No. 38 | Online Combat against the Epidemic by ACCEPT: Keeping Wuhan's Situation Under Control is the Starting Point for Resumption of Work, and Safe Work Resumption is More Important than Any Fiscal or Monetary Policy

COVID-19 has spread in numerous countries and regions around the world, and as the number of confirmed cases continues to grow, this poses increasingly severe challenges to the prevention and control of the pandemic. Beyond its impact on the lives, health, and safety of people around the globe, the pandemic has also dealt a major blow to the normal functioning of both the Chinese and the global economy. When and how will the pandemic come to an end? How will it affect fiscal policy, the financial sector, industries, foreign trade, etc.? What are the mid- to long-term implications of COVID-19 on the modernization of state governance capabilities, public health, international relations, and globalization? On the evening of March 5, the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) of Tsinghua University launched an online live broadcast to discuss these issues. The forum lasted for over two hours and centered on the theme “Considering Combat Against COVID-19: China and the World Economy in the Context of the Epidemic” (the broadcast took place before COVID-19 was declared a pandemic by the World Health Organization, and thus subsequent mentions of the virus in this summary will refer to it as an epidemic to maintain the integrity of the forum’s statements in the context in which they were made). Participants in the online dialogue included eight renowned specialists in public health, economics, and business. Li Ke’aobo, Executive Vice President of ACCEPT, presided over the meeting.

According to Professor Li Daokui, Director of ACCEPT, the impact of the epidemic on the economy will be manageable as long as it is handled properly. “If the situation can basically return to normal and the epidemic is kept under control in Q1, then the pressure on annual GDP growth will be reduced by 0.17%, and if the epidemic goes on through Q2, then annual GDP growth will drop by 0.36%. Given the current situation, we persist in our judgment and deem it reasonable.” Li Daokui believes that this epidemic may have a relatively more lasting impact than others, which will primarily come from its implications for social mentality. At present, we are at the stage of resuming work and production in society. If the return to work progresses smoothly, this can greatly reduce the impact of the epidemic on the economy, which will be a timelier cure than any fiscal or monetary policy.

Zhang Wenhong, Director of the Department of Infectious Diseases at Fudan University's Huashan Hospital, said that he chose not to wear a mask during the live broadcast to demonstrate his outlook. This is not to say that people no longer need preventative measures against the epidemic. Instead, Dr. Zhang's intention was to encourage the audience to shift their focus toward work resumption. If work resumption does not occur, the economy may encounter greater challenges. Furthermore, keeping Wuhan's situation under control is the starting point for nationwide work resumption. According to Zhang Wenhong, although COVID-19 poses a heavier burden than other known viral diseases, it can still be controlled. As to when the epidemic will come to an end, Dr. Zhang jokingly mentioned that the threshold is no longer within the grasp of the Chinese people. We can only set our minds at ease once the epidemic reaches its peak in Europe and the U.S. Dr. Zhang also reiterated his previous comment that one of the best endings to COVID-19 would be to keep the epidemic under control within 2-4 months. Although Dr. Zhang admitted that he did not think that this would happen at the time he made his statement, and his counterparts have also deemed his thinking as unrealistic, he remarked, “the whole world did not expect that China could keep the epidemic under control within merely two months, and now we have become an (epidemic) importer country.” When addressing the question, “When can we take off our masks?” Dr. Zhang held that first, this depends on when the state downgrades the level of its emergency response, and second, it depends on how effectively the rest of the world can keep the epidemic under control. In addition, the simplest way to determine whether it is time to lower the emergency level is to see if the epidemic is kept in check in other countries without people wearing masks.

In terms of the economic implications of the epidemic, Wang Yiming, member of the 13th CPPCC Subcommittee on the Economy, believes that the short-term impact on the economy will be greater than that of SARS was. China’s economy was still expanding during the SARS period, whereas the country's economy was already in a downward cycle when COVID-19 hit, thus adding insult to injury. Given that the size of the Chinese economy is much larger now than it was in 2003—now accounting for about 17% of the global economy—Wang Yiming is concerned about the spillover effects of the current situation. “Judging from the recent impact on the global supply chain, especially regarding enterprises in the automotive, electronic communications, and medical equipment sectors, we can see that these industries have suffered severe repercussions due to COVID-19's effects on the Chinese supply chain.” In terms of Q1 growth, many sellers and economists assert significantly discrepant forecasts. Therefore, according to Wang Yiming, it is still difficult to calculate and estimate an accurate figure. On one hand, the impact of the epidemic on the economy is foreseeable, and the economy will gradually recover of its own accord. It is expected to experience a more compensatory rebound in the latter half of the year. On the other hand, the epidemic has had a varying impact on the economy in different regions across China. In an epicenter like Hubei Province, the local economy has suffered from a more intense impact, but there are also quite a few provinces with milder infection rates. Therefore, for these areas, we need to speed up the resumption of work and production. Wang Yiming looks forward to stronger policies rolled out by the government and believes that it may be a mistake for the country to respond to such an unprecedented event without adopting any fiscal or monetary policy. Even if it might lead to some side effects, it is necessary to weigh China's options and choose the lesser of two evils. At the moment, the most urgent task is to stabilize and restore the economy, and thus a stronger fiscal policy should be put in place.

Lu Ting, Chief China Economist at Nomura Securities, said that the COVID-19 outbreak was not the only reason for the sharp decline in the U.S. stock market. From his perspective, three main factors led to the sharp drop in U.S. stocks in the preceding week: first, the spread of the epidemic; second, the challenges faced by the global supply chain; and third, the popularity of Bernie Sanders in the presidential primary election in the U.S. as a candidate for the Democratic Party. Among the three reasons, Lu Ting asserted that the U.S. election has had an even greater impact on the stock market than the epidemic. According to Lu Ting, the reasons behind the steady increases in the U.S. stock market over the past two years are 1) good fundamentals and 2) the Fed's helping hand in cutting interest rates. Regarding the infrastructure sector, which has drawn much attention from the market recently, Lu Ting believes that some additional stimulus measures are sure to come, but people should refrain from having excessively high expectations since the epidemic has imposed an impact mainly on the supply rather than the demand in China's economy, and currently the most urgent task is to stimulate domestic demand. According to Lu Ting's analysis, the most pressing challenge facing the global supply chain is the current COVID-19 situation. Coupled with the spread of the epidemic in Japan and South Korea, the high-end and mid- to high-end supply chains of the two countries have also experienced some stagnation. If we also take global manufacturing centers like Italy and Germany into account, as the epidemic worsens in these two countries, “the global supply chain will still face huge challenges in April and May, according to our estimate.”

Shen Jianguang, Chief Economist at JD Digits, shed light on the current situation from an industrial perspective. He believes that digitalized industries may become the biggest beneficiaries of the epidemic. Such industries include 5G, big data, artificial intelligence (AI), and more.

Dong Chen, Dean of the Tsinghua University School of Medicine, said that novel coronavirus pneumonia might coexist with humankind for a long time, and it is very likely that it will evolve into the largest-scale infectious disease of the century. However, he believes that overall, China's epidemic control has shown positive progress, and attention should be paid to the development of the epidemic in the rest of the world.

Chen Yudong, President of Bosch China, said that judging from the statistics in February, the entire automobile industry has suffered from huge declines. Growth has continued to be negative in March, but it will certainly turn positive in the latter half of the year. From his perspective, the resumption of work and production is a top priority. It is his hope that the two main sectors in China, the automobile industry and the home appliance industry, can drive final demand.