On March 16, the National Bureau of Statistics of China released major economic indicators for the Chinese economy for the first two months of 2020, painting a bleak picture of China’s economic difficulties amid the coronavirus outbreak. Retail sales plunged 20.5 percent in January and February compared to the same period last year. Industrial output declined by 13.5 percent and the production index for the services sector was down by 13 percent. Fixed asset investment dropped 24.5 percent with private sector investment down 26.4 percent.
The bureau did not release a figure for GDP growth, but analysts believe China has experienced a major economic contraction in the first two months of 2020. A Goldman Sachs report estimates that China’s GDP suffered a 9 percent drop in the first quarter. As the health crisis shows no sign of abating at the global level, the Chinese economy will continue to come under pressure for the rest of the year.
This scenario is different from the SARS outbreak that struck China in 2002-03. Back then, the scale of the health crisis was relatively limited and it was able to be contained, with China’s economy witnessing a major rebound in the aftermath. This year, with the coronavirus pandemic raging on, China needs a different approach from the measures it took during the previous crisis.
First, the Chinese government should not tie itself to achieving a specific GDP growth rate. As the odds of a recession in the Chinese mainland increase, the leadership’s priority should be on mitigating the long-term impact of the coronavirus crisis rather than short-term considerations.
The government’s top priority now should be to help people maintain their livelihood and help enterprises, especially small businesses, survive the crisis. In the past two months, lockdown measures have caused a large number of businesses to go bankrupt and many people are out of work. Official data shows that the unemployment rate increased from 4.1 percent in December 2019 to 5.3 percent in January, and 6.2 percent in February, meaning roughly 5 million people have lost their jobs.
The government’s top priority now should be to help people maintain their livelihood and help enterprises, especially small businesses, survive the crisis. In the past two months, lockdown measures have caused a large number of businesses to go bankrupt and many people are out of work. Official data shows that the unemployment rate increased from 4.1 percent in December 2019 to 5.3 percent in January, and 6.2 percent in February, meaning roughly 5 million people have lost their jobs.
In the meantime, to battle the financial difficulties faced by all stakeholders, the government should relax labor laws. As a large number of employees are now subject to quarantine orders, enterprises should be allowed to pay a minimum living allowance, instead of full salaries, so they can continue their operations without resorting to massive layoffs.
The government should refrain from the kind of massive stimulus package launched during the global financial crisis in 2008. These measures can inject a huge amount of money into the economy and increase government revenue, but they cannot alter the direction of the coronavirus crisis, nor can they generate consumption and exports. Instead, they could lead to more complicated problems such as higher levels of debt and runaway real estate prices, which China is already trying to combat.
Finally, as the government works with the business world and fine-tunes its response to the dynamics of the coronavirus crisis, it should take the opportunity to reshape its relationship with the business world and communities by improving mutual trust through more transparency. A better relationship between government and society not only will help China to overcome the coronavirus crisis, but also will help to build a stronger and more robust economy in the long run.
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