Chinese economists called for handing out cash to consumers.

By Huixia Sun

BEIJING, May 17 (TMTPOST) — Like economists in any other country, Chinese economists never concurred in anything about economics. But for the first time in decades, they unanimously called for stronger stimulus measures and a shift in coronavirus control policies in the face of high risks of a sharp economic downturn.

China’s GDP grew by 4.8% year-over-year, which was higher than market expectations but lower than the overall annual growth target of 5.5%. The growth of the world’s second economy in the second quarter is expected to be worse since the Covid-19 lockdown of Shanghai, one of China’s major growth engines, has paralyzed the daily life in the megacity and disrupted production at automotive plants and other manufacturing companies.

Consumer spending and industrial output fell sharply in April, and growth in infrastructure investment also slowed, according to China’s National Bureau of Statistics.

At the Tisinghua PBCSF Chief Economists Forum held online recently, over a dozen renowned economists, including Tsinghua University professor Li Daokui and Peking University professor Huang Yiping, uttered their grave concerns about current economic doldrums and possible ways out of the dilemma. Their comments have caused a big splash on China’s social media, including likes, echoes, criticisms and even parodies.

The following are key points of their comments.  

Tsinghua University professor of economics Li Daokui approached the issue from the perspective of the life expectancy in China. “China’s Covid-19 policy has increased the life expectancy in China by 10 days, ” he argued. His life expectancy perspective sparked a controversy on social media as many say that his calculation did not factor in emotional effects on children and adults.

Li emphasized that to save the economy also means save lives. “If consumer spending increases 1% a year, it equals 6 days in life expectancy or the lives of 2.3 million people,” he said, adding that save consumption is to” save lives” given that consumption moves in sync with economic growth.

“To save production lines, the supply chain and keep the pace of economic growth is to save lives,” he said.

He noted that consumption declines have an inertia. “If there is a 1% decline in consumption this year, consumption is likely to continue to fall in the next seven to eight years, which amounts to detriment to people’s lives. In order to save lives, consumption must be saved. Strong consumption requires unclogged logistics. Consumers who are negatively affected by Covid-19 travel restrictions should receive cash subsidies directly.

While protecting people’s lives, boosting domestic consumption is a major way to shore up economic growth, he asserted. He suggested that quarantine and production could be done at the same time. “Frontline workers can live in a pre-fabricated dormitory near a factory. They can work and comply with quarantine requirements at the same time，” he said.

Yu Yongding, a Member of China Academy of Social Sciences, pointed out that the status of the U.S. dollar, as the world’s premier reserve currency, was challenged amid the Ukraine-Russia conflict. In the face of potential fall of the U.S. dollar from the pedestal, China needs to adjust its overseas balance sheet in order to increase net returns on investments and security of its foreign reserves.

Yu advised to reduce China’s holding of U.S. Treasuries and increase other assets and diversify foreign reserves. Meanwhile, China can increase its investments in countries that produce strategic resources, such as buying equity interests in crude oil resources in Central Asia, he stressed, adding that honoring commitment is essential and China must strictly protect foreign investments in China.

An anecdote during the online meeting showed the immediate impact of strict pandemic restrictions in Beijing on an economist. When asked by the moderator of the meeting to address a question, Yu said: “I cannot answer your question now. I have get tested for Covid-19 for over a dozen of days. Now there is an issue about my test results on my app and I have to go out to solve the problem.” Li replied: “I only calculate the days of life saved due to a successful Covid policy… as to your concrete Covid-19 issue, I cannot solve it.” Their conversation betrays how hard it is to comply with stringent requirements related to Covid-19 control and prevention.

Sheng Songcheng, a professor of economics and finance at China Europe International Business School, said two events – the ongoing Russia-Ukraine conflict and the Covid-19 pandemic have affected economic growth. Sheng believed that the regions in China, which are subject to least pandemic-related travel controls, will recover first and stronger.  

Sheng, who is former director of statistics at the People’s Bank of China, said that consumption lost to the pandemic, including spending in restaurants, tourism and hotels, is hard to be made up. “I did not have a haircut for three months. I cannot have three haircuts in a month to make it up,” he said.

He said the slow rebound in consumption is due to people’s dwindling will to consume. “When the coronavirus outbreak started in Wuhan, people think the coronavirus spread was just a short-term thing and would pass soon. Now as the pandemic continues, market players face many problems, which deter them from spending. Loss, particularly that in the service sector, is often hard to be compensated, “ Sheng noted.

A survey conducted by the central bank during the first quarter of this year shows that the share of respondents who prefer saving to spending increased 2.9 percentage points from a year earlier and the share of respondents who prefer investing fell by 1.9 percentage points year-over-year.

Sheng said there was passive savings as people are under quarantine at home while there are active savings because personal incomes are shrinking due to the pandemic.

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