The most important thing is to ensure mobility and smooth logistics

Reporter: How to do you see the downward pressure that the COVID-19 pandemic has brought to Shanghai's economy?

Zhang Jun: In April and May this year, Shanghai’s economy was seriously affected by lockdowns. The flow of people and logistics was basically stagnant, which was very detrimental to economic activities and income creation.

Among them, the loss of mobility had the biggest impact on the service industry including catering, entertainment and tourism, because their target consumers had to stay at home due to lockdowns. Even if consumers could do shopping on mobile phones, the stoppage of logistics still had a significant impact on consumption. Soon after closed-loop management was imposed, Shanghai implemented a special permit management policy allowing the resumption of some logistics, which partially alleviated the economic situation.

Compared with the service industry, the manufacturing industry was slightly less affected by the pandemic. Generally speaking, the manufacturing industry has certain inventories including raw materials and intermediate products to serve as buffers. Overall, however, the manufacturing industry still faced the problem of logistic hindrance caused by lockdowns or closed-loop management. The things produced could not be transported out, while the intermediate products and parts needed could not brought in, and ship loading for export contracts could not be done within the specified time...... As a result, negative economic growth becomes inevitable in the short term.

On the other hand, this also tells us that the most important thing for a city's economy is to ensure mobility and smooth logistics, because people, funds, goods and information all need to be kept in motion. They are like blood in the human body. What we have now is a market economy, which is also an open economy. All policies and emergencies such as epidemics that affect mobility will have a fairly big impact on the economy in the short term. 

Reporter: In terms of economic impact, how the COVID-19 pandemic is different from the "SARS" in 2003?

Zhang Jun: China's economy today is not in the same order of magnitude as that of 2003. Compared with 2003, China now has a more developed service industry. Besides, the Chinese economy is more market-oriented, more open and more complex, with longer supply chains.

Statistically, the impact of SARS on China’s GDP was like a pulse: the GDP figure dropped sharpy, but quickly rose again. By comparison, COVID-19 spreads more widely and has a bigger impact. Its effect is long term. Currently, both the human understanding of viruses and vaccines are still in their infancy. In the future, not only China but also the rest of the world will face the problem of epidemic prevention and control as a new normal. In other words, no one should expect viruses to suddenly disappear from us. Going forward, we will have many ways to deal with viruses, and better vaccines will also be developed, until we can face COVID-19 in the same way as we face influenza. 

Resilience means the ability to rebound in the face of impacts

Reporter: How to strengthen the resilience of Shanghai's economy to withstand external impacts?

Zhang Jun: Unlike other international metropolises such as New York and Hong Kong, Shanghai is characterized by a big manufacturing component in its economy, which accounts for about a quarter of its GDP. Thanks to the manufacturing industry, the impact of the pandemic on Shanghai's economy will be relatively moderate. If it only had the service industry, the situation would be much more serious. 

The existence of the manufacturing industry may be a source of resilience. Firstly, the manufacturing industry is not so fragile, and many of its sectors can operate in closed loops. In addition, the manufacturing industry has a higher degree of automation, and some sectors have already replaced manpower with robots. This is also a major trend in the future.

Of course, resilience not only means having enough buffer space in the face of external impacts. It also implies an ability to rebound after the external impacts are brought under control. Apart from the modern service industry, many export sectors of Shanghai's manufacturing industry are now recovering quickly.

For the service industry to recover as soon as possible, the most important thing is to improve the capabilities of pandemic monitoring, epidemiological survey, nucleic acid and other tests. Shanghai also enjoys a relatively robust local financial situation and rich medical resources, which are also important safeguards for accelerating economic recovery.

Reporter: How to ensure the normal operation of Shanghai's core urban functions under external impacts?

Zhang Jun: In Shanghai’s service industry, the core functions of finance, trade and shipping all adopt highly modern technical means, and large numbers of transaction activities are carried out online. When viruses attack or lockdowns are imposed, only a small number of personnel are needed to be on duty and maintain on-site operations.

