【COVID-19】中国经济长期向好信心足 - 2020-04-03

Author: Gao Fan, Guangming Daily (March 24, 2020, Page 16)
The novel coronavirus epidemic is a public health crisis with the fastest speed of spread, the widest scope of infection and the greatest difficulty in prevention and control since the founding of the People’s Republic of China. Under the strong leadership and scientific deployment of the Communist Party of China Central Committee, the country has gathered resources from all sides to combat the virus, and the current situation of epidemic prevention and control has maintained a positive momentum. As for the economy, from its outbreak to its total elimination, the epidemic will exert an extensive and major impact on China’s economic development in the short term. But such impact will not change the economic fundamentals sustaining the sound momentum in economic development over the long run.
1.
In the short term, consumption of urban and rural residents has been suppressed by the epidemic. Household spending has mainly revolved around basic needs such as food, and revenue in sectors like tourism, catering, entertainment and transportation have plunged. A combination of factors including market, cost and expectations has inevitably impacted regular business activities. Small and medium-size enterprises, which are typically labor-intensive and heavily reliant on capital turnover, have felt the biggest pinches. During the epidemic prevention and control period, labor flow across urban and rural areas, regions and industries has been effectively obstructed. This has dragged on the efficiency of factor allocation and the income level of residents, and exerted a negative impact on other economic fields through supply chain and industrial chain.
However, the economic development of any country is the result of a mix of factors, especially the long-term factor determining the inner logic of economic development. An understanding of such logic can help us distinguish the "short-term fluctuation" and "basic trend" in economic development. In this regard, while COVID-19 will have an impact on China's economy in the short term, it will not change the fundamentals of the country’s economic growth and the sound, long-term momentum. This is mainly because over the past 40 years, through market-oriented reform and opening-up, China has developed social productivity and rapidly promoted industrialization and urbanization. The changing economic structure has allowed China to move from a typical low-income nation to the most populous country in the upper-middle income league, and has risen to become the world’s second-largest economy by total economic output, just second to the United States. In 2019, China’s GDP totaled more than 99 trillion yuan, with GDP per capita reaching 70,892 yuan. In terms of d year-round average exchange rate of renminbi, China's GDP per capita in 2019 exceeded US$10,000 for the first time, and continued to approach the "threshold" of US$12,375 for high-income countries. In 2019, poverty incidence in rural China, measured by the benchmark of 2,300 yuan per person per annum (in 2010 constant price), has dropped to 0.6%. As a large country by geography and population, China is sprinting ahead in its transformation from an upper-middle income country to a high-income country, which depicts the fundamental status quo of China's economic development at the current stage. The "growth miracle" achieved since the reform and opening-up has profoundly changed China's economic structure and provided a solid foundation for mobilizing social resources in response to the impact of the epidemic, as well as propelling businesses to return to normalcy. 
2.
In addition to the above characteristics by quantity, China is currently in a specific stage of expediting the transformation of economic structure, and the momentum of economic growth is undergoing a change in tide.
From the perspective of demand, consumption, investment and net exports are the "troika" driving a country's economic growth in the short term. At present, with domestic demand playing an increasingly important role, economic growth has been growingly dependent on the "internal stabilizer" of end-consumer spending. In the field of consumption, with the continued economic growth and improvement of residents' income, the consumption structure and pattern of urban and rural dwellers have undergone profound changes. In 2019, the Engel coefficient was 28.2%, with urban and rural readings hitting 27.6% and 30.0%, respectively. This has reflected the drop in residents’ relative expenditure on basic products such as food, while the relative spending on items for self-development or self-pampering are on the rise. As the epidemic prevention and control draws to an end, it can be expected that the consumption of urban and rural residents in China will stage a recovery, or even a retaliatory rebound, and the pent-up consumption momentum in the short term will be greatly unleashed in the later stage. It is worth emphasizing that with the accelerated development of information and networks, Chinese residents are increasingly reliant on shopping online. This consumption pattern will not only appease the decline of residents’ consumption in the short term, but also become the driving force behind business model transformation for relevant enterprises in the long run. After the epidemic is over, the degree of Internet and information in consumption is likely to be further enhanced, thus becoming an alternative or supplement to the traditional consumption model.
