By He Jun*
The prevention and control of the novel coronavirus (Covid-19) epidemic in China is still at a critical stage, and data of the latest confirmed cases of infection are still worrying. As of February 8, at 2400 hours, there were 33,738 recorded cases, 811 of which were cumulative deaths and 28,942 suspected cases in China. Data sources show the global death toll from the Covid-19 epidemic (813) has exceeded that of the SARS epidemic (774). As such, efforts to counter the epidemic must go on.
Like always, ANBOUND observed the epidemic trend across China. The epidemic, which key indicator is measured by the appearance of new cases, peaked at February 9, followed by a long period of volatile decline in the figures. Based on the results, it can be suggested that the national campaign to prevent the epidemic has now reached its middle stage. Moving forward, two major objectives need to be achieved in order to prevent the epidemic from further spreading. One, to prevent the Hubei’s epidemic state from deteriorating any further, Wuhan particularly, which is accomplished through a more efficient treatment program to control the death toll. Two, to strengthen prevention and control efforts in other parts of the country as so to prevent a “Second Wuhan” from emerging. With the support from the whole country, coupled with the strengthening of prevention and control efforts in Hubei, it is believed that the epidemic can be gradually contained.
Following that, the economic reset needs to be put into plan, methodically of course. The Covid-19 epidemic has set a new record in China. For the longest time in 30 years of the country’s economic reform history, the entire economic system has been stagnant for almost three weeks and the situation is likely to persist for more than a month. On a monthly average, that means the stall will affect the GDP of more than RMB 830 billion. It is also estimated that the economic growth rate during first quarter will hardly exceed 5%. Consequently, China needs to be made aware immediately that if the stagnation were to persist, it’s economy engine will “malfunction” periodically, leading to great economic losses that may result in another disaster.
ANBOUND believes that China needs to focus on the bigger picture and tackle the issue of economic reset from various aspects, all the while doing a better job its prevention and control of epidemic during the middle and later stages. There’s a saying that goes as such – if the epidemic were to be stretched out for long periods, China would have to consider operating under an “epidemic-plagued economy”. Taking into consideration of the future situation and priorities, ANBOUND researchers have communicated as well as had professional exchanges with some senior policy officials and entrepreneurs regarding the issue. In light of the current situation, ANBOUND believes that the relevant departments need to consider the following aspects.
First off, the central government needs to speak up again, emphasize both anti-epidemic and economic efforts. In fact, the Politburo Standing Committee has previously stressed that party committees and governments of all levels should continue to work hard to achieve this year’s economic and social development goals and tasks. All should closely monitor the economic operation, focus on the impact of the epidemic on the economic operations, and be prepared to deal with various complicated and difficult situations. ANBOUND suggests that during the middle and later stages of the epidemic, senior officials need to pay closer attention to the balance between epidemic prevention and economy as well as provide strong support for epidemic prevention through economic operation.
Second, prevention and control of the epidemic should be classified and treated accordingly in different areas whilst various methods are adopted to resume work safely. At present, the prevention and control of epidemics in various places requires standardization, but it cannot be biased. Hubei’s epidemic prevention standard does not need to be the national standard. Likewise, Xinjiang and Zhejiang do not need to adopt the same degree of isolation policy. Basing on the degree of epidemic in different regions, the central government can designate different levels of epidemic prevention methods. Each region can formulate different levels of resumption of work policies to effectively resume production and economic activities. In fact, the central government has made a distinction in the terms concerning the condition of different region – “Regions severely affected by the epidemic are to focus on the prevention and control efforts; Meanwhile, other regions can focus on strengthening prevention and control efforts, and take active steps to reform, develop and stabilize the region at the same time.” Clearly, the way to rejuvenating the country’s economy on different levels and region is through methodical approaches.
