business; provide short-term zero-interest cash loan; the national treasury should use cash to aid SMEs, like rent assistance and 5 insurance and Housing Provident Fund subsidy, as well as offer business tax and income tax discount according to updates of the pandemic.

The Impact of the Pandemic on Chinese Economy is Obvious.

We should not deny this fact and be too optimistic, nor should we be overly pessimistic and lose faith in our country’s economy. Central and local governments can implement a social security system concerning enterprise survival and employment to help those in need, train the unemployed, evaluate overall risk and recover the society.

Millions and millions of enterprises build the foundation of China’s economy and support its gradual growth. During the time of crisis, the government should work together with enterprises through this challenge. Here are my personal opinions on this matter.

  1. Decrease or delay policy expenses for substantial industry, particularly those related to consumption, for example, delay the 5 insurances and Housing Provident Fund payment;
  2. Lower operation cost, provide lenient loans and accelerate loan approval for enterprises with assets and intellectual properties to increase their cash flow;
  3. Cancel principal payment for loans;
  4. Provide tax support for enterprises in need;
  5. Implement policies to subsidize in energy and transportation aspects to lower operation cost;
  6. Encourage enterprises to create job opportunities, give out patents and subsidies;
  7. Provide funds and subsidies for listed companies, pro-listed companies and tech-unicorn enterprises to promote mass entrepreneurship and innovation.

There is Always a Silver Lining in Life.

Maintaining a work-life balance helps you in keeping your physical and mental health. Studies revealed spending too much time in front of the screen can harm your wellbeing. So it’s vital to make sure you’re not overwhelmed by work.
Tune out occasionally. Read a book, meet up with friends, or take a stroll at your favourite neighbourhood. If you’re into the outdoors, go for a hike in the country parks. Or if you want inspirations, why not visit one of the many networking events? A change of scenery can help your body and mind face the challenges ahead.

The serious pandemic is the best chance for us to examine our country’s quality and anti-strike capability. PHEIC will pass, coronavirus will have a cure. This is based on our confidence in human medical technology and the governance of the Chinese government.

In the past centuries, the Chinese faced a lot of disasters. This is not the worst. Yet, to a transitioning society and economy, to the millennials who are the future of the society, this spring, they faced a difficult test.

Compared to the pandemic, extremists ideologies are more worrying, one is over-alarming and rumour-spreading, while the other one is blindly optimistic.

At a moment like this, we can only adjust our attitudes, protect ourselves, do our jobs to make sure enterprises run smoothly and staff work responsibly.

I believe after the pandemic, the characteristics, consumption pattern and value of the Chinese society will change drastically. We are indeed not ready for the next pandemic, but let’s live in the moment. We must win this war.

God bless the world. All the best, China!

*Translated article – originally written in Chinese by Dr. Mao

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