From a supply perspective, the long-term economic growth of a country depends on two sets of factors, namely factor supply and factor combination efficiency. Since the reform and opening-up, the type, scale and structural characteristics of China’s production factors have undergone profound changes. On top of traditional factors such as land, labor and capital, new factors like knowledge, technology, management, and data have been emerging, thus increasingly contributing to China’s economic growth. As far as China’s supply pattern of factors is concerned, the scale of land is relatively rigid. The labor force is facing challenges in the supply amount after the transformation of the population growth model, but changes in the relative prices of factors will induce enterprises to adjust the combination of factors to reduce dependence on land factors. Factors like education will promote China’s shift from “human resources advantages”, focusing on quantity, to “human capital advantages”, focusing on connotation. It is worth emphasizing that market-oriented reforms have promoted the mobility of factors, while the acceleration of informatization processes, infrastructure construction, and regional integration has reduced the transaction costs of factors. All these have enabled China’s various factors to be reallocated in a wider scope. In particular, the non-agricultural transfer of rural labor has been an important driving force for China's economic growth since the reform and opening-up. In 2019, the number of migrant workers and out-of-town migrant workers in China was 291 million and 174 million, respectively. After the epidemic is over, labor flow between urban and rural areas is expected to quickly return to the previous state with a large scale and a wide range. In the context of implementing the new development concept, China is shifting from extensive growth by leveraging intensive use of elements to more intensive growth by leveraging innovation. Scientific and technological innovation is placed in a key position to promote the improvement of the combination efficiency of factors. Relying on the flows of factors and innovation, China is continuing to promote an advanced, knowledge-focused industrial structure. The industrial structure is gradually extending from the production link in the middle of the Smile Curve to the R&D and marketing links at both ends. “Made in China + Created in China”, increased industrial added value, and strategic emerging industries have become new trends in China’s industrial development. China’s industrial structure has steadily entered a new stage towards the services industry after experiencing the accelerated development of industrialization. The impact of the epidemic has not reversed the internal logic that hinges on scale growth of production factors and the continuous improvement of the combination efficiency in China’s economic field. The shifts of economic drivers and upgrading of the economic structure are still going on, which serves as the foundation and booster to the sustainable and stable development of China’s economy.
3.
The “resilience” of economic development depends fundamentally on the ability of the economic system to respond to various external shocks. The system plays a significant role in the long-term trend of economic development. In the final analysis, the performance of economic development reflects the effect of economic activities conducted by micro-entities under specific institutional conditions. As a country with a vast territory and a very large population, China has had world-renowned economic achievements since the reform and opening-up, which was basically due to the formation and continuous improvement of the socialist economic system with Chinese characteristics under the leadership of the Communist Party of China, thus successfully realizing economic transformation. For over 40 years, China has gradually improved its understandings of the law of development and formed a series of economic institutional arrangements that fit in with the local characteristics. For example, it is emphasized that the Party leadership must be adhered to in order to promote economic development, while the country must fully mobilize governments at all levels so that micro-entities such as enterprises and residents can have expanding economic autonomy. Economic development must rely on two core mechanisms, namely the implementation of the economic system reform, and expansion of opening-up. The market must play a decisive role in the allocation of resources and the governments should pay a better role, in order to promote economic development. The country must unwaveringly consolidate and develop the public ownership economy, and unwaveringly encourage, support, and guide the development of the non-public ownership economy. To promote economic development, the country must target main contradictions in the economic field in accordance with the development stage changes, and realize the dynamic adjustment of development concepts, development strategies, and policy measures.
In summary, China has gradually formed the common socialist economic systems in its economic practice, which makes public ownership the main body, together with the common development of multiple ownership economies. It makes “distribution according to labor” as the main mechanism, with the coexistence of multiple distribution methods. It also includes the socialist market economic system. These systems have been formed with the understanding of the laws in China’s long-term development. The short-term external factors of the epidemic will not impact or weaken these economic systems, nor will they change or reverse the mechanisms of their impact on economic development. In the course of epidemic prevention and control, China will base itself on advancing the modernization of national governance systems and capabilities, and further adhere to and improve these economic systems. For example, China will have growing awareness of the imbalanced and inadequate development as a bottleneck factor. China will more firmly promote development concepts of “innovation, coordination, green, openness, and sharing”. China will step up efforts to improve the performance evaluation and incentive mechanisms for local governments. These efforts will continue to enhance the desirability, pertinence and effectiveness of the economic systems, and then provide a solid institutional foundation for consolidating the basic trends of long-term economic improvement in our country.
(The author is a professor with School of Economics, Fudan University.)