Third, China should support its post-epidemic economic developments with more active fiscal policies. Modicum consideration should be given to the expansion of national fiscal deficit in 2020 i.e. the fiscal deficit ratio can exceed 3% and must be maintained within the rate of 4.5%. Following the epidemic, the scale of local special debt issuance on the existing scale can be expanded within reasonable means to provide some of form heavy support for the local economy. The above policies can be proposed during “Lianghui”, or “Two Sessions” (the annual convening in Beijing of two key national political bodies) this year, but updates on policy trends can be circulated in advance. By leveraging on the active fiscal policies, the “expected leverage” of the market can be increased to drive more social capital investment and expand the influence of policies.
Fourth, implement strong tax relief for medium and microenterprises and stabilize employment therein. In particular, the ones impacted by the epidemic are allowed tax exemption for 3 to 6 months. Tax reduction or exemption may be an old-fashioned policy and one that can increase the government’s financial burden and debt risk. That being said, the situation has changed following the outbreak of the epidemic. To save medium and microenterprises through tax reduction and exemption is to save the cell unit of the economic system, it is basically salvaging the seeds and green shoots during a forest fire. In this case, salvaging the medium and microenterprises enables them to recover quickly, which would further stabilize employment and by extension, the society.
Fifth, introduce financial policies that can be directed to real economy. After Lunar New Year, the Central Bank and other financial supervision departments have issued a series of policies that have stabilized the capital market momentarily and prevented the collapse of the financial market. However, it should be noted that the financial system’s way of driving economic growth is far too limited, the effects of strengthening liquidity supply and interest rate reduction are fully concentrated in the financial system. As a result, it has become far too favorable for the financial market. If the financial stimulus policies are kept in the financial system solely, it will be difficult for them to stimulate the real economy, and they will eventually become alienated from the financial market and the real economy.
Sixth, greatly increase basic investments and system construction in the industries that are in need of it. Following the epidemic, investments should be increased greatly. The bigger question to that though, is which area? This is a huge problem to consider during decision-making, the local preference has always been public infrastructures i.e. building bridges, roads and promoting urbanization. However, with the epidemic happening, certain areas require more investments, like epidemic-affected areas. There is a need to comprehensively strengthen the construction of public health systems and mechanisms, invest in both urban community and rural township hospitals, and build an effective hierarchical medical system. From a public policy standpoint, efforts need to be spent perfecting the public health system, rather than merely establishing technical system from the medical perspective. Consider developing regional hospital systems equipped with dealing public health incidents in some domestic megacities and establish a four-level resources reserve system for public health from a national, provincial, municipal and county level.
Seventh, as the control of epidemic progresses, so does the need to monitor the changes in the country’s Covid-19 mortality rate. ANBOUND’s emergency response team had previously stated that the fatality rate of the coronavirus epidemic is similar to a severe flu (so far the case fatality rate outside Hubei is about 0.16%-0.3%), which is substantially different from SARS, MERS and other epidemics. Recently, Japan and Singapore have agreed with the statement too. Based on China’s scientific research, there is a need to adjust the definition of the coronavirus epidemic which would also lead to different policy adjustments and resource allocation in the future.
Eighth, intensify the reform of the economic system and revitalize the market through institutional reform. There have been calls to strengthen state-owned economic system and curb private economy once more in the epidemic and as such, the trend is deserving of attention. As far as handling the impact of the epidemic goes, there is currently no remedy for the economy. Apart from increasing system reforms, there is no policy that can support the bottom line. On a policy level, consider making use of the situation to aggressively push for an economic reset – strive for breakthroughs in areas such as market access, financial system, fiscal system, government management system and so on, support the development of private economy in feasible manners, and actually strengthen the market-oriented characteristics that China’s economy is.
Final analysis conclusion:
The Covid-19 epidemic has impacted China’s public health system and posed new challenges to the country’s economy, which is already under immense pressure. Once efforts of the epidemic’s prevention and control has reached the middle stage, there is a need to pay closer attention to the reset of the economic system to avoid simultaneous and arduous operations on two fronts this year.
*Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.