The quarantining of Wuhan, capital of Hubei province, for 76 days from Jan 23, and China's quick decision to close down much of the national economy in response to the novel coronavirus outbreak were unprecedented. Now the nation has made progress in the equally unprecedented task of resuscitating the economy after the epidemic-driven shutdown. Just as other countries learned from China's health and epidemic prevention and control measures, they should be cooperating with China and learning from its experiences re-opening the economy.
The success of the quarantine strategy in limiting the number of deaths from the virus set the model that almost all other countries have followed. It is unlikely that Western countries would have thought about the kinds of quarantines and economic closures they are now implementing if they had not seen the Chinese precedent.
Bringing the COVID-19 pandemic under control has been expensive for the economy. Industrial output fell 13.5 percent in the first two months of this year, according to the National Bureau of Statistics. The urban unemployment rate rose to 6.2 percent in February, the NBS said. Retail sales plummeted 20.5 percent year-on-year in January and February and fixed asset investment fell 24.5 percent. This was hard, but necessary.
In the US, 17 million new workers had claimed unemployment benefits by mid-March and experts surveyed by the Wall Street Journal expect the unemployment rate to reach 13 percent by June. Other experts estimate that unemployment could reach 20 percent to 30 percent. Goldman Sachs is predicting a 5-percent fall in US GDP in the second quarter.
German economists surveyed by Reuters estimate that their country's economy will shrink 9.8 percent in the second quarter and decline a total of 4.2 percent for the year. And, the International Monetary Fund is now predicting that 170 countries will have negative economic growth this year.
National leaders have to make the difficult tradeoffs between fighting the damage done by the virus and the damage done by shutting down their respective economies. Economics is all about tradeoffs, but no one has any real experience or reliable models to guide decisions about how to come out of economic shutdowns.
China is several months ahead of other countries in dealing with the virus, so its model of economic resuscitation after the peak of the virus will also serve as a model as other countries come out of their quarantines.
On Feb 23, near the height of the epidemic, President Xi Jinping said the impact of the epidemic on China's economic and social development will be temporary and generally manageable. It is important to view China's development in a comprehensive, dialectical and long-term perspective, and to strengthen and firm up confidence. In general, the fundamentals of China's long-term sound economic growth remain unchanged, he said.
And US President Donald Trump has repeatedly stated his concerns about keeping large parts of the economy shut down. On March 23, he tweeted: "We cannot let the cure be worse than the problem itself." And, he announced that he would appoint a bipartisan council of business and medical experts to determine when parts of the US economy will be able to reopen.
China has now turned to the task of resuscitating its economy and is recovering steadily. According to the NBS, China's manufacturing purchasing managers' index has increased into positive growth, rising from 35.7 in February to 52 in March. The non-manufacturing index rose from 29.6 to 52.3 in the same period.
As of late March, 98.6 percent of the large-scale businesses in China had resumed operations with 89.9 percent of their employees returning to work. Over 76 percent of small and medium enterprises had resumed operations, according to the Ministry of Industry and Information Technology.
The recovery of China's export sector depends, of course, on the demand from export markets, which have dropped dramatically in the last month. Complete recovery will depend on international cooperation in macroeconomic stimulus and on restoring international supply chains.
In many industries, large companies have the resources to bounce back quickly. For example, large State-owned enterprises in Hubei province are building infrastructure－roads, bridges, rail lines, and so forth. But, in any country, it's also much harder to support the coordination of small business recovery than that of large businesses.
In a March 10 State Council Executive Meeting, Premier Li Keqiang stressed the need for coordinating the opening up of big businesses and small businesses, and said that the nation is on a path of integrated development among large, medium and small enterprises.
The reason for insufficient production is the mismatch of the work resumption ratios between large firms and medium and small enterprises, he said.
He also urged government departments to study the construction of a financing platform for core businesses in industrial chains to aid relevant SMEs in distress and called for better execution with expedited loan issuance to ensure
supplies for epidemic control and spring farming. He underlined support for production in international supply chains, labor-intensive industries, and micro-, small-and medium-sized enterprises.
China has prioritized protecting SMEs, workers, and poor people. On the other hand, the US bailouts, quantitative easing and stimulus packages after the 2008-9 Global Financial Crisis largely went to supporting large monopolistic companies and made income inequality even worse. As an American, I hope the US gets its priorities right so this does not happen again.
The impact of the epidemic on the Chinese economy should not be overlooked, but, in any case, we should make all-out efforts to stabilize employment, Li said, adding that all the departments concerned should take employment stability as their top priority when considering their tasks for this year.
As long as employment remains stable this year, whether economic growth is lower or higher is less important, he said.
China has also made a priority of not allowing the virus to delay the goal of eliminating extreme poverty by the end of the year. The central government has allocated 113 billion yuan ($15.9 billion) and other levels of government have allocated 200 billion yuan for poverty relief this year. Special mechanisms have been set up to assist poor regions and migrants from poor households.
China's major steps in reviving the economy include the following: 1) Large monetary stimulus has been used, but with emphasis on limiting the increase in private or public debts. 2) Fiscal stimulus has focused on infrastructure programs that can get people back to work. 3) SMEs have been given special access to loans and their taxes have been cut. 4) Local officials have been charged with opening up businesses if and only if their region has contained the virus. The Chinese government's fine-grained information about local economies allows it to make such localized decisions, while many Western countries will have to use blunter macroeconomic policies. 5) Supply chains are being restored as factories coordinate restoring production. 6) China will continue its long-term plans pushing more market-oriented reforms and international opening up. And 7), as noted above, policies have prioritized restoring jobs and protecting poor people.
Beth Ann Bovino, chief US economist at S&P Global Ratings, told the online US news site The Hill: "How (post-lockdown Wuhan) fares will likely offer lessons for the pandemic's timeline and what economic recoveries will look like elsewhere, including in the United States. Watching their experience could have some lessons for us."
Countries need to learn from each other and work together to continue to fight the virus and to achieve the difficult goal of resuscitating their economies.
Source: China Daily