Though the COVID-19 outbreak has a negative impact on economic activities, it will be a one-off hit and will not cast a long-term impact on the factors of production and productivity, nor will it affect the whole year or weaken the potential growth capacity of the Chinese economy. Losses on the demand side can also be quickly recovered. Judging from the course of China’s socioeconomic development, the temporary disruption caused by the epidemic will not delay the fulfillment of the goal of building a moderately prosperous society in all respects by 2020, though it will slightly reduce the growth rate and other development indicators.
The outbreak of the epidemic is an unpredictable and unpreventable disturbance, and it has an indeterminate influence on the realization of the goals and tasks of socioeconomic development. Therefore, on the basis of good economic fundamentals and China’s economic achievements in recent years, it is necessary to take stronger measures and make greater efforts to complete the building of a moderately prosperous society in all respects.
Direct harms on economy
China’s economic development has entered a new era and major changes have taken place in the industrial structure, development model and growth drivers. Compared with 2003, the year of the SARS outbreak, the urbanization rate for the permanent resident population has increased by about 20 percentage points, the proportion of the agricultural labor force has dropped significantly, employment in the tertiary industry has significantly exceeded that in the primary and secondary industries, and the total number of migrant workers has increased by 50%. The contribution of final consumption to economic growth rose from 35.4% to 57.8%, and the contribution of capital formation fell from 70% to 31.2%.
China’s economy has shifted from a stage of high-speed growth to quality development, and a modern economic system is taking shape at a faster pace. These changes have brought new edges to the prevention and control of the epidemic. At the same time, it is important to note that this outbreak poses great challenges to China’s socioeconomic development.
First, the impact on household consumption is apparent. The peak of the SARS epidemic in 2003 had a dampening effect on consumption in the second quarter of that year, but much of the demand loss was made up by residents’ compensatory consumption in the second half of the year and even into the next year.
However, the structure of China’s resident consumption expenditure has undergone significant changes, and some consumption items are vulnerable to the impact while unable to easily form compensatory growth. For example, the expenditure of Chinese residents on transportation, communication, education, culture and entertainment accounts for one quarter of the total consumption expenditure, and at the same time a large portion of other types of consumption comes from outdoor activities. Some of the shrunken consumer demand, such as in accommodation, catering, tourism, entertainment and passenger transport, can recover quickly after the outbreak, but what has been lost is largely irreversible. Hence, while resolutely preventing and controlling the epidemic, we must strive to stabilize consumer spending, develop online consumption and expand health-related spending.
Second, employment has taken a toll. In recent years, the number of new urban jobs in the first quarter of each year accounted for about 24% of the total. Due to the epidemic, rural migrant workers have to delay their return to cities, enterprises have yet to go into full operation, new business entities are decreasing, and the number of new jobs will be reduced, which will aggravate frictional unemployment in the short term and inhibit the growth of rural residents’ wage income to a certain extent.
To ease the conflict between the prevention and control of the epidemic and the return of the labor force to their posts, in regions not severely affected by the epidemic, we can arrange for rural migrant workers to return to cities and enterprises to resume production in a scientific way on the premise of good prevention and control of the epidemic.
Third, in small-, medium- and micro-sized enterprises, migrant workers account for a large proportion of labor, and the delay of migrant workers returning to cities and the low rate of workers resuming their posts makes it impossible or inefficient for factories to restart operation. The purchase orders they are receiving are relatively non-standard. Though the epidemic is now a known and inevitable factor, it is still difficult for these enterprises to safeguard their legitimate rights and interests.
In the case of insufficient production, small-, medium- and micro-sized enterprises face more difficulties in such areas as factory rent, idle equipment costs and the storage of raw materials, as well as wages and social insurance for off-duty workers.
In view of the low capacity of small-, medium- and micro-sized enterprises to withstand the epidemic, some regions have promptly introduced targeted support policies and measures, showing a high level of economic management.
There are also other factors that have a negative impact on China’s economic growth either on the supply side or the demand side. Some countries have imposed restrictions on travel, and some have overreacted by banning Chinese citizens. This sharp decline in international exchanges will affect trade in services, imports and exports of goods, and cross-border investment. In addition, the outbreak will affect market confidence and cause financial market volatility.
