Abstract: Crisis brings opportunities, and the focus of opportunity arising from this epidemic should be to deepen structural reforms. The author offers the following five suggestions. First, focus future government expenditure on topping up supplies concerning people's livelihood including public health. Second, introduce vigorous reforms that are conducive to lifting people's spirit and releasing growth potential. Third, convert short-term SME relief into long-term policies. Forth, normalize new workstyles, lifestyles and business models emerged during the epidemic. Fifth, build up international consensus in maintaining and advancing globalization, expand cooperation and pursue common prosperity.
I. How to balance production resumption and epidemic control depends on local governance capability
There is high uncertainty in whether the epidemic will rebound with the resumption of production. Local governments face dilemmas in juggling anti-epidemic and production resumption tasks. Attaching equal importance to both is easier said than done. There are differences between infected and non-infected areas, large cities anticipating massive influx of returning workers and other places, tertiary sector and other sectors, and online and offline segments within the tertiary sector. The key is to adopt region-specific governance and differentiated policies when implementing the instructions of the central government.
Hence we need to be in line with local conditions and avoid one-size-fits-all solutions which reflect nothing but poor, lazy governance. Formulating and implementing locally-based policies requires both competence and initiative, where the gap in governance capabilities shows. Different local realities merit different policies, but their effects can be measured by the same standard, which is the recovery of production and economy provided that the epidemic is being contained. Excessive anti-epidemic measures would encroach on economic growth; whereas a rebound in the epidemic would shock the economy even more. Where to draw the line reflects the level of governance capability. Previously it was the governance of the epidemic areas that was tested; for some time to come, the outbreak will test and hopefully improve the governance throughout the country.
II. Opportunity in crisis refers to deepening structural reforms, not excessive easing
Crisis brings opportunity. The question is how to view and seize it.
One thing to avoid is excessive easing in macroeconomic policies. In the wake of the outbreak, governments at all levels introduced policies and measures to help companies reduce costs and relieve pressure, which are absolutely necessary for stabilizing market expectations. But there are also some voices calling for large-scale stimulus. There has been extensive discussion on the effect of such policies, and the conclusion remains that they cannot really solve the actual problems facing China's economy. Actually they can cause significant side effects. We should limit monetary and fiscal policies to "targeted relief", maintain continuity and stability in macroeconomic policies, and exert strategic patience.
This epidemic indeed has provided a rare opportunity for reflection, correction and reform of the deep-rooted issues hindering China's economic and social development. The focus of policy should be shifted to the deepening of structural reforms. The following are five proposals.
First, considering the lesson from SARS, this epidemic could have been detected, warned of and contained earlier with limited impact. There has been much discussion on this missed opportunity, but the general consensus is that it reflects the badly flawed public health governance system. Whether the same or similar flaws exist in other governance systems requires reflection, correction and reform. An outstanding problem revealed by the epidemic is the insufficient supply of public health resources in both emergencies and peacetime. In the future, government expenditure should focus on topping up supplies regarding people's livelihood including public health.
Second, after the epidemic, some delayed demands may go through recovery and rebound, such as eating out, seeing shows and travelling, while other needs cannot be made up. Vigorous reforms that are conducive to lifting people's spirit and releasing growth potential should be introduced, such as: promoting the bidirectional flow of personnel, land and capital between urban and rural areas; focusing on facilitating the institutional reform of the collective land system in the rural-urban continuum, so that villagers are allowed to go to cities and oppidans could go to the countryside; accelerating the construction of infrastructure networks in metropolitan areas and small towns; speeding up broadening market access to basic industries such as petroleum and gas, electricity, railways, communications and finance; making major movements towards breaking administrative monopoly and encouraging competition; further opening up to the domestic and foreign markets in education, medical care, culture, entertainment, etc.; in cities with rich science and education resources and innovation edge, establishing special zones of top-notch university education and R&D like special economic zones, and fostering a group of energetic and innovative universities and R&D institutions. More forward-looking and imaginative opening-up measures could be planned, e.g. combining the opening up of the free trade zone with domestic reforms, so that major measures of reform and opening up could be trialed in the free trade zone. The growth potential released by such measures could generate much greater, durable and effective demands than stimulus policies. It will not only fill the demand gap caused by the epidemic, but also provide momentum for long-term growth.
Third, the epidemic further revealed the importance and vulnerability of small, medium and micro enterprises in economic development. Recent policies to aid small and micro enterprises, including tax and fee reductions, social security exemption or reduction, etc., could be coordinated and improved into long-term policies.
Fourth, during the epidemic, new workstyles, lifestyles and even business models have emerged, for instance, online entertainment, online education, online scientific research, online approval and online meetings. Big events which required enormous input in the past are now simply a few clicks away, which not only improves efficiency, but also saves energy and reduces emissions. Their normalization after the epidemic can be encouraged to promote the development of a number of new industries and businesses.
Fifth, the outbreak has a great impact on China's international connections and the global industrial chain. It is a stress test According to estimates by German experts, the daily turnover of German automotive industry in China was 600 million euros with a profit of 60 million euros. Due to the epidemic, it has turned into a daily loss of 72 million euros, hitting hard the German automotive industry. No matter it is the impact of a public health emergency or the shutdown of the industrial chain, everyone is in the same boat, a real community of shared destiny. We should take this opportunity to build up international consensus in maintaining and advancing globalization, expand cooperation and pursue common prosperity.
