Zhang Bin: The protracted economic battle against the COVID-19 pandemic

Zhang Bin (Institute of World Economics and Politics, Chinese Academy of Social Sciences) File photo/ Beijing News reporter Wang Guibin photo

China has achieved market openness and fair competition in the manufacturing field, and the results achieved in these decades are obvious to all, and China is moving from a manufacturing power to a manufacturing power. Comparatively speaking, there is still a lot of room for improvement in the opening of China's market in the service industry, especially education, medical care, scientific research, financial services, social security, urban public management and services.

For any economy, the intermittent impact of the epidemic and the resulting negative feedback mechanism will bring huge losses to the economy, especially the low- and middle-income groups. Active interventions are needed to prepare for a protracted economic response to the COVID-19 pandemic. Protracted warfare requires improving institutional construction and implementing work in four aspects through a more reasonable system: precise prevention and control, compensation for damage, stabilizing demand, and opening up the market.

It is not terrible for the economy to suffer a little damage in the short term, and it can always be made up for a long time. What is frightening is that the epidemic and large-scale prevention and control measures have been patronized every three forks and five minutes, and they have lingered. The new crown virus continues to mutate, the global spread will continue for a long time, China is unlikely to move towards full closure, and China will have to face the impact of intermittent epidemics for a long time. Under the impact of the intermittent epidemic, the damage to the economy is not simply added, but amplified in the process of addition.

Precise prevention and control

Preventing the widespread spread of the epidemic is a prerequisite, and without this, there will be no way to resume normal economic activities. It is necessary to prevent the spread of the epidemic in a large area, not to neglect to let it go, but also to reduce the harm to the economy as much as possible, and not to make people panic everywhere by cannoning mosquitoes. The foothold is precise prevention and control.

Precise prevention and control depends on scientific methods and effective management. After more than a year of epidemic prevention and control practice, it is necessary to sum up experience, especially the advanced experience of regions that have done a good job of accurate prevention and control, and formulate a set of effective epidemic control systems and methods. All parts of the country should refer to this system and method to formulate epidemic control measures, which can be adapted to local conditions on the basis of professional opinions of epidemic prevention and control experts.

Compensation of damaged businesses

For enterprises and self-employed households that have suffered heavy losses in the epidemic, there must be institutional compensation methods for damages. It is necessary to let enterprises see in advance that if the operation of enterprises suffers heavy losses due to epidemic prevention and control, the damaged enterprises will receive certain government compensation, and enterprises will not go bankrupt. The compensation method needs to include multiple dimensions, including but not limited to the employment subsidy for enterprise employees, enterprise rent subsidy, corporate tax reduction, enterprise interest-free loan and deferred repayment policy for a specific period.

There is no need to worry that the resulting increase in fiscal spending will overwhelm public finances. Fiscal spending related to the fight against the pandemic has retained income-generating businesses and jobs, as well as GDP and tax sources. During the epidemic prevention and control period, it is only natural that the gap between fiscal revenue and expenditure will be enlarged and the government will issue additional bonds, and Chinese government bonds will be highly welcomed by domestic and international markets and are undisputed risk-free assets in the market, which is enough to show the confidence of domestic and foreign investors in China's public finances.

Stabilizing demand is key

Stabilizing demand is stabilizing the purchasing power of the whole society. Only by maintaining stable and sustained growth of purchasing power can enterprises be in a normal operating environment, which is a necessary condition to avoid the economy falling into a vicious circle and moving toward normalcy. To maintain a reasonable increase in demand, we must have clear objectives and strong policy tools.

Policy instruments to sustain aggregate demand growth include monetary policy, fiscal policy within the budget, and various borrowing and spending activities that are not included in the budget but are led by (local) governments. In the environment of sluggish demand, both monetary policy and fiscal expenditure within the budget should maintain a positive attitude and form a policy synergy. From the perspective of the policy mix of aggregate demand policy management, government-led expenditure growth is at a low level, which is difficult to contribute to the growth of domestic demand. This requires monetary policy to play a more active role, lower interest rates, and keep aggregate demand growth at a reasonable level.

Stabilizing demand also requires ensuring financial market stability. The epidemic has caused cash flow losses to many companies, and the combination of new injuries and old diseases will make many companies unable to repay loans, and the bank bad debt ratio and bond risk premium will rise accordingly. Problems of individual enterprises and financial institutions do not hurt the overall situation, but it is necessary to prevent the spread of liquidity crises in a timely manner and block the spread of risks.

Continue to open the market

Open markets are meant to create new investment and jobs. China is experiencing rapid consumption upgrading on the demand side, and is experiencing a shift from capital-driven economic growth to knowledge-driven growth at the production side, which has many shortcomings. To make up for these shortcomings, it is necessary to lower the threshold for market access, create a market environment of fair competition, and let enterprises continue to trial and error.

Some of these services are government-led, some can be handed over to the market, and some can walk on two legs between the government and the market. Handing over to the government requires a sound accountability mechanism, consumers need to evaluate whether the service is done well; and the market needs to have fair market competition, survival of the fittest. Governments need to tap the market's enormous potential to improve supply as much as possible and give the market more opportunities.

Text | Zhang Bin (Institute of World Economics and Politics, Chinese Academy of Social Sciences)

Edit | Currie

Proofreading | Zhang Yanjun