Policy Efforts to Stabilize China’s Economy and Ensure People's Livelihood

Author: GAO Zhanjun HUANG Yiping SHEN Jianguang ZHANG Bin

China’s economy is facing triple pressure from demand contraction，supply shocks and weakening expectations，and coupled with the impact of a new round of COVID-19 outbreak and profound changes in the international environment，I would say that the situation might never have been so intricate and uncertain.

The challenges give us all pause for thought，and we have to think and rethink our economic theories and policies，and construct and reconstruct our economic strategies. Hopefully each problem has a solution which would be found out sooner or later，and today’s roundtable discussion is attempting to explore this.

At a roundtable discussion organized by China Forex，GAO Zhanjun，the invited academic advisor of China Forex，HUANG Yiping，the Deputy Dean & Sinar Mas Chair Professor of Finance and Economics at National School of Development Peking University，SHEN Jianguang，the Chief Economist at Jingdong Group，and ZHANG Bin，the Deputy Director of Institute of World Economics & Politics，Chinese Academy of Social Sciences shared their views on policy suggestions on stabilizing China’s Economy and ensuring as well as improving people's livelihood. The conversation，which follows in edited form，was moderated by GAO Zhanjun.

GAO Zhanjun: Welcome to this roundtable discussion. In April，there were slowdowns in the new credit and aggregate social financing，and other indicators，including industrial added value，exports，total retail sales of consumer goods and fixed asset investment also dropped on year-on-year basis. How do you assess the current economic situation?

HUANG Yiping: The current downward pressure on the economy is mounting. In addition to the three major challenges pointed out by the decision-making department at the end of 2021，China's economy will encounter three major shocks in 2022. First，the conflict between Russia and Ukraine will not only affect investor sentiment，but also drive up commodity prices，especially food and energy prices. Second，rapid interest rate hikes by the Federal Reserve have tightened liquidity in the global financial market，which has had a large "spillover effect" on emerging market countries including China. Third，the intermittent outbreaks of the COVID-19 have seriously affected the continuity of economic activities.

SHEN Jianguang: Under the impact of COVID-19 resurgence in April，both supply and demand sides have weakened along with a bigger downward pressure of economy. There are more upcoming economic operation challenges，such as the rise of COVID-19 control costs，the increasing pressure on export，which require concrete and effective implementation of policies to stabilize economy. One focus of forward-looking prevention should be the risk of global economy into recession next year. Against the backdrop of the Fed’s downsizing and Russia-Ukraine conflict，the likelihood of stagflation grows stronger in the U.S. and Europe faces recession risks，the impacts of which will be channeled into the Chinese economy via external demand and terms of trade. Issues occur in the global industrial chain have increased the risk of a global recession.

ZHANG Bin: Under the growing pressure of economic downturn，compared with two years ago，pressures can be found not only in the service sector that requires offline in-person contact，but also in the industrial sector，which caused severe impact on production，physical distribution，investment，consumption，and employment. In addition，the excessively sluggish real estate market is another important reason for economic downturn，which restricts credit growth and the increase of purchasing power across the society，and aggravates the situation of demand shortage.

GAO Zhanjun: Policymakers attach great importance to the economic situation，and have recently introduced a large number of targeted countermeasures. Also，they are stepping up the planning of incremental policy tools. Do you have any suggestions on the policies which should be considered at this stage?

HUANG Yiping: Economic recovery may require two policy measures at the same time. One is to be more focused on the need for relief，especially the micro，small and medium-sized enterprises and low-income households. The second is to adopt more active counter-cyclical macroeconomic policies，including fiscal and monetary policies. Judging from the current situation，fiscal policy should play a more significant role，supporting new infrastructure，livelihood projects，green development，digital economy and innovative activities. Factors，including leverage，efficiency，equity and fiscal soundness，which used to be a constant concern，should now take a back seat. We should stabilize the economy before solving any other problems.

