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Saturday, February 01, 2020
What's Difference of Economic Environment from Covid-19 and SARS Outbreak?

Question: It is well-known that the Chinese economy recovered rapidly after experiencing SARS in 2003, therefore many think that after the Covid-19 epidemic is under control, the Chinese economy would still recover as quickly as in 2003. At the same time, some people believe that this time the Chinese economy may not be able to recover quickly after SARS, because the time period is different. In your opinion, what is the difference between the economic environment of the current Covid-19 outbreak and the SARS period in 2003?

Chan Kung: Official statements mention that logistics recovery rate can reach 40% by mid-February. It is estimated that by early March there will be a full recovery. Logistics affects the flow of people and the market. Even if they are all in place by the end of March, and the lockdown of cities in China are over by then, it would take time to straighten out the industrial and supply chains. On the other side of the question, if January is considered a holiday and is within the budget of the companies, then they still need to consider if things are smooth and returning to normalcy in the three consecutive months of February, March, and April. However, even if that happens, if the various preferential policies are not in place, China will face the certain serious risk of depression.

Compared with what happened during SARS, the economic elasticity of China is rather different now, and likewise China now is in a different stage of the economic cycle. In 2003, China's economy was in a period of rapid rise after joining the WTO, and its growth was persistent. Now it is in a recession. Coupled with the U.S.-China trade war, the Covid-19 epidemic has had a huge impact on China.

The fundamental obstacle is that the Chinese government's goals are contradicting corporate and economic goals. The government aims at eliminating Covid-19 at all costs, while corporate and economic goals are aiming at logistics and people, not locking down cities. This is of course, completely contradictory. Under the strict conditions where approvals are required if workers need to commence their work, and that is after 14 days of quarantine at that. How then, can works be resumed? This is definitely a move to give up economic growth.

Under such situation, the Chinese central government should make a decision early. At the very least, under strict office quarantine conditions, and in accordance with health and safety standards, priority should be given to restoring normal urban order in several large areas, while other severely affected areas such as Wuhan and Hubei can take recovery in slower pace. If this decision is not made, even if China has won the battle against the epidemic, it would still lose. The Chinese government should also stop implementing those large-scale preferential policies that do not come with actual substance. For enterprises below the middle level, the most important thing is the reduction of the five types of insurance (endowment, medical, work-related injury, unemployment and childbirth) and house accumulating funds. For enterprises, these insurances and funds have increased their burden annually, accounting up to 60% of the labor cost. If it can be reduced or exempted in the areas that have the greatest impact on enterprises, the effect will be better, and it will have the most stimulating effect on enterprises to resume production.

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