Staying Committed to Managing Our Own Affairs: An Interview with Li Daokui, Director of the Academic Center for Chinese Economic Practice and Thinking
Focusing on China's economy in the first half of 2020, our newspaper launched a series of reports called Mid-Year Economic Insights. In this series beginning on July 17, we have reported on topics such as GDP, investment, agriculture, employment, industry, foreign trade, regional economies, consumption, and central enterprises since. To further examine China’s economic trends under the influence of COVID-19, People's Daily's cooperated with Xiake Island, a WeChat official account, to launch an exclusive interview with Li Daokui, Director of the Academic Center for Chinese Economic Practice and Thinking. Below is the last report of this series in response to interested readers in China and beyond.
Reporter: The economic data for the first half of 2020 has been released. The GDP growth rate of the second quarter was 3.2%, jumping from negative to positive compared with the -6.8% GDP growth rate of the first quarter. Foreign media say China's economic performance is impressive amid the grim coronavirus outbreak. What are your observations?
Li Daokui: The change from a negative to a positive GDP growth rate during the second quarter has profound implications.
During the coronavirus outbreak, the second-largest economy was the first to post a positive GDP growth rate. This is beneficial for China's own development and can boost the confidence of the global market. This change has been driven by China's power from within rather than the external market.
To strike a balance between combating the pandemic and facilitating the recovery of the economy, we must take targeted measures to trace the source of outbreaks and prevent and control the spread of the virus. This means locating the community, neighborhood, and even individuals at the center of an outbreak. When Xinfadi Market experienced an outbreak, Beijing made efforts to contain the infected cases to the local area, and as a result, Beijing managed to prevent the outbreak from spreading to other places in China. This method guarantees stable economic operation and the ability to prevent another coronavirus outbreak.
Currently, if major mutations of the coronavirus do not occur, the factors that could disrupt China's economy will be more controllable, even if the pressure of preventing COVID-19 from re-entering China is taken into consideration. If this is the case, China's economy is likely to sustain positive growth.
Reporter: You mentioned positive growth. Can you be more specific?
Li Daokui: In the next one to two years, China's economy will be impacted by the coronavirus, but not to a large extent.
As long as COVID-19 is spreading on a global scale, China will be affected. China must prevent the coronavirus from re-entering the country, and must also put internal measures in place to prevent a new outbreak. The former means that international transportation, tourism, and commerce will all be affected, and the latter means that China's economy cannot operate at full strength.
It is fortunate that the coronavirus is generally under control within China, although new cases have gone up on a small scale in a few places.
From the perspective of economic recovery, industrial activities were almost completely restored during the second quarter. In the third quarter, the economy may make a comparatively full recovery. In addition, because of the low base number in the first half of this year, the GDP growth rate of the first half of the next year will markedly increase.
Reporter: The IMF and the World Bank's latest world economic growth forecasts for this year are a 4.9% decrease and a 5.2% decrease, respectively. According to both forecasts, among all major economies, only China is likely to enjoy positive economic growth. What does this mean?
Li Daokui: This year, the world has suffered the most severe recession since World War II. Most of the people affected are those who lack professional skills and exchange labor for income in the most basic service occupations. Many countries' situations are worsening, as they did not control the pandemic properly. The global economy will suffer because of this. The recession may last until next year, so it is difficult to say whether the economy will achieve positive growth in the first half of next year.
Reporter: To what extent will the global economic downturn influence China? How will China's economy influence the global economy?
Li Daokui: Surely, China's economy will be affected, but the impact will be limited.
The external environment mainly impacts China's imports and exports. The export of goods accounts for 15% of China's GDP, and China's added value accounts for half of that. That is to say, the global recession will directly influence 7% of China's GDP. Please note, I did not say that 7% of China's GDP will be lost, it will just be influenced. In the worst-case scenario, only less than 5% of China's economy will be affected by global economic fluctuation.
Now, how will China's economy influence the global economy?
First, China's economic recovery helps guarantee the supply of medical products. Many essential medical products are made in China, including antibiotics and Vitamin C. Many countries import a large number of essential medicines from China each year.
Second, as domestic consumption recovers, China is likely to increase its imports. Take automobiles as an example—automobile imports of foreign brands have picked up significantly.
Reporter: Consumption, investments, and exports drive China's economic growth. Consumption in the first half of 2020 decreased by 11.4%, investment decreased by 3.1%, and exports decreased by 3.0%. What are your observations?
