The COVID-19 outbreak left a short-term impact on China’s economy. The epidemic broke out around this year’s Spring Festival and heavily affected both demand and supply. The Spring Festival period is usually the peak of Chinese consumption. The epidemic affected the objective conditions and subjective wishes influencing consumption and seriously diminished demand for tourism, transportation, catering and other industries. Moreover, the epidemic affected the return of employees after the end of the Spring Festival holiday and recovery of production capacity in the short term. After the epidemic in China was effectively controlled, resumption of work and production was comprehensively promoted, and China’s