Abstract: Although remarkable results have been achieved thanks to the nationwide efforts to curb the spread of the Coronavirus Disease 2019 (COVID-19) since the closure of Wuhan, the tipping point of the epidemic outbreak has not yet been fully identified and confirmed.
But it should be noted that the necessity of some unusual measures taken in the past 20 days targeting the epidemic has decreased significantly in a marginal sense, while the necessity and urgency of restoring normal economic operation have risen rapidly.
Based on the characteristics of Chinese economy, China should break through the obstacles and difficulties to reform that have long existed by seizing the opportunity brought by the crisis, combining the short-term target of overcoming the epidemic with the long-term goal of promoting economic growth.
China's monetary policy toolkit is still relatively rich, as in addition to open market operations and short-term interest rates, it can also apply long-term instruments such as the reserve ratio and the benchmark interest rate based on the assessment on the actual situation. In the meantime, monetary policy should not go too far with financial supervision always in place.
As for fiscal policy, infrastructure investment should continue to play a significant role, while more fiscal policies directly related to enterprises and employees negatively affected in the outbreak should be adopted.
Currently, institutional breakthroughs are urgently needed in order to create an institutional environment more conductive to economic growth. Such institutional breakthroughs are involved in the reform of the household registration system in big cities, improvement of national treatment and market access for private economy, the legal and orderly transformation of agricultural land for non-agricultural use – these issues have been discussed for many years in China, which are all critical to achieving substantial enhancement in the "potential economic growth heavily dependent on institutional arrangements".
I. Gradually and orderly ease the unusually strict and mandatory quarantine measures, a necessary move for resuming work and stabilizing the economy
Although remarkable results have been achieved thanks to the nationwide efforts to curb the spread of the coronavirus since the closure of Wuhan, the tipping point of the epidemic outbreak has not yet been fully identified and confirmed. For instance, on February 12, Hubei province reported a jump in the number of new cases, which reflects the severity of the epidemic even at the current stage. This means that all kinds of efforts aimed at preventing and controlling the epidemic shall not be relaxed.
In the meantime, however, it should be noted that the necessity of some unusual measures taken in the past 20 days targeting the epidemic has decreased significantly in a marginal sense, while the necessity and urgency of restoring normal economic operation have risen rapidly.
It may be necessary to gradually relax the intensity and scope of mandatory quarantine measures outside the epicenter of Wuhan or other parts of Hubei province based on the situation of the epidemic, so as to create necessary conditions for enterprises to resume work and restore normal economic activities, as a solid economic foundation will provide support to bringing the epidemic to an end.
First, there are already many signs showing that the need for a set of wide-range, extreme and mandatory quarantine measures has changed significantly compared with the time before January 20.
With delay in the early warning of the epidemic, a series of critical moves had been quickly taken such as closing Wuhan and isolating Hubei province on January 23 following an official announcement on the nationwide fight against the epidemic on January 21. This was followed by almost all administrative divisions in China by taking unusually strict isolation and control measures on both the flow of population and goods with one single goal of preventing and controlling the epidemic.
These measures aim to get those infected among the 5 million or so population that had left Wuhan during the Spring Festival to receive treatment in their current place of residence once symptoms show, so that the spread of the virus can be effectively curbed.
One important basis to make such decision is the incubation period of the disease.
As these highly tight isolation measures have been in place for more than 20 days, which exceeds the average incubation period, it is likely that further spread of the epidemic due to large population leaving Wuhan and Hubei province before the Spring Festival is basically under control.
Second, the escalating momentum of the epidemic has initially been curbed due to the highly strict intervention measures.
According to public data, the cumulative growth rate of reported cases in Wuhan, Hubei province and other regions in China exceeded 60%, 80% and 120% respectively on January 27, which then gradually declined to 5%, 5% and 6% on February 11, with other epidemic indicators also beginning showing improvement signs. For example, the net increase in the confirmed cases nationwide reached a peak of 3,886 statistically on February 4, which declined continuously in the next seven days to 2,015; that in Wuhan and Hubei province dropped from the respective peaks of 1967 and 3156 on February 4, to 1638 and 1101 in the following 7 days.
However, it should be pointed out that the number of new cases in Hubei province jumped sharply on February 12, which shows that the task to fight against the epidemic is still heavy, and we should not relax vigilance or grow blindly optimistic. Preventing and controlling the epidemic should still be the top priority.
Fortunately, based on a preliminary assessment of the latest changes in indicators in Hubei and other regions, the jump in indicators in Hubei is mainly due to the adjustment of statistical caliber, meant to truly reflect the development and severity of the epidemic, which should not be simply interpreted as a rebound of the epidemic on February 12. The evolution of the epidemic needs to be assessed in a timely approach based on actual changes and various information, and it remains to be seen whether the improvement trend of key indicators as of February 11 is valid.
