Securing certainty amid uncertainties

The novel coronavirus outbreak has added to the downward pressure on the Chinese economy, but further potential can be tapped by pushing forward reform and opening-up

The novel coronavirus that broke out in China prior to the Spring Festival holiday, a peak season for consumption, has had a considerable impact on the consumer market. Complicated by the delay in opening businesses in many parts of the country because of the extending of the holiday, the epidemic is expected to drive the growth rate of China’s GDP in the first quarter to below 6 percent. The downward pressure on the economy is increasingly being felt.

The ultimate influence of the epidemic on the Chinese economy remains to be seen. Based on previous experiences, the economic vitality that has been depressed in the early period of a crisis will be released after it ends, with recovered investment and consumption.

For instance, after the SARS outbreak was contained in 2003, the Chinese economy rallied quickly. When it is clear that the fight against the novel coronavirus has been won, we should ramp up reform efforts and expand effective financing and investment to release consumption potential, so as to offset the negative influence caused by the epidemic. If the epidemic can be controlled in the second quarter, we should strive to ensure the smooth transition of the economy from the second quarter to the second half of the year.

In response to the novel coronavirus outbreak, we need to keep the macroeconomic policy consistent, and adhere to a more active fiscal policy and a monetary policy that aims for reasonably abundant liquidity.

It is estimated that hundreds of billions of yuan will be spent in the fight against the virus. But it is not a big sum compared with China’s total fiscal expenditure of more than 20 trillion yuan ($2.8 trillion) a year. So the fiscal deficit ratio will not rise significantly due to the epidemic.

Downward pressure on the economy will persist after the outbreak ends. In the long term, the Chinese economy will still be pushed forward by reform, of which the focus should be innovation. People will only spend more and save less when the economic fundamentals are stronger.

But there is undoubtedly still huge development potential for the Chinese economy to tap.

Many scholars, based on the experiences of Western countries, believe that China has reached the later stage of industrialization. In fact, although many coastal areas of China have reached the later stage of industrialization, many areas in the central and western parts of the country are still in the middle, or even early, stage of industrialization. China still has an arduous journey to undertake to upgrade its manufacturing industry from “made in China” to “created in China” and “intelligent manufacturing”. The urbanization process, which unfolds along with industrialization, also has a long way to go. Only with further industrialization and urbanization can China realize its growth potential in the modernization drive.

Besides, there is a wide gap between urban and rural areas in China. We can narrow this gap through effective investment.

According to the guideline of modernizing governance and improving governance ability established at the fourth plenary session of the 19th Communist Party of China Central Committee, it is a pressing task to stimulate consumption and improve the country’s economic prospects by expanding effective investment and financing and improving the innovation mechanism.

The China-US trade frictions, which are probably going to last for a long time, mean the Chinese economy still faces a lot of uncertainties. But given the resilient performance of the macroeconomy and the ongoing efforts to improve the economic structure, China still has some leeway in its march toward industrialization, urbanization, marketization and globalization. The country will strive to stabilize its economic growth rate at around 6 percent after absorbing the uncertainties in the economic downturn, and realize the transition to the L-shaped growth pattern.

After this year, the Chinese government should seek for certainties amid uncertainties. It should expand domestic demand through effective investment. To overcome the middle income trap, it should upgrade the economy by combining an efficient market with a limited and effective government and supply-side structural reform, and unleash the potential of scientific innovation and management innovation through institutional innovation so as to realize high-quality and sustainable development.

As long as China keeps on the path of reform and opening-up and focuses on developing its economy in a high-quality manner, time will prove to be the best friend of China in its journey.

The author is chief economist with the China Academy of New Supply-Side Economics. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

The ultimate influence of the epidemic on the Chinese economy remains to be seen. Based on previous experiences, the economic vitality that has been depressed in the early period of a crisis will be released after it ends, with recovered investment and consumption.

SHI YU / CHINA DAILY