【Background】 The global outbreak of the COVID-19 has dealt a heavy blow to the international community including China and the US. The communication between China and the US and how the two biggest economies respond to the epidemic will not only affect the economic trends of the two countries, but will bring about profound impacts to the global economy. Against such a backdrop, based on the previous China-US Track II Economic Dialogues, the National School of Development at Peking University (NSD) and the National Committee on US-China Relations (NCUSCR) launched their first online panel discussion on the night of April 29. The summary of Professor Huang Yiping from the NSD, one of Chinese representatives, is as follows.
Short-term Policy Responses to COVID-19
The pandemic has produced extensive negative impacts on various countries. In this context, the government’s policy responses usually cover three aspects: efforts to control the spreading of the pandemic, pain relief and measures to stimulate the economy.
Judging from the current experience, the effective way to contain the spread of the epidemic is to implement various measures such as social distancing and enacting lockdown orders. Given that there are still great uncertainties in the epidemic situation overseas, China is still cautious and is implementing a so-called ‘two-hands’ policy: one hand is to be particularly careful about the potential risks of the domestic epidemic rebound, and on the other hand to restart the businesses.
The strict prevention and control measures Chinese authorities carried out have curbed the spread of the virus in the country, but meanwhile they clearly realized that the epidemic will cause a drop in China’s economic growth. They have done a lot to help China’s economy return to normal as soon as possible. The core of the current economic policies is to support family households, especially SMEs (small-and medium-sized enterprises). This is because the profits of such enterprises dropped sharply in the pandemic, but their operation cost still exits, which resulted in cash flow problems for business and made them more vulnerable in the epidemic-hit economy. On the other hand, these enterprises have made great contributions to Chinese economy and accordingly the proportion of jobs these enterprises created for the society is larger. If a large number of SMEs encounter problems simultaneously, it is likely to evolve into a systemic risk.
Currently, Chinese government has issued a series of monetary policies, especially fiscal policies, to support SMEs, such as the suspension, reduction and exemption of social security contributions, tax, rents and interest costs to help such enterprises address cash flows problems. The next policy steps may focus on economic reconstruction, including new technology-based infrastructure investment and developing large metropolitan areas.
In general, China’s economy has trended on a positive direction.
Characteristics of the Economic Recovery
In the medium term, the current round of economic recovery is likely to be slow, and China can’t recover quickly from the coronavirus outbreak like it did with SARS in 2003. This is because the domestic demand has been shrunk dramatically by the COVID-19. On the other hand, the epidemic has dealt a heavy blow to global demand, and it is unlikely to recover in a near future. A great number of exporters brace for the pain amid a wave of cancelled overseas orders and some of workers are forced to take an unpaid leave. If the global epidemic is controlled as soon as possible, it will also have a positive impact on China’s economic rebound. The government should adopt some economic stimulus policies, especially restoring domestic consumption, which will help a lot in stabilizing the economic and social situation. In the next one or two years, the global retail industry may embrace new opportunities, and the retail sales in China will stand out. Although the growth in consumer spending in China’s retail industry is still lower than that in the US, China’s volume is already comparable to that of the US.
In the post-epidemic period, the digital economy will provide a substantial boost to economic recovery. In this round of epidemic, we found that a lot of Chinese companies have shifted their business activities online, a solution to cut down the economic losses in the epidemic. Higher education and other industries also do much of their business online. I have not been in Beijing this semester, but online classes have enabled me to carry out all my teaching work. It will be unimaginable without the support of digital technology.
In addition, digital finance has also exerted its unique advantages to provide financial support to SMEs more efficiently to help them overcome difficulties.
The Long-Term Impacts of COVID-19
In the long run, the international environment and the economic relations facing China have become further complicated. Some countries, including the US, politicized their economic policies. Will the coronavirus outbreak speed up the US-China decoupling? Will the bilateral trade relations become worse than in previous years? These issues currently have greater uncertainties.
Since the epidemic, the central banks in major countries around the world have issued aggressive expansionary monetary policies. The figures released by the IMF recently revealed that the debt-to-GDP ratios in advanced economies may rise from 105% to 122%. Confronted with the severe epidemic, radical monetary and fiscal policies are undoubtedly necessary. But we cannot dismiss whether the public debt is sustainable in the post-epidemic era. Even if the pandemic comes to an end, it may be quite difficult to bid farewell to such radical monetary and fiscal policies, and this will directly change the world economic landscape in the future. We are expected to be fully prepared in mind and figure out proper policy response in advance.
(Edited by Zhang Shundong)