In short, excessive optimism over the initial results achieved in preventing and controlling the epidemic should be avoided, Full vigilance should be maintained against the possible rebound of the epidemic as a result of the large-scale population returning to workplace after the festival. On the other hand, a calm observation is that the epidemic, which used to get out of control due to the failure of early warning, has basically been put under control thanks to the unusual nationwide efforts in the past 20 days.
Thirdly, from the grassroots public to government agencies and top decision makers, people's knowledge of the epidemic and the awareness of the importance of anti-epidemic measures have been substantially improved amid the campaign throughout the country. Everyone is voluntarily taking more initiative in tackling the epidemic.
The substantial improvement in the public's anti-epidemic awareness and initiative compared with the period before January 20 makes it possible to restore normal economic operation in a gradual and orderly approach. It is necessary to face up to such a reality in which supernormal mandatory isolation measures and their impact on potential economic growth will continue to exist, and t make practical adjustments in a timely manner.
Facing the economic costs derived from uncertainties, one pragmatic approach is maintaining the necessary anti-epidemic measures, while gradually and orderly foregoing the supernormal mandatory isolation measures outside Wuhan or Hubei province, to allow employees to return to workplace and ensure smooth flow of goods, thereby creating necessary conditions for enterprises to resume work. This is also in line with the upper authority's requirement of "maintaining smooth economic operation and social harmony and stability".
II. Countercyclical macro control policies should be combined with structural reforms
It is undoubtedly necessary to take counter-cyclical macro measures to cope with the economic impact of the epidemic. Based on the characteristics of Chinese economy, policymakers should align the coping policies with structural and institutional reform measures. China should break through the obstacles and difficulties to reform that have long existed by seizing the opportunity brought by the crisis, combining short-term anti-epidemic targets with long-term growth goals.
The central bank along with other four government agencies took the lead to roll out and implement economic policies in response to the epidemic. On February 1, 30 policy measures were announced to strengthen financial support for epidemic prevention and control. The central bank injected liquidity into the market through open market operations, which has been greatly helpful to stabilizing the financial market and maintaining ample liquidity. China's monetary policy toolkit is still relatively rich, as in addition to the more popular open market operations and short-term interest rate adjustment, it can also apply long-term instruments such as the required reserve ratio and the benchmark interest rate based on the assessment on the actual situation.
While adhering to the goal of preventing financial risk over the past few years, China has moderated some inappropriately aggressive measures of financial deleveraging, which, to some extent, is consistent with the policy direction required to deal with the impact of the epidemic. Undoubtedly, monetary policy should not go too far with financial supervision always in place. An unscrupulous credit expansion akin to the four trillion yuan stimulus package should be avoided.
As for fiscal policy, infrastructure investment should continue to play a significant role, while more fiscal policies directly related to enterprises and employees negatively affected in the outbreak should be adopted.
For instance, special tax reduction and exemption arrangements can be provided to service sectors hit the hardest in the outbreak, such as catering, retail, logistics and entertainment, and small and medium-sized enterprises (SMEs) that had to halt work and extend holidays; income subsidies can also be provided to migrant workers and employees who have suffered losses due to the epidemic.
Considering the huge economic impact of the epidemic which requires the sharing of loss among almost all sectors in the economy, large state-owned enterprises (SOEs) with monopoly in sectors like transportation, hydropower and telecommunications, as well as some private online platforms should be encouraged to provide subsidies to SMEs in difficulty.
Regarding the direct and indirect external impact of the epidemic, China should further implement policies related to economic opening and improving business environment to encourage foreign enterprises to expand their investment in China, and also as a response to a few overseas attempts to entice the withdrawal of foreign investment from China at the excuse of the epidemic.
At the same time, concrete measures should also be taken at institutional and policy level to encourage domestic enterprises to accelerate technological and industrial innovation, which will not only promote economic transformation and upgrading in China but also enhance the international competitiveness of Chinese enterprises. In addition, the macroeconomic trends in major developed, neighboring and emerging economies should be closely watched so as to make precautionary plans for possible changes in external economic situation.
The SARS epidemic broke out at the start of this century when China had entered the so called "dividend period" of economic growth thanks to the breakthroughs in reform and opening-up policy. Currently, institutional breakthroughs are urgently needed in order to create an environment more conductive to economic growth. Specifically, there should be breakthroughs in the reform of the household registration system in big cities, the provision of full national treatment and market access for private economy, the legal and orderly transformation of agricultural land into non-agricultural use, and other long discussed issues. These breakthroughs are critical to achieving substantial enhancement in the "potential economic growth induced by institutional arrangements". An additional lesson from the failure in the early warning of the epidemic that has caused huge cost is the shortcoming in social governance in China, which calls for further strengthening of media credibility, guaranteeing citizens' right to know and improving the transparency of government affairs, all of which should be achieved through reform.
In conclusion, it is important to seize the opportunities brought by the epidemic crisis and turn them into reality. To such an end, it will be critical for China to launch more powerful, innovative and systematic reforms to tackle the chronic insufficiency of endogenous growth momentum and enhance social governance capacity and quality, while injecting positive energy into the society to effectively overcome the epidemic.
