About the author:
Marco Carrasco-Villanueva, Economist, Ministry of Labor and Promotion of Employment of Peru; TI Youth Observer
The COVID-19 pandemic has caused unprecedented economic disruption and hardship around the world, and the recovery has been, in some cases, slow and uneven. China, the world’s second-largest economy, managed to control the spread of the virus during the first years and was an important contributor to global economic growth at both the start and the global peak of the pandemic. However, in a world with recent variants less transmissible than the original strains, China shifted its policy to better adapt to the new reality and co-exist with the virus while preserving a better economic and social outlook for the years to come.1
Why international bodies and the media were calling for China to relieve its COVID restrictions?
At the end of November, international bodies and the media began calling for China to ease COVID-19 restrictions due to economic and social concerns. Restrictions were causing many businesses to suffer and decreasing economic activity, and people’s lives were being harmfully disrupted.
Reports mentioned how China’s extended COVID-19 restrictions on people’s daily lives were negatively impacting their health and well-being. As a result, some international media and institutions began criticizing China for irresponsible management of the pandemic response. The economic impact was increasingly relevant with many businesses forced to close or reduce operations, resulting in decreased economic activity. The ripple effect on the economy spread upstream and downstream to businesses reliant on supply chains for their products and services.2
In contrast with how the West had dealt with the first years of the pandemic, the United States called on China to ease restrictions and initiate steps to prevent the spread of the virus. The European Union called on China to implement steps that ensured people had access to basic services and necessities.3 Based on its societal concerns and demands, and how the rest of the world had desperately learned to co-exist with the virus, the Chinese government adjusted its policies and replaced the previous strategy of containment with a policy orienting toward co-existence with the virus.
China’s policy adjustments
In response to both domestic and foreign concerns, China planned for virus co-existence, commencing December 2022 to March 2023. The new scenario, and its relevant policy changes, would enable a new approach to economic recovery from the impact of the pandemic in 2022. Nevertheless, the policy reversal was accompanied by a rapid increase of COVID-19 cases, causing a significant impact on public health nationwide, raising demand for doctors and hospitals, and raising mortality rate. The country and its society needed to rapidly adapt to virus co-existence and meet domestic economic and social demands. China’s “open plan” has fostered mobility and a better recovery while guaranteeing that business activities will return to normal,4 and thus, increasing consumer spending and stimulating the domestic economy for the benefit of society as a whole.
Indeed, during the central stages of the pandemic, China implemented a series of measures to benefit society and the economy, including tax cuts to stimulate economic growth. Other tax reductions included value-added tax, the corporate income tax rate, and suspended collection of certain business taxes.5 To create jobs and further stimulate economic growth, the government increased spending on infrastructure projects, including roads, railways, and airports. The country provided financial support to small businesses, including low-interest loans and subsidies, to aid their survival during the economic downturn and maintain competitiveness.6 The government also launched a series of investment incentives, including tax breaks and subsidies, to encourage business investment. A series of monetary easing measures, including cutting interest rates and increasing the amount of money available for lending, encouraged businesses to borrow and invest, and thus stimulating economic growth while increasing government spending on social welfare programs7 and providing subsidies to help exporters remain competitive in the global market.
Previous government policies, which allowed China to focus on developing its digital infrastructure, fostered increased competitiveness for Chinese technology firms in the global market. Globally, China’s policy updates aimed to support global economic recovery by enabling China to resume its role as a major trading partner and, therefore, help to stabilize global markets and increase international trade. Despite its public health impact in the short term, China’s policy adjustment ensures the country’s participation in global initiatives. The global economic recovery after the COVID-19 pandemic depends on the success of domestic economies in responding to the crisis.8 Governments around the world are taking steps to support their economies, such as providing fiscal stimulus, expanding access to credit, and introducing targeted measures to help businesses and households. Together, these individual government measures helped stabilize economic activity and created a platform for better recovery in the medium term. The measures must also focus on structural reforms, such as measures to increase access to finance, reduce inequality, and promote green growth, to strengthen their economies and make the countries more resilient to future shocks.9
Global economic recovery also depends on the success of international cooperation. China must collaborate with other countries to ensure the global economy is open and interconnected so trade and investment flows are not disrupted. Further collaboration is required to ensure that the global financial system is stable and resilient, the global economy is more inclusive and equitable, and that all countries have access to the resources and opportunities they need to thrive.
The role of China in the post-COVID global economic recovery
Despite the pandemic, China remained a major contributor to global economic growth. Some economists have estimated that China contributed half of the world’s GDP growth during the first year of the pandemic.10 This was largely due to China’s capacity to contain the pandemic and maintain relatively high levels of economic activity. China’s economic recovery has since been driven by strong domestic demand and the government’s implementation of a range of fiscal and monetary policies,11 which boosted domestic demand and investment and supported the labor market as the pandemic was brought under control.
China has maintained its position as the world’s largest exporter of goods12 and has the ability to capitalize on the global shift towards digitalization and the increasing demand for technology products. China’s strategy is to finance stimulus measures, while maintaining its relatively low debt-to-GDP ratio. And the Chinese banking system has been, and will be playing a critical role in providing sufficient credit for businesses to support economic activity and recovery.
Looking forward
For the global economy to recover, closer international cooperation is required to increase trade and investment and ensure an open and fair trading system.13 The benefits that accrue from reduced trade barriers, such as tariffs and quotas, facilitate global investment and trade, and thus support economic growth. Countries must also ensure that their banking systems are well-regulated and have adequate capital and liquidity buffers to safeguard the global financial system from shocks and maintain stability and resilience in the world economy.14 Furthermore, international cooperation is urgently required to ensure that the global economy is more equitable and inclusive. All countries must benefit from economic growth and have equal access to resource distribution for the global economy to become more resilient.
According to the latest projections, the Chinese economy was expected to grow by approximately 4.4% in 2022. China’s GDP growth remains higher than the expected global average of 2.7%, and the 3.7% average of emerging markets and developing economies.15 Driven by strong domestic demand, increased government spending, and a rebound in exports, China’s growth is expected to also be a major contributor to global trade and investment. Significant Chinese Outward Direct Investment (ODI) is also expected to bolster developing countries and stimulate economic growth both locally and globally. China is a major player in global finance and is expected to continue its Belt and Road Initiative (BRI) infrastructure investment plans, which have been facilitating global economic growth via the dual circulation paradigm. Furthermore, China is an important partner and enabler for global climate change efforts and is committed to reducing carbon emissions by continuing its significant investment into renewable energy sources that help reduce global emissions and contribute to a more sustainable future and green economic growth.
Conclusions
China was the major contributor to global economic growth before the pandemic outbreak and will remain so in its wake. China’s leading path, manifested in the Global Development Initiative (GDI), fosters cooperation to achieve full post-pandemic economic recovery and a more sustainable future. China leads the implementation and promotion of trade barrier reduction, the maintenance of stability and resilience in the global financial system and the establishment of a global economy that is more equitable and inclusive in all ways. The lifting of China’s dynamic zero-COVID policy restrictions, including mandatory quarantine periods for travelers from certain countries despite the important social and public health effects, is expected to ensure rapid public adaptation to the virus, help stabilize and improve economic prospects, and contribute to global pandemic recovery cooperation and global economic growth.
This article is from the December issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the September issue, please click here:
http://www.taiheinstitute.org/Content/2023/01-31/1406041512.html
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