5.6% growth amid virus uncertainty not best option for China

Source:Global Times Published: 2020/4/10 21:34:25

Illustration: Luo Xuan/GT

To guarantee pre-set social development goals, China needs to reach GDP growth of 5.6 percent or higher in 2020. However, as global economic uncertainty related to the coronavirus remains high, it may not be the best option for China, which is deeply involved in economic globalization, to strain to achieve that goal.

The outbreak of the deadly virus dealt a heavy blow to China's economy in the first quarter. Despite necessary and effective epidemic control actions, quarantine measures almost halted all economic activities or pushed them online in February. Due to concerns about the resurgence of the virus, production resumption in some regions still faces significant restrictions.

China's economic growth in the first quarter is forecast between negative 6 percent and negative 10 percent, and around 1 percent in the second quarter. Annual growth mainly depends on an investment driven rebound in the third and fourth quarters. If growth can reach 10 percent, annual growth will be between 3 percent and 4 percent.

China has ample fiscal and monetary policy room and a strong capacity to achieve growth of 5 percent or higher for the year, but even growth between 3 percent and 4 percent would be remarkable amid negative global growth.

To effectively achieve economic recovery while implementing continuous epidemic control measures for the rest of the year, China must rely on its domestic market and demand. Unlike dealing with traditional economic crises, the government should protect family consumption and help enterprises endure the difficulties.

The US government's relief measure offering every American $1,200 is clearly not the best way to promote consumption. Compared to cash, consumption vouchers for low-income urban households, low-income families and the unemployed are more effective.

It's also critical to support enterprises with tax exemptions or reductions, the postponement of social security medical insurance payments and the provision of liquidity support. In particular, it's necessary to help small and medium-sized enterprises (SMEs) as they can provide employment and are an important part of many global industrial chains. Their survival plays a vital role in China maintaining its global manufacturing status after the pandemic.

In addition to impacting both supply and demand simultaneously, the virus' greatest impact is the great uncertainty it brings. It is currently impossible to tell how long the outbreaks in Europe and the US will take to control, and there may be further major outbreaks in developing countries in the southern hemisphere, which will all have a huge impact on global stock markets and international trade. China's economy has suffered a heavy blow, and the situation of SMEs is severe. If that is coupled with the collapse of foreign export markets, most SMEs will have difficulty surviving.

When it comes to investment, an important driving force for China 's economic growth, the government can now use active fiscal policy and flexible monetary policy to stimulate investment. The government has also proposed new infrastructure projects, including those related to 5G, cloud computing and artificial intelligence. In addition, it is also possible to invest in conventional infrastructure and build more high-efficiency urban agglomerations through the construction of high-speed rail and inter-city rail transit networks.

The government can employ a more proactive fiscal policy, or it can allow the its debt ratio to rise. In the past, the Chinese government maintained the annual fiscal deficit within 3 percent of GDP. This year, the government's fiscal deficit rate should be allowed to rise above 3 percent, or even to increase by 2 to 3 percentage points. Other optional policy tools include the issuance of special national bonds to be purchased by the central bank, expanding the size of development bank loans, and increasing local special debt projects.

The article was compiled based on a speech delivered by Justin Yifu Lin, dean of the Institute of New Structural Economics at Peking University, at a video conference themed "Global economic situation under the coronavirus pandemic" on March 31. bizopinion@globaltimes.com.cn


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