There is a technical problem here: if people do not go to the work site, can they handle their work at home? The United States also faced this problem when the September 11 terrorist attacks happened. At that time, the entire U.S. financial system would be affected if the Wall Street were shut down. So, it became a national topic for discussion, because from the perspective of data security, the law did not allow employees to access the intranet of financial institutions from home to perform online tasks. Although these core systems could operate automatically, they still required a certain number of people at the site. However, I think that with the development of blockchain technology, all these problems can be solved.

This also reminds us that Shanghai as a financial center needs to have sound and efficient disaster recovery systems. Such systems are needed for capital market, commodity futures, fund securities and other financial operations. Many institutions may have already built some of these systems, but with no opportunity to test them before. The COVID-19 pandemic provides such an opportunity. For example, the head of Shanghai Gold Exchange once said that besides a clearing center in Shanghai, his exchange also has a backup trading center in Shenzhen. This setup allows them to use the backup trading center to ensure the performance of gold delivery contracts in case of emergencies in Shanghai.

Creating a scientific, transparent and predictable policy environment

Reporter: What are the focal points for Shanghai to ramp up its economic development in the second half of the year?

Zhang Jun: As far as economic recovery and stability are concerned, the biggest enemy is uncertainty. For example, if you want to dine out, run errands, travel or make business trips, the biggest problem you face is that you do not know whether you will be placed in quarantine or not. This is uncertainty. If everything is certain, you can plan ahead and go wherever you want. However, if there is uncertainty, you will postpone your decision and defer your expenditure. This is true for everyone, as well as for the whole economy.

Economic recovery requires a deterministic and predictable policy environment. Predictability is very important for families, investors, entrepreneurs, and enterprises. Therefore, Shanghai needs to firstly create a scientific, transparent and predictable policy environment. In this way, business people will come, business travelers will come, and tourists will come too. Local people can also make corresponding arrangements for eating out and travelling around. It does not matter much if even there are sporadic outbreaks of COVID-19. The important thing is to eliminate unpredictable uncertainties.

I very much hope that the relevant departments in Shanghai will sort out the policy environment after the pandemic is over, clear up those policies that can be cleared up as soon as possible, rectify the source, and make the policies clearer and more transparent, so that people are no longer disturbed by all kinds of rumors and noises. I would suggest that the municipal government should pay attention to this issue and make its policies clear at a glance through a fixed policy window or hotline, so as to reduce uncertainties for people to live, invest, buy property and do business in Shanghai.

Reporter: What suggestions do you have for Shanghai to promote high-quality economic development?

Zhang Jun: As the most developed region in China, Shanghai should take the national lead in all fields of innovation. It needs to be the first to take advantage of the impact of the current pandemic to promote the transformation of local economic development mode, substantially reduce government interventions, respect market rules, and embark on a path of connotative development. To put it simply, connotative development means that the government no longer needs to promote economic growth from the input side, but allows and encourages market entities to make independent choices. The government needs to create a favorable policy environment, strive to eliminate all kinds of uncertainties, institutionally encourage fair access and fair competition, reduce unnecessary interventions by government departments, leave more choices to market entities, and effectively protect their rights and interests.

Such a shift has already arrived. When the China (Shanghai) Pilot Free Trade Zone was established in 2013, it was intended to use the pilot free trade zone to carry out a series of institutional innovations, change the economic management mode of government departments, delegate more powers, ensure the freedom of market entities, and enhance the comprehensive freedom of economic activities. These institutional innovations should be promoted throughout the city on a larger scale to make Shanghai's economy more dynamic.

To take the path of connotative development, Shanghai is bound to compete for talents with other central cities in the world. If more talents come to Shanghai, the city's economy will surely develop better. If we consider things from this perspective, apart from hardware construction, the most important thing will be building the right environment, environment building, including the institutional environment and the policy environment, so as to ensure that people have no worries about life when they choose to work and start businesses in Shanghai. Environment building is a long-term task that requires efforts step by step. Shanghai still has many areas for improvement, such as the allocation of basic educational and medical resources. In my view, the future of Shanghai may lie in whether we can effectively solve these basic problems that make ordinary people anxious.

Source: Shanghai Observer