In this light, we need to accurately analyze the impact of the epidemic on socioeconomic development and take targeted measures to address it.
Good economic fundamentals
Though the prevention and control of the epidemic is severe and complex, the long-term good economic fundamentals have not changed, nor will they be changed due to the impact of emergencies, which is an important basis for winning the fight against the epidemic and for achieving this year’s targets for economic and social development.
In recent years, China’s reform and opening up and high-quality development have continued to advance, and the long-term good fundamentals of the Chinese economy have been consolidated. Though the growth of the Chinese economy has somewhat slowed down, it is in line with the potential growth capacity and still within reasonable range.
At the same time, China’s state of employment is relatively solid, and its urban surveyed unemployment rate and urban registered unemployment rate are both low and stable. We have comprehensively deepened economic system reform, advanced reform of power delegation, streamlined administration and optimized government services, set up and expanded the pilot free trade zones (FTZs), and further relaxed controls on market access by shortening the negative list for foreign investment. All these measures have promoted China’s business environment in the world rankings and encouraged innovative undertakings, emerging industries and new business formats, so that a large number of new market entities have surfaced, helping maintain the strong employment absorption capacity of the economy as a whole.
The 18th CPC National Congress set the goal of doubling the 2010 levels of China’s GDP and per capita income by 2020. China’s GDP totaled 41.21 trillion yuan in 2010 and 78.04 trillion yuan in 2019 at constant prices. Only a growth rate of about 5.7% in 2020 is needed to achieve statistical accuracy.
As for the goal of doubling the per capita income of urban and rural residents, we have a better chance. The per capita disposable income of Chinese residents was 12,520 yuan in 2010, and it has increased to 24,582 yuan in 2019 at constant prices, so the target can be achieved with a growth rate of only 1.9% in 2020.
From the perspective of the decisive battle against poverty, the fifth plenary session of the 18th CPC Central Committee set the goal of lifting all poor rural residents below the current standard out of poverty by 2020, and the 19th CPC National Congress designated eliminating poverty in a targeted manner as one of the three critical battles for building a moderately prosperous society in all respects. Since the 18th CPC National Congress, a total of 93.48 million people have been lifted out of poverty in rural areas, which means over 10 million people have shaken off poverty every year from 2012 to 2019. The task for 2020 is to lift the remaining 5.51 million poor rural people out of poverty, a goal that is achievable when combined with the in-depth implementation of the rural revitalization strategy.
Going forward, we should maintain a scientific and steady countercyclical adjustment of macro policies while making full, flexible and timely use of policy tools and adopting unconventional measures to solve urgent issues and ensure the realization of long-term goals.
First, under the premise of resolutely and effectively preventing and controlling the epidemic, regions less impacted by the epidemic can arrange workers to resume work, and help migrant workers return to cities safely for employment, striving to maintain adequate employment throughout the year. Factor flow is the core of economic activity. To resolve the contradiction between the prevention and control of the current epidemic and the flow of production factors, especially the labor force, it is necessary to creatively combine the market mechanism with the role of the government.
Second, to help small-, medium- and micro-enterprises resume production, we should comprehensively apply various policies and measures to enhance the vitality and resilience of the economy. Monetary policy will appropriately strengthen countercyclical adjustment, financial institutions can step up support, and targeted efforts need to be made to help small, medium and micro businesses overcome financing difficulties.
Third, we need to give full play to the advantages of China’s super-scale consumer market. While promoting the early recovery of the tertiary industry, we should encourage new forms of business and consumption. We should tap into the full potential of consumption by stabilizing people’s incomes and ensuring people’s wellbeing.
Fourth, we need to identify and strike a balance between the prevention and control of the epidemic and the completion of the established development goals, while striving to address shortcomings in social development, especially in the public health sector.
The article is edited and translated from People’s Daily. Cai Fang is vice-president of the Chinese Academy of Social Sciences (CASS) and a CASS Member.