ACCEPT Report No.98 | A Strategic Analysis of the Economic Situation During the COVID-19 Pandemic
Ensuring Security, Protecting Livelihoods, and Seeking Long-Term Development: A Strategic Analysis of the Economic Situation During the COVID-19 Pandemic
Presented by the Institute for National and Global Governance
and the Academic Center for Chinese Economic Practice and Thinking (ACCEPT)
of Tsinghua University
As the largest public health event in a century, COVID-19 has had a huge impact on both global production and people’s lives. It is expected that this year, the global economy will experience negative growth for the first time since World War II. This report argues that COVID-19 will greatly accelerate major historical processes—long-term shifts in the global environment that would have normally taken ten to twenty years may now be compressed into two or three years, and the external environment may be worse than any period since reform and opening up. The fundamental indicator of the major changes now occurring is the relative decline of the United States and the rise of emerging countries. At present, American society is severely divided by raging social conflicts. The United States is also losing its global influence, shifting from the role of a rule-maker and balancer of global interests to a self-centered and isolationist stance. After the pandemic, the United States is likely to publicly attack China and create obstacles to China’s development, thereby covering up its own mistakes in pandemic prevention and control and redirecting domestic discontent. The current globalization pattern will soon end, and as the biggest beneficiary of globalization, China must make comprehensive preparations and design policy responses with the worst-case scenario in mind.
At present, China is still one last step away from crossing the middle-income threshold. In order to cope with future changes, it is necessary to understand the current state of China’s economy and craft appropriate responses. This report argues that the Chinese economy is now in the middle and late stages of industrialization, the middle stage of urbanization, the critical period of industrial upgrading, and the deepening period of informatization. Whether the domestic demand potential contained in these four stages can be successfully released will be the key to the steady future growth of China’s economy and the accomplishment of its two centenary goals.
Our research institute’s report released on February 21 stated that the novel coronavirus is different from SARS, which was possible to completely eliminate in a short period of time. In contrast, the threat of COVID-19 may be reduced, but it will continue to exist for a long time. Therefore, active resumption of work is the most effective method to ensure a successful “protracted war” against the virus. When the virus had not yet spread abroad on a large scale, it was estimated that the outbreak would be brought under control between the end of the first quarter and the second quarter. Under the assumption that the government would proactively respond to the pandemic, the impact on economic growth was expected to be about -0.17 to -0.36 percent. However, the rapid spread of the virus around the world and the slow response to the pandemic in Europe and the United States have caused large-scale stagnation in the entire world economy, which in turn has severely affected China’s resumption of work, foreign trade, industrial chains, and many other economic factors. Based on the current bleak outlook, our prediction is that without policy stimulus, the annual GDP growth rate will be 1.9%.
Considering the possibility of the rapid deterioration of the international environment in the next two to three years, this report proposes that the core of China’s economic work during this time should focus on three areas. First, ensuring security in key areas such as food, oil, industrial chains, and finance. Second, protecting people’s livelihoods through efforts to ensure the income of low- and middle-income earners, support small and medium-sized enterprises, stabilize employment, and boost automobile consumption. Third, seeking long-term development through a series of market-oriented reforms, including the reform of state-owned enterprises and the reform of the factor market. Domestic demand should also be cultivated and released through the doubling of the middle-income population so as to provide an impetus for the medium and long-term development of the Chinese economy.
This report emphasizes that this year’s economic growth target should not be set too high. If policy is still implemented in accordance with the original growth target despite a global crisis, there will be insufficient policy space to work with in the next two to three years. As the external environment continues to deteriorate through the pandemic, China will still be experiencing the side effects of previous stimulus policies, and thus will be placed in a passive position. Based on this analysis, we recommend doubling the per capita disposable income of urban and rural residents this year. Keeping in mind that the GDP growth target should especially consider the need to ensure employment, we recommend setting the target at 3-4%.
This report will systematically analyze the development and likely conclusion of the pandemic, the impact of the pandemic on finance and the economy on both a domestic and international scale, and give relevant policy recommendations.
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