How Can We Cope with the Economic Impact of the Epidemic?
It can be preliminarily predicted that the novel coronavirus is likely to hit China’s economy heavily in the first quarter but moderately for the whole year.
The novel Coronavirus outbreak early 2020 when China is celebrating its Spring Festival, has threatened all parts of China and even many countries and regions of the world. As the World Health Organization (WHO) declared the outbreak of novel coronavirus as a public health emergency of international concern (PHEIC) on January 30, the impact of the epidemic on the economy of China and the world began to attract public concern.
Based on the historical experience of the severe acute respiratory syndrome (SARS) in 2003, it can be preliminarily predicted that the novel coronavirus is likely to hit China’s economy heavily in the first quarter but moderately for the whole year.
First, thanks to the experience of fighting SARS in 2003, the prevention and control measures against coronavirus are on time and more effective. Like SARS, the novel coronavirus has seen its first infected case at the end of the previous year and spread fast in January. However, it took a long time for governments at all levels to cope with SARS in 2003. The limited capacity to diagnose and control SARS and its higher mortality rate made things worse, thus SARS lasting for as long as half a year. In contrast, Chinese government has responded to the novel virus more quickly, dramatically improved the diagnostic capacity and doubled their efforts to contain the outbreak. Given its lower mortality rate, this epidemic might last for a much shorter period. So far, it is estimated that this coronavirus can be contained in the first quarter, and thus its economic impact may mostly occur in the first quarter.
Second, the economy might rebound next quarter should this coronavirus be brought under control in the first quarter. In 2003, two years after China’s accession to the WTO, China’s economy was gaining momentum while the international trade and investment environment was also favorable. The actual growth rate of GDP in that year was 10 percent, one percentage point higher than the previous year (China had not yet accounted its quarterly GDP). Therefore, SARS’ economic impact did not raise widespread concerns. However, this year, China’s economy is under a greater downward pressure and Beijing has just signed the phase-one trade deal with Washington. The international business environment remains complicated. Despite the Central government’s policies for “six stabilities” in the areas of employment, finance, trade, foreign investment, domestic investment and market expectations, the epidemic will surely exert a negative impact in the first quarter, particularly on traditional service sector such as transportation, tourism, retail, catering, hotels and entertainment. But again, things might be different next quarter if only the epidemic could be contained in the first quarter.
Third, the proportion of the core coronavirus-stricken area’s GDP in the whole country is not that large. During the period of SARS epidemic, Guangdong, Beijing, Shanxi, Inner Mongolia, Hebei, Tianjin, Hong Kong and Taiwan were worst-hit areas, the first six of which accounted for more than 20 percent of China’s total GDP that year. However, the core epidemic area this year is Wuhan and its surrounding areas in Hubei. In 2019, Hubei’s GDP accounted for 4.65 percent of the country’s total, which means Hubei’s economic fluctuation will not smash China’s economy. Nevertheless, as the epidemic has already constricted the nationwide travel rush in the lunar new year holiday and most provinces have extended the holiday, this epidemic will deal a blow to other areas’ growth.
Fourth, Chinese economy is more resilient to the impact of the novel coronavirus than it was in 2003. At that time, the per capita GDP of China was less than US$1,300, trade-to-GDP ratio reached 51.3 percent, investment and manufacturing are the main drivers to economic growth, and China found it inexperienced to tackle a public health emergency with its healthcare system. This year, however, the per capita GDP has exceeded US$10,000, trade-to-GDP ratio dropped to 31.8 percent, consumption and services have become the main economic drivers, and the government is better prepared to respond to public health emergencies based on its much-improved healthcare services.
Fifth, the novel coronavirus may generate few impacts on the world economy. As the Chinese government updates the epidemic as soon as it can and shares information with the WHO and the international community, other countries are enabled to engage in the combat against the outbreak, which has been appreciated by the WHO. Though declaring the coronavirus outbreak as PHEIC, the WHO has not recommended any travel or trade restriction against China. Since the beginning of this century, globalization, technology progress and international cooperation have made the response to global public health emergencies easier. Therefore, the epidemic will not strike the world economy.
However, we must attach great importance to any sign of possible public panic and market fluctuations, while striving to prevent and control the epidemic scientifically. We must do everything we can to minimize the negative impact of the epidemic on China’s economy and protect the general public, with a view to a perfect conclusion of the 13th Five-Year Plan.
First of all, strengthening prevention and control of the epidemic is the top priority of the first half year. We must keep vigilant just in case of the virus’s come-and-go. We should mobilize all social forces, make clear the responsibilities of different levels, reinforce coordination among departments, regions, communities and non-governmental organizations, create an effective anti-epidemic system with quarantine and isolation, increase anti-epidemic supplies and infrastructure as soon as possible, speed up the research on the epidemic and medicine, in a bid to eliminate the coronavirus in the first quarter with minimal adverse impacts.
We must increase supply of necessities and keep prices stable. The coronavirus outbreak coincided with the Spring Festival holiday, during which most factories and some shops closed. As a result of public panic and temporary logistics difficuilties in some areas, prices of some foods and anti-epidemic products soared as some unscrupulous merchants drove up prices. The Chinese central and local governmants have been severely punishing those malpractices.
High-quality development remains the priority in promoting economic growth. This public health emergency has somewhat indicated that some local leaders pay too much attention to economic growth but neglect its quality, including public health. Recently, there is even a slogan to “guarantee not-less-than six percent of GDP growth rate”, still a stereotype of development. Since the 13th Five-Year Plan, the central government has taken high-quality development as its core goal and paid more attention to people’s satisfaction and sense of benefit. We must recognize that the positive economic fundamentals of China remain unchanged in a long term and that economic fluctuations in a quarter or even a year do not defy economics at all. The only thing we have to fear is fear itself.
No difficulties can stop the pace of reform and opening-up. Since the 18th National Congress of the CPC, the core driving force for China’s robust economic growth has been reform and opening-up. It is the same case since the 19th Party Congress. Therefore, we must firmly believe the Central government’s policies to reform and open up as well as the “six stabilities”, keep pursuing high-quality development of people’s interests, and implement the principles from the Central Economic Work Conference at the end of 2019, so as to pave the way to realize the 13th Five-Year Plan and the first centenary goal.
The author is Director of the Trade and Investment Research Office of the Institute for International Economic Research under the National Development and Reform Commission.
Translated by Liu Xiaomin
The opinions expressed in this article are the author’s own and do not reflect the views of China Focus.