Tuesday, February 25, 2020

Policies Must Address Challenges of Restarting Factories
By Li Daokui and Li Keaobo
Global Times
2020/2/25 1:42:17

If appropriate policies are in place, the novel coronavirus pneumonia (COVID-19) impact on economic growth will be controllable. China's economic growth would be between 5.3 percent and 5.9 percent in 2020, depending on when the outbreak ends.

If the COVID-19 impact is contained at the end of the first quarter, the annual economic growth could be brought down 0.17 percentage point from 6.1 percent, an estimate we made before the epidemic. The economy will spin 0.77 percentage point slower than the original estimate, if the epidemic lasts until the fourth quarter.

Though the readings of indexes related to consumption is expected to drop, the value added will not suffer a serious decrease. Unlike SARS, the COVID-19 outbreak has happened in the first quarter, when fewest economic activities are underway.

Compare to SARS, the COVID-19 outbreak has a smaller impact on the economy to a certain extent. It is also worth noting that SARS happened while the Chinese economy is on the rise and on the fast track integrating itself into globalization. The COVID-19 occurred at a time when the economy is stabilizing and decelerating and globalization has faced a complicated backwash.

Given these circumstances, to defeat the coronavirus, it is vital to resume entire business operations safely and smoothly. It is more important than any fiscal and monetary stimulus.

The new virus has two major characteristics. First, COVID-19 is highly contagious and can disguise itself. It has a longer incubation period. Second, the virus is not as fatal as other severe epidemics.

It could be difficult to extinguish the COVID-19, but the lethality could be effectively contained. It might take over a year and half to develop a vaccination and put it on the market. So, it is unrealistic to bring down the infected cases to zero in a small amount of time, but lowering the lethality is the key.

Society should be mentally prepared and come up with a back-up plan beforehand to counter the virus while normal social and economic orders are restored. We cannot wait for the epidemic to be completely over and then restart the economy.

If China does not take steps to resume business operations, it would be difficult to completely wipe out the virus with unsustainable medical and daily supplies. Whether the economy can run normally and smoothly, it has increasingly become the key security of combating the coronavirus. Failure to reignite business activities will not only hurt China's ability to quell the virus and generate secondary harm, but also leave side effects in areas such as employment, debt, and supply chain reallocation.

There are four challenges in resuming business operations. Policies addressing these challenges should be considered.

The first challenge is preventing the comeback of the coronavirus after normalcy is restored. Regulation and standards targeting each industry and area should be issued to curb infections. Certain industries, such as manufacturing and construction, need unified epidemic prevention management for individual employees.

Second, is that local governments lack the incentives to restart local economic operations in order to keep the COVID-19 related data down. It is important to make clear to local governments and enterprises that they will not be held liable for the new infection cases incurred during operation resumption, as long as they have strictly enforced the virus prevention standards.

Third, if the key companies do not resume operations, there will be a chain effect in delayed reopening. China is a major manufacturing power with a long and closely integrated industrial chain. If any supplier has delays, the impact on the entire industrial chain will be harmful. In this case, the government should encourage key enterprises to start producing by promising them subsidies for overcapacities. Therefore, China can protect the safety of its supply chain, and keep some Western countries from moving their manufacturing outside of China with an excuse of a supply chain rupture.

Fourth, society has concerns over resuming operations. There should be countermeasures in social psychology while improving medical treatment and medicine development. More specific statistics should be released, especially the mortality rate of COVID-19 in different age groups. The low fatality rate of healthy young adults could ease concerns of those employees who return to work.

Li Daokui is chief economist at the New Development Bank. Li Keaobo is executive deputy director of the Academic Center for Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University. bizopinion@globaltimes.com.cn

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