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Coping with Economic Impacts of Coronavirus

Jan 30-2020   



By taking cues from the SARS in 2003, one can broadly understand the ways the current coronavirus impacts on the economy, writes Prof. Huang Yiping, Deputy Dean of the NSD, in an opinion piece. The most important one is restraints on human mobility – voluntary or forced – for fear of infection. As a result, demand for services drops; production, investment and export grind to a stop; and fiscal and financial environment deteriorates.

 

The longer the epidemic is, the bigger the economic impacts. Prof. Huang cites a preliminary estimate by Standard & Poor’s which reckons that the coronavirus might shed 1.2% off China’s GDP. For comparison, some international investment banks put the loss of China’s GDP at 0.5% during the SARS epidemic.

 

Disruptions to economic activities will result in shrinking fiscal revenue; in the meantime, the situations will drive up demands for fiscal subsidies and cause fiscal deficit to widen. Another risk lies in the swelling of bad debts of financial institutes and an increase in leverage.

 

The government should consider some measures – especially fiscal ones - to cope with the economic situations while fighting the war on the virus. First, the PBOC should moderately relax monetary policies, including injecting liquidity and guiding the LPR downward. Second, offer various policy supports to new economic channels, i.e. online shopping, which accounts for 20% of all retail sales and offers a buffer for mitigating the negative impacts on consumption. Third, help small and medium-sized enterprises through tax reduction and exemption, or even one-off subsidies.

 

Fourth, offer assistance to people who lose jobs due to the impact of the virus. Migrant workers deserve special care as they lack social securities. Fifth, increase the construction of public service facilities such as hospitals, schools and urban transportation, which will serve to lower the probability of public health events in the future when urbanization sees more farmers settling in cities.

 

Within two days of its publication on the official Wechat account of CF40, a non-for-profit academic platform for leading financial experts, the article has garnered 97,000 reads. It has also had 36,000 reads on the NSD’s official Wechat account.

 

Coping with Economic Impacts of Coronavirus

Jan 30-2020   



By taking cues from the SARS in 2003, one can broadly understand the ways the current coronavirus impacts on the economy, writes Prof. Huang Yiping, Deputy Dean of the NSD, in an opinion piece. The most important one is restraints on human mobility – voluntary or forced – for fear of infection. As a result, demand for services drops; production, investment and export grind to a stop; and fiscal and financial environment deteriorates.

 

The longer the epidemic is, the bigger the economic impacts. Prof. Huang cites a preliminary estimate by Standard & Poor’s which reckons that the coronavirus might shed 1.2% off China’s GDP. For comparison, some international investment banks put the loss of China’s GDP at 0.5% during the SARS epidemic.

 

Disruptions to economic activities will result in shrinking fiscal revenue; in the meantime, the situations will drive up demands for fiscal subsidies and cause fiscal deficit to widen. Another risk lies in the swelling of bad debts of financial institutes and an increase in leverage.

 

The government should consider some measures – especially fiscal ones - to cope with the economic situations while fighting the war on the virus. First, the PBOC should moderately relax monetary policies, including injecting liquidity and guiding the LPR downward. Second, offer various policy supports to new economic channels, i.e. online shopping, which accounts for 20% of all retail sales and offers a buffer for mitigating the negative impacts on consumption. Third, help small and medium-sized enterprises through tax reduction and exemption, or even one-off subsidies.

 

Fourth, offer assistance to people who lose jobs due to the impact of the virus. Migrant workers deserve special care as they lack social securities. Fifth, increase the construction of public service facilities such as hospitals, schools and urban transportation, which will serve to lower the probability of public health events in the future when urbanization sees more farmers settling in cities.

 

Within two days of its publication on the official Wechat account of CF40, a non-for-profit academic platform for leading financial experts, the article has garnered 97,000 reads. It has also had 36,000 reads on the NSD’s official Wechat account.