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Prof. Zhao Bo: Pandemic’s Sickening Effects on Economy

Apr 19-2022   



In the 155th Lang Run Policy Talk, Zhao Bo, Associate Professor of the NSD, presented the findings on the impact of the COVID-19 pandemic on China’s economy based on a research project jointly conducted by a team of NSD scholars. An urgent task for policy making, said Prof. Zhao, was to balance pandemic control with social and economic development.

 

By adhering to the dynamic zero-COVID policy, China has made remarkable accomplishments of protecting the health and life of its people as well as rejuvenating its economy, which grew on an average of 5.2% in 2020 and 2021. Inevitably, strict and rigorous control measures, including lockdowns of entire districts or cities, have disrupted the stable functioning of the economy.

 

On the consumption side, the research found that the total consumption had a contribution of -6.8%, to the GDP in 2020, a negative first historically, before bouncing to 65.4% in 2021. Residents’ consumption took a steeper slide than disposable income in 2020; though overall consumption bottomed out and sprang back in 2021 as the pandemic went under effective control in 2021, the residents’ savings rate remained 2% higher by end of 2021 than before, due to a number of reasons such as preventive savings and income uncertainty. Service and offline consumptions took the biggest hit while online spending on physical products stayed resilient.

 

Number crunching by the team showed that ‘the sporadic type of pandemic outburst’, defined as having less than 10 new cases within five days after the discovery of the first case in one area, could cause about 8% decrease in local offline consumption for two to three months, while ‘the explosive type’, defined as over 10 new cases, could trigger a plunge of up to 80%. An additional new case in the ‘sporadic type’ could trim local offline customer flows by 3.6% on average, online daily service by 2.7%, and annual local whole-society retail consumption by 0.36%. The respective figures for ‘explosive type’ were 24.7%, 21.5%, and 3.0%.

 

Prof. Zhao also presented the pandemic’s adverse impact on investment, whose contribution to GDP plummeted from 81.5% in 2020 to 13.9% in 2021, the lowest ever recorded since 1992. In particular, the tertiary industry witnessed a conspicuous slowdown in fixed asset investments. In addition, the number of newly registered enterprises and their capital undertook a continuous downward trend and went into the negative territory in the fourth quarter of 2021. The sectors with a high concentration of private firms bore the brunt.

 

Trade, on the other hand, expanded remarkably and registered a growth that accounted for 21% of that of GDP in 2021, the highest since 1998. Overall, import and export contributed 1.7% of GDP growth rate last year. Also notable was the continuous optimization of the trade structure and the rising prominence of private firms, whose share of total trade rose to 48.6% in 2021, foremost among all ownership types.

 

The report also delved into the labor market, in which young workers suffered a higher jobless rate than before and migrant workers faced stiff challenge returning to work.

 

According to Prof. Zhao, if the zero-case goal were not to be achieved within the next two to three months, 1.3 to 2.0% might be shaved off GDP growth in 2022, rendering the 5.5% growth target a daunting task. To keep the economy safely on the growth track, Prof. Zhao advised rolling out relevant policies such as further relaxing the fiscal policy, speeding up infrastructure investment, maintaining the moderately loose monetary policy, and lowering personal income tax.

Prof. Zhao Bo: Pandemic’s Sickening Effects on Economy

Apr 19-2022   



In the 155th Lang Run Policy Talk, Zhao Bo, Associate Professor of the NSD, presented the findings on the impact of the COVID-19 pandemic on China’s economy based on a research project jointly conducted by a team of NSD scholars. An urgent task for policy making, said Prof. Zhao, was to balance pandemic control with social and economic development.

 

By adhering to the dynamic zero-COVID policy, China has made remarkable accomplishments of protecting the health and life of its people as well as rejuvenating its economy, which grew on an average of 5.2% in 2020 and 2021. Inevitably, strict and rigorous control measures, including lockdowns of entire districts or cities, have disrupted the stable functioning of the economy.

 

On the consumption side, the research found that the total consumption had a contribution of -6.8%, to the GDP in 2020, a negative first historically, before bouncing to 65.4% in 2021. Residents’ consumption took a steeper slide than disposable income in 2020; though overall consumption bottomed out and sprang back in 2021 as the pandemic went under effective control in 2021, the residents’ savings rate remained 2% higher by end of 2021 than before, due to a number of reasons such as preventive savings and income uncertainty. Service and offline consumptions took the biggest hit while online spending on physical products stayed resilient.

 

Number crunching by the team showed that ‘the sporadic type of pandemic outburst’, defined as having less than 10 new cases within five days after the discovery of the first case in one area, could cause about 8% decrease in local offline consumption for two to three months, while ‘the explosive type’, defined as over 10 new cases, could trigger a plunge of up to 80%. An additional new case in the ‘sporadic type’ could trim local offline customer flows by 3.6% on average, online daily service by 2.7%, and annual local whole-society retail consumption by 0.36%. The respective figures for ‘explosive type’ were 24.7%, 21.5%, and 3.0%.

 

Prof. Zhao also presented the pandemic’s adverse impact on investment, whose contribution to GDP plummeted from 81.5% in 2020 to 13.9% in 2021, the lowest ever recorded since 1992. In particular, the tertiary industry witnessed a conspicuous slowdown in fixed asset investments. In addition, the number of newly registered enterprises and their capital undertook a continuous downward trend and went into the negative territory in the fourth quarter of 2021. The sectors with a high concentration of private firms bore the brunt.

 

Trade, on the other hand, expanded remarkably and registered a growth that accounted for 21% of that of GDP in 2021, the highest since 1998. Overall, import and export contributed 1.7% of GDP growth rate last year. Also notable was the continuous optimization of the trade structure and the rising prominence of private firms, whose share of total trade rose to 48.6% in 2021, foremost among all ownership types.

 

The report also delved into the labor market, in which young workers suffered a higher jobless rate than before and migrant workers faced stiff challenge returning to work.

 

According to Prof. Zhao, if the zero-case goal were not to be achieved within the next two to three months, 1.3 to 2.0% might be shaved off GDP growth in 2022, rendering the 5.5% growth target a daunting task. To keep the economy safely on the growth track, Prof. Zhao advised rolling out relevant policies such as further relaxing the fiscal policy, speeding up infrastructure investment, maintaining the moderately loose monetary policy, and lowering personal income tax.