See More on Facebook

OPINION: Macroeconomic measures needed to fight coronavirus

If used appropriately macroeconomic policies, as counter-cyclical measures can smooth out economic upheavals and improve overall welfare.


Written by

Updated: January 31, 2020

Macroeconomic policies, as counter-cyclical measures, can smooth out economic upheavals and improve overall welfare, if used appropriately. This is exactly what China needs now amidst the public health crisis caused by the new coronavirus, which is exerting growing pressure on the economy.

Given that evolution of the coronavirus depends on three factors: the speed and breadth of spreading of the virus, development of effective treatment plans, and the efficiency of the public health departments, it is highly probable that the pandemic could last into the second quarter.

Although too early to say how much influence the new virus will have on the economy, a look back at the impact severe acute respiratory syndrome (SARS) had on the Chinese economy in 2002-03 can provide some pointers. The SARS outbreak mainly led to a reduction in service demand, interrupted production, a fall in investment and exports, increased unemployment and the deterioration of the fiscal and financial environment as a result of restricted flows of people.

One thing is certain: the longer the pandemic lasts, the greater the economic cost will be, with the service sector bearing the brunt of the impact.

With the quarantine arrangements and the lock down of some of the worst-hit cities, tourism, transport, entertainment, retail and catering will all be hard hit, especially since the Spring Festival holiday is normally the peak consumption period. The surge in demand for hotels and 50 percent growth in ticket sales for scenic sites and museums forecast by Meituan Dianping for the festival season will not materialize.

The reduced consumption is bound to affect employment. Nearly 20 million people might lose their jobs if just 5 percent of employees in the service industry are affected.

The holiday has been extended by three extra days to Feb 2, many schools have postponed the start of the next semester, and more than 200 million migrant workers may not return to the cities they work in. And in addition, the number of foreign visitors including business travelers could fall significantly, as could exports and direct investment.

Besides, the decrease in fiscal revenue following the economic downturn and the ensued increase of demand for fiscal subsidies could lead to the increase of financial deficits and weaker fiscal capacity. And financial risks on both the macro and micro level will build up as the non-performing assets of financial institutions aggrandize significantly and the leverage ratio rises with a shrinking economic base.

All these shocks are taking place at a time when China is suffering from slowing growth. People’s lives and investor confidence could take a hit if the downward pressure in the first quarter again builds up. Thus, apart from focusing on containing the spread of the coronavirus, the government should consider adopting some macroeconomic measures, mainly fiscal policies, to support the economy.

Although the OECD puts the threshold of fiscal deficit at no more than 3 percent and public debt at less than 60 percent of GDP, sticking to the 3 percent deficit ratio is unnecessary because the key is the overall balance sheet.

Furthermore, fiscal expansion should not just be more investment in infrastructure. Macro policies should focus on stabilizing people’s livelihoods and society as well as maintaining growth. Referring to the United States’ practice in the global crisis, perhaps the State Council, China’s Cabinet, could establish an emergency relief fund authorized by the National People’s Congress.

Specifically, measures in the following aspects could be taken.

First, the Central Bank should moderately loosen the monetary policy by injecting liquidity and easing the fiscal pressure on enterprises by expanding the scale of financing and reducing cost of capital. Fiscal and supervision departments should give support to financial institutions to hasten the speed at which non-performing assets are disposed of and replenish capital. Only in this way can financial institutions better serve the real economy.

It should be noted that although the government should not force financial organizations to lend loans to small and medium-sized enterprises, and particularly not lower the loan interest rate by administrative orders, the financial departments themselves could consider providing temporary interest subsidies to enterprises in need if necessary.

Second, the government should offer policy support to the new economy to increase online consumption. That online shopping has accounted more than 20 percent of total retail sales offers a sort of buffer space for pandemic relief compared with 17 years ago. Now people can shop, order food deliveries and even watch new movies online without leaving their homes. The government could provide protective and disinfection equipment, even subsidies to new economy companies to help resist the impact of the pandemic on consumption.

Third, preferential policies should be provided to help small and medium-sized enterprises, especially those in catering, transport, tourism, retails and manufacturing to help them survive. Tax reductions and one-off subsidies could help.

Fourth, people who lose jobs because of this pandemic, those migrant workers who lack social security in particular, should be helped to finding new jobs. For instance, the government could help arrange for migrant workers in need to return to their hometowns and get jobs, even provide temporary living subsidies.

Last but not least, public service facilities including hospitals, schools and transportation facilities should be specifically increased as this pandemic reveals that per capita medical facilities are far from enough even in a big city such as Wuhan. Given that a huge number of rural population will settle in the cities thanks to the ongoing reform of the household registration system the government should take precautions, improve the carrying capacity of medical, educational, transportation and housing facilities and reduce the risk of public health events in the future.

Considering the huge uncertainty in how the pandemic will progress the government had better take a progressive method in devising macroeconomic policies. It will only need to introduce some short-term subsidies and tax reduction if the epidemic is controlled in two weeks. Otherwise larger scale and stronger stimulus measures are needed.

