Prominent short-term difficulties in economic growth

Reporter: What impact has this year’s COVID-19 pandemic brought to Shanghai’s economic growth?

Quan Heng: As an external variable, the pandemic has led to a significant shock to Shanghai’s economy in a short period of time. Shanghai is an economic center. In the past few months, the pandemic has had a big impact on the supply, demand, investment and consumption sides of economic activities, including people’s mobility and lives. Due to the impact of the pandemic, Shanghai’s economy naturally saw a slow-down in investment growth, consumption growth, and trade growth in the near term. The pandemic has also brought unprecedented difficulties and challenges to a variety of market entities, and Shanghai faces massive challenges to revive and restore its economy in the short term.

But in the long run, we should still be upbeat about economic recovery, because after all, this is not a systemic financial crisis or a cyclical shock amid a financial crisis, but rather an impact from non-economic disturbance. In addition, it should be noted that Shanghai’s economy is subject to the impact of the pandemic in the short term, and will also be affected by “long-term stagnation” of the world economy in the medium and long run. It will also be affected by “triple pressure” from shrinking domestic demand, supply shock, and weakened expectations. Therefore, all of us should have reasonable expectations and get fully prepared for the difficulties that Shanghai could face in terms of economic growth this year.

Reporter: Compared with previous challenges, what are the similarities and differences with the impact from the COVID-19 pandemic?

Quan Heng: In the past two or three decades, the city’s economy was actually hit by two crises. One was the Asian financial crisis in 1997, and the other was the global financial crisis in 2008. These two crises had a big impact on Shanghai as an export-oriented economy. After the financial crises, the city resorted to macroeconomic policies to enable the economy to gradually move back onto the normal track. Generally speaking, the shock from a financial crisis comes gradually, but also eases slowly. In contrast, the impact of the pandemic comes and goes both quickly. In particular, once the pandemic is brought under control, non-economic “disturbance” will gradually disappear. And as the government is promptly introducing a series of measures to revive economic growth, help companies step out of difficulties as soon as possible and stabilize market confidence and expectations, the economic operation is expected to enter the normal track soon.

Momentum and impetus remain intact

Reporter: In the long run, what characteristics of Shanghai’s economy have not changed?

Quan Heng: First, we have to be aware that the core functions of Shanghai basically maintained normal operation during the pandemic. Shanghai is an international shipping center, financial center, and trade center. With its highly open economic pattern, the city serves as a hub to connect the domestic economy with the international market. This important function to allocate international resources while agglomerating and leveraging factors remains intact and has not been affected by the pandemic too much. It has also laid the foundation for Shanghai’s economic recovery and revitalization after the pandemic.

Second, the fundamentals of Shanghai’s economy are still sound, and the basic framework for the construction of “Five Centers” has a solid foundation. Although the pandemic had a certain impact on economic growth and investment in the short term, the fundamentals of economic growth are still good.

Third, the quality and competitiveness of Shanghai’s economic growth is high. In particular, Shanghai has been in recent years focused on promoting the upgrading and transformation of its economic structure and the reshaping of innovation-driven growth momentum, thus laying a solid foundation for the city’s economy to achieve high-benefit, high-efficiency and high-quality development. Although the pandemic has brought a shock to investment and consumption in the short term, the quality and foundation of the city’s economic development have not been shaken, and new economic growth drivers are still thriving.

Fourth, Shanghai’s business environment has been constantly improved, and foreign investors are still optimistic about the city’s environment for economic growth, entrepreneurship and innovation. In the short term, the stability of the industrial chain and supply chain is affected by the pandemic to a certain extent. But in the long run, Shanghai’s continuous improvement in its market-oriented, rule-by-law, global business environment allows foreign investors to see that the city is still a popular destination for investment, so that they have full of hope and confidence in Shanghai. Especially after anti-pandemic efforts turned to normalized prevention and control, the city will be able to efficiently coordinate epidemic prevention and control with economic and social development. These efforts themselves will also help create a good environment for foreign investors and companies specializing in foreign trade. It is expected that there will still be large-scale high-quality foreign investment to enter Shanghai.

Fifth, the impetus and momentum of Shanghai’s innovation-driven economic growth remain intact. In the past few years, Shanghai has continuously improved the leading functions of high-end industries, and cultivated high-end manufacturing and service sectors. The city’s new growth drivers, business formats and models are still internal driving force for its high-quality economic development. This has not fundamentally changed in the short term. Therefore, we should be aware that Shanghai’s economy still has strong resilience and big space. In particular, as Shanghai is highly integrated with the Yangtze River Delta, when the order of production and life is fully restored in the city, the entire economy in the Yangtze River Delta will also quickly return to a normal state. In the long run, Shanghai’s structural advantages, driving force, and openness are still there. The momentum of high-quality economic development will not change, nor will the momentum of high-level reform and opening-up. Shanghai will continue to play a pioneering role nationwide in reform and opening-up as well as modernization.

Stabilize market confidence and expectations

Reporter: What are the growth drivers of Shanghai’s economic development in the future?

Quan Heng: From a spatial perspective, Shanghai actually has many national-level strategic resource platforms. For example, the Lingang New Area drives the upgrade of opening-up functions. After the pandemic is effectively controlled, it will continue to move forward with high-level opening-up, and will unleash more dividends from institutional opening-up. For another example, the Hongqiao International Hub for Opening-up is an open space platform that targets the Yangtze River Delta, and of course it is also a large platform that integrates with international development. For the third example, the China International Import Expo (CIIE) will play a central node and strategic link function in the construction of a new development pattern for the entire Shanghai, especially strategic link functions for domestic and international dual circulation, including links for exhibitions, investments, technologies and markets. When these links are formed, there will be huge spillover and driving effects. For the fourth example, the five New Towns are also new growth drivers for Shanghai in the future. The five New Towns are not simply about building several towns in terms of space, but to have a high starting point to map out agglomeration of high-end production factors. The five New Towns will contribute to a polycentric urban spatial system, which means that the allocation of urban space resources will be more balanced and reasonable so as to drive a new round of development in the future. Therefore, in the long run, giving full play to and making good use of these national-level strategic resource platforms will be a new growth driver for Shanghai’s future development.

Reporter: What role can the government play in revitalizing the economy?

Quan Heng: In order to help various market entities step out of the predicament as early as possible, at the end of May, Shanghai issued the “Shanghai Action Plan for Accelerating Economic Recovery and Revitalization,” with a total of 50 policy measures, together with 33 national policy measures. It’s essential to make good use of policy combination in these aspects to help enterprises address difficulties and return to normalcy. This plays an important part in restoring market confidence and stabilizing the expectations of market entities. Therefore, at present, the government needs to focus on how to better stabilize market confidence and market expectations. By doing so, I believe Shanghai’s economy will return to the track of high-quality development soon.

Source: Jiefang Daily