Li Daokui: In the first half of the year, consumption suffered the most severe decrease, followed by investments and exports. From now on, things will change. Consumption is a slow variable, so it will be difficult for consumption to outpace investments in the second half of the year, but the decline in consumption will shrink significantly. The recovery of consumption is extremely worthy of our attention and effort.
Just now, I mentioned that the automobile industry is a major growth driver. Other industries greatly affected by the coronavirus include the foodservice industry, the film industry, and tourism. To revive consumption in these industries, targeted measures must be taken. We must commit to a targeted approach to COVID-19 prevention and control.
From my perspective, another element of consumption that deserves our attention is housing. Currently, the demand for personal use housing is not being satisfied. In this regard, we must put an end to speculation and house flipping, and we must increase the supply of land. We need to provide more housing for personal use and secondary homes. In this way, we can drive consumption.
Reporter: Stable employment is essential in the process of reviving consumption, but in recent months, employment pressure has been mounting. According to China's National Bureau of Statistics, in June, the unemployment rate of people aged between 20-24 with college degrees or above reached 19.3%. From your perspective, how can we ease the current pressure on employment?
Li Daokui: My suggestion is to be creative and think outside the box. Temporary employment agencies and labor service companies could be established to specifically recruit university graduates, give them jobs, and pay them. When the economy is stronger, the agencies or the university graduates themselves could eventually facilitate a transition to formal employment.
The government may need to fund these temporary agencies, but the price would not be so high. In addition, the concept of “shared employees” is also an idea worth trying.
Reporter: Enterprises, and especially small and medium-sized enterprises (SMEs), are closely related to employment. According to the IMF, if the government fails to provide sufficient support, the bankruptcy of SMEs worldwide may be triple the figure before COVID-19. How can we support SMEs to get through this difficult time?
Li Daokui: The key is to give benefits back to enterprises. Transitional policies to give benefits back to enterprises must be in place. These measures, which are already being implemented, include using social security to fight the coronavirus, providing financial subsidies, and giving tax breaks. These transitional measures cannot last for too long. They can sustain companies in special times, but as soon as the economy is back to normal, we must enable enterprises to remain in or leave the market depending on their ability to survive.
In addition, the financial sector must support the real economy. Against the backdrop of interest rate liberalization, the lending rate can be steadily lowered, and financial institutions can expand the scale of lending and provide extensions.
Reporter: You mentioned that measures must be taken in the fiscal and financial sectors. Does China have sufficient policy space?
Li Daokui: China's fiscal and monetary policies are wide open. As for fiscal policy, this year's deficit ratio is arranged to be 3.6%. One trillion yuan of government debt was issued to combat the coronavirus, which makes room for future policies. In terms of monetary policy, China's policy interest rate is higher than developed economies in Europe and the US, leaving China more room for operation.
Reporter: Everyone is very concerned about the topic of risk. What do you think is the biggest risk China's economy faces now? Is it internal or external?
Li Daokui: External. The biggest uncertainty comes from the United States, especially in the second half of 2020 and even until the first half of 2021. The United States is in chaos and may take additional unexpected actions. We must manage the crisis, keep in mind what is important, and know how to respond.
We must prioritize China's pandemic prevention and control as well as economic development. We need to focus on our own affairs, and avoid being disrupted by the short-term behavior of the United States. We still have a lot to do. As we face our external challenges, we must stay calm and respond properly.
When managing our own affairs, we must remain keenly aware that just because China is prioritizing its domestic cycles does not mean that we are now functioning on our own and closing our doors. China will continue to participate in the international cycle and promote economic globalization. We must establish a new development pattern in which the domestic cycle is prioritized, but the domestic and international cycles complement and facilitate one another.
Reporter: As for China's development, what will be the new growth driver in the future of China's economy?
Li Daokui: The biggest growth driver is that the middle-income group has been expanding. According to my calculations, if China's economy continues to grow steadily, in 15 years, China's middle-income group will increase from 400 million people to 800 million people. This will drive China's domestic demand and sustain development.
The second major growth driver is new technologies. Technological innovation brings both new products and updated services. This will significantly improve the quality and performance of the economy.
Infrastructure is also important, both traditional infrastructure and new infrastructure. There is room for further investment in water conservancy projects of flood prevention and disaster mitigation, in addition to roads and bridges in key areas. New infrastructure can drive investment, leverage advanced productive forces, and help upgrade the economic development model. China should tap the development potential in these areas.
Reporters: Qiu Haifeng, Shen Mengzhe
Contributors: Yao Lina, Zhang Shaopeng, and Zhao Jingfan
Date: 2020/7/31