The author is deputy dean of National School of Development and director of Institute of Digital Finance at Peking University. The views don’t necessarily represent those of China Daily.



Enjoyed this story? Share it.


China Daily
About the Author: China Daily covers domestic and world news through nine print editions and digital media worldwide.

Eastern Briefings

All you need to know about Asia


Our Eastern Briefings Newsletter presents curated stories from 22 Asian newspapers from South, Southeast and Northeast Asia.

Sign up and stay updated with the latest news.



By providing us with your email address, you agree to our Privacy Policy and Terms of Service.

View Today's Newsletter Here

Internet healthcare serving homebound patients in China

Online consultations, pharmaceutical deliveries play vital role during outbreak. One recent rainy day, Wu Hong was waiting at the gate of her residential community in Wuhan, Hubei province. When a deliveryman with a bag of medicine came into sight, she was greatly relieved. Wu’s mother-in-law is a breast-cancer patient and needs to take medicine regularly. Wu’s father suffers from chronic obstructive pulmonary disease, and inhalers have been in short supply. As the novel coronavirus epidemic grew more serious, Wu wasn’t permitted to take her family to the hospital for drug refills. She was left in a state of restless anxiety. On Feb 26, Wu and her husband saw a news segment on TV saying that the Wuhan government had enabled online reimbursement se


By China Daily
March 13, 2020

India’s Congress suffers setback after key leader defects to BJP

Move by Scindia and 22 legislators could trigger fall of Congress-led govt in central Madhya Pradesh state. The Congress has suffered a political setback following the resignation of Mr Jyotiraditya Scindia and 22 legislators in Madhya Pradesh state, deepening an existential crisis for a party that is struggling for political relevance in modern Indian politics. Mr Scindia, 49, an articulate leader, yesterday joined Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP), with legislators loyal to him expected to follow suit. The move could lead to the collapse of the Congress-led Madhya Pradesh government. That would give the BJP a chance to form the government in the Hindi heartland state, which is seen as key objective for


By The Straits Times
March 12, 2020

Chinese Red Cross teams aid Iran’s COVID-19 fight

Humanitarian group to help Iranians with containment measures that worked in China. Voices on the other end of the line cut in and out due to a poor phone connection as officials at the Red Cross Society of China’s headquarters in Beijing attempted to talk to staff members on the ground in Iran on Tuesday morning. As the signal stabilised, the latest developments in controlling the novel coronavirus pneumonia epidemic in Teheran streamed into a conference room packed with Red Cross managers. Zhou Xiaohang, head of a five-member team-four medics and a Farsi interpreter sent to assist with COVID-19 control in Iran-said Iranians are increasingly taking precautions such as wearing face masks and washing their hands more often.


By China Daily
March 11, 2020

Shortage of Masks, Handwash due to panic- buying: Leave some for everyone

Despite repeated calls by global and local health experts and warnings from government, panic-buying grips the country. Global health experts have warned against hoarding masks, handwash and sanitisers during the coronavirus outbreak as it could worsen the situation by depriving those who might need them. Despite this, panic-buying of these products in Dhaka has been triggered by news of the first confirmed coronavirus cases in the country. Across the capital, several pharmacies and superstores have been facing a shortage of masks, antiseptic liquids and sanitisers since Sunday afternoon. The demand for tissue papers has also almost doubled overnight, some retailers claimed. Many of the retail stores, super shops and pharmacies in Karwan Bazar, M


By Daily Star
March 10, 2020

MH17 trial in Malaysia begins today

It was reported that MH17 was shot down by a BUK missile while flying over the conflict-hit eastern Ukraine. The trial will begin today. All eyes will be on the District Court of The Hague at the Schiphol Judicial Complex (JCS) in Badhoevedorp as the criminal proceeding against four men accused of shooting down Malaysia Airlines Flight MH17 begins. It was reported that MH17 was shot down by a BUK missile while flying over the conflict-hit eastern Ukraine. All 298 people on board, comprising 43 Malaysians, 193 Dutch nationals and 27 Australians, were killed. Members of the Malaysian media here to cover the start of the trial were given a briefing by press secretary for the judge, Yolande Wijnnobel, on what to expect at the start of the much-awai


By The Star
March 9, 2020

OPINION: ‘Righteous’ women

So who is this ‘righteous’ woman that would never dare join Aurat Marchers? ‘TIS the season to be righteous, or so many prominent Pakistanis on TV and social media along with the religious right would have us believe. Pakistan suffers from hypocritical moral policing at the best of times — in homes, colleges and universities, places of religious worship, and the workplace — but the trigger for the current frenzy is the impending Aurat Marches in many cities of the country. Given that these marches only began three years ago, one can only marvel at how rapidly they have gotten under the proverbial skin of their highly agitated opponents. Enough has been said and written about the wider context of the marches and why they threaten the


By ANN Members
March 6, 2020