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Data-driven Recovery

Helping market entities should be the top priority in keeping the fundamentals of the economy, and assistance should be precisely targeted with big data to ensure efficiency

By NewsChina Updated Aug.1

In the 2020 Government Work Report delivered on May 22 at the 13th National People’s Congress (NPC) held in Beijing, six areas, including job security, basic living needs, operations of market entities, food and energy security, stable industrial and supply chains, and the normal functioning of primary-level governments are highlighted as the bottom line of development in which security must be maintained “in order to ensure stability on the six fronts.” This refers to employment, the financial sector, foreign trade, foreign investment, domestic investment and expectations.  

“Maintaining security will deliver the stability needed to pursue progress, thus laying a solid foundation for accomplishing our goal of building a moderately prosperous society in all respects,” says the Work Report.  

The six areas have been a concern of Bai Chongen, dean of the School of Economics and Management at Tsinghua University in Beijing and a member of the Chinese People’s Political Consultative Conference, also held in Beijing. One of the two proposals Bai submitted this year is on how to use big data to help market entities and the other explores the possibility of organizing young people into volunteer teams to help lower the youth unemployment rate.  

“At this moment, the policies should be as flexible and pragmatic as can be to meet demand, whether it is increasing the deficit or releasing more money. We need to survive first, so the capacity for economic growth will not be permanently harmed,” Bai said in an interview with NewsChina in which he discusses what the government can do to help enterprises and how to ensure efficiency and fairness in the process. 
NewsChina: What can the government do to boost the economy in the wake of the Covid-19 pandemic? 

Bai Chongen: In the short term, I think it is most important to help market entities. It will be hard for the economy to recover if too many enterprises go out of business. But in the process, companies that need aid the most should be prioritized while resources are limited, as I mentioned in my proposal.  

Next, guaranteeing people’s basic livelihoods and employment is also important. Many people are unemployed or have seen their income greatly reduced now that the economy is not going well, so they need help too, though the aid for them may not be as much as that for market entities which have suffered huge losses during the pandemic. The unemployment rate for April was around 6 percent, only 0.1 of a percentage point higher over March, but young people between 16 and 24 are suffering a higher rate of unemployment at 13.8 percent.  

I believe it is important to help low-income groups and create jobs for young people to avoid social instability. I proposed that the government organize college graduates who have difficulty finding jobs into volunteer teams to pull through this hard time in the job market. There are a lot of things these volunteer teams can do, such as helping teach students who are not doing well through online learning that has become the norm during the pandemic. When the economy gets better a year later, these graduates could return to the job market.  
NC: How can big data help market entities? 

BCE: How long the impact of the pandemic will last depends on whether we can successfully keep market entities sound. If all enterprises can survive, the economy will recover quickly after the pandemic is over. But if too many enterprises die, the economy is not going to recover soon, since it takes time for new companies to replace the old ones. That’s why I’ve been concerned about market entities.  

I think it’s necessary to provide targeted assistance to companies that have suffered but which still have good prospects. Big data could step in to help us find these companies.  

We have the relevant data at hand, actually. Administrative data such as tax data, for example, is more accurate and richer than statistical data. Now the management of value-added tax (VAT) invoices is strict enough to fully reflect transactions. We could use VAT invoice data to calculate just how much a company’s domestic sales were affected. By grouping companies in specific sectors together, we could figure out the impact on that industry. These calculations could help decide where the priorities lie in the government’s bailout efforts.  

Of course, industries which receive aid must show there is promise, not those with poor potential or excess capacity. We do need to spot the companies in need first. 
NC: How can the government go about targeting different industries? 

BCE: These industries fall into two categories. Some have resumed production and sales but are not achieving their sales goals. For the consumption sector in which the decline in sales is caused by a lack of desire to consume, coupons could be designed to accurately target these fields to increase demand. For other sectors, the specific circumstances should be considered in deciding whether and how to increase demand.  

For industries that have not resumed production or sales yet, such as international tourism, there needs to be measures to reduce the costs for these companies. If reducing costs is not enough to keep the company running, there could be subsidies or financial assistance from the government.  

Specific support measures could include reducing or postponing VAT, income tax or social security contributions and encouraging financial institutions to reduce the cost to companies of getting loans, or extending existing loans. The government could also encourage the financial sector, guaranteed by the treasury department, to offer special loans to companies in dire straits. The sum and term of the loan should be determined by a company’s labor costs and the degree of impact on the industry it belongs to. A firm’s labor costs could be calculated via social security contributions and individual income tax data. When the loans become due, companies that have met certain conditions, like having kept workers on the payroll, for example, could be exempt from repaying all or part of the loan. The treasury department could bear the resulting cost.  

To sum up, when designing relief policies, the differences among industries should be taken into consideration to ensure targeted policies and reduce implementation costs. But for different companies in one industry, the assistance should be consistent to avoid situations in which poorly run companies or those who exaggerate their hardship get more help instead. Otherwise, it may lead to moral hazard and dampen other companies’ enthusiasm.  
NC: What is your prescription for the Chinese economy in the long run? 

BCE: The long-term impact is mainly from outside. Internally, despite the short-term shock from the pandemic, the economy will gradually recover as long as companies survive and the pandemic is kept under control. But the external environment is full of uncertainties. On the one hand, an anti-globalization trend is gathering momentum. As the pandemic swept the globe, some countries bought masks from abroad but they got intercepted by a third country.  

Under these circumstances, some countries might hope to build a self-sufficient supply system and are starting to take action to address them. Meanwhile, some Chinese companies and transnational ones in China might move some production to other countries to reduce risks. These companies need to sell products to other countries. If they keep relying solely on China, if trade frictions escalate, their sales channels might be blocked entirely by the possible imposition of trade barriers.  

All of these factors will affect China’s economy. We need to constantly expand domestic demand to offset these bad influences. I believe the potential for China’s domestic demand is huge. It is also in line with China’s goal to keep improving people’s lives.  

Other major uncertainties for China stem from some countries’ control, or even malicious manipulation out of political need, of key technologies. For China, this will affect the supply of key components and the international supply chain. Just like the measures to help market entities, the measures to stabilize the supply chain should be carefully designed. Among the different industrial chains, data could help us find out which are at higher risks [and thus need more help].  

I think some de-Sinicization voices in the world at present are overreactions due to the pandemic. I’ve had discussions with some entrepreneurs about this. These impacts on the supply chain have happened before. They look terrifying when they emerge, but after a while you find they were small probability events and everything will get back on track. The pandemic is a once-in-a-century event, too. We should not overreact to other countries’ overreactions.