SHEN Jianguang: The key of China’s policy response remains a full effort on maintaining steady domestic demand that requires coordinated progress on stimulating consumption，ensuring stable investment，and supporting market entities. To stimulate consumption，strong measures are needed to boost consumption. For instance，issuing consumption vouchers nationwide. In order to ensure stable investment，we should accelerate the launching of major projects and infrastructure investment while adopting a package of steps to stabilize real estate investment. In terms of keeping market entities afloat，we should fully implement all policies of value-added tax (VAT) credit refund and tax reductions，and postpone social insurance and housing fund payments as a temporary measure to alleviate the operating pressure of micro，small and medium enterprises’ (MSMEs) and self-employed individuals.

ZHANG Bin: Undoubtedly，COVID-19 control is the top priority. We are expected to formulate a COVID-19 control roadmap and schedule in a timely manner. In addition，policy efforts should consider from three aspects. Firstly，bailout policies. During economic downturn，many enterprises and families face the cash flow problem. In such a special environment，it is the responsibility of the government to take measures as soon as possible to help these enterprises and families through the difficulties. Secondly，economic recovery policies. The goal of economic recovery policies is to give enterprises courage to invest and residents to consume. This requires us to focus on increasing the incomes of enterprises and residents and improve their balance sheets. From the perspective of policy instrument，this calls for expansionary fiscal and monetary policies to enhance the spending level across the society，which could boost the income and purchasing power throughout the society. Thirdly，reform policies. The goal of reform policies is to increase resource allocation efficiency and productivity. This requires efforts on various reform measures，including but not limited to loosening market access，factor market reforms represented by land，reform of regulatory policies on internet companies，etc. Reform measures should focus on key breakthroughs instead of being large and all-encompassing.

GAO Zhanjun: In terms of vigorously promoting consumption，what measures need to be rolled out?

HUANG Yiping: To vigorously boost consumption in the short term，there is no shortcut other than the government give subsidies to the public. Improving income distribution and improving social security are both long-term work and would not take effect in the short term. At the time when the pandemic gave incomes a hit，the government should consider the possibility of distributing money to the residents，which would be an important mean to support social stability. With consumption uplift，business orders would see an increase，which encourage the economy further. The most fundamental task is to improve people's livelihood at this stage.

SHEN Jianguang: Consumer confidence fell in April. Among which，automobiles，communication equipment，daily necessities and cosmetics were getting close to or even exceeding that in the early days of the COVID-19 outbreak in 2020. Regarding the reasons，on the one hand，the situation is due to the impact from COVID-19 control measures. On the other hand，employment pressure exacerbates. In order to maintain stable macroeconomic performance and turn around market expectation，it is urgent to step up efforts as soon as possible to boost consumption. It is suggested to make consumption vouchers as one option of core policies. By issuing anti-COVID-19 special government bonds and consumption vouchers nationwide，we can boost a new round of old-for-new home appliance program to adequately promote consumption recovery.

ZHANG Bin: Consumption is most closely linked to people’s livelihood. In particular，we are supposed to attach great importance to ensuring the consumption by low- and middle-income groups. Consumption depends on a variety of factors，i.e.，income，income expectation，and consumption availability，all of which influence the current consumption level. To increase consumption，it requires a concerted effort in a range of policies. There are also many international practices for our reference. Firstly，a cash infusion and consumption vouchers to support consumption. Secondly，giving subsidies to the ones with reduced income during the COVID-19 waves. China has a large scale of liquid jobs，accordingly，we can properly widen the coverage of subsidy. Thirdly，the above-mentioned expansionary fiscal and monetary policies also can enhance the spending level across the society，support job opportunities and income growth，thus providing support for consumption of the whole society.

GAO Zhanjun: The method of issuing consumer coupons has been popular in China for a long time，which could be traced back to the global financial crisis in 2008，a number of provinces in China，including Zhejiang，Sichuan，Guangdong and other regions had issued consumer coupons，and the issuance of consumer coupons during the pandemic was even more common. Decisionmakers also embrace this measure. In January this year，China’s National Development and Reform Commission issued the Notice on Promoting Consumption in the Near Future，which says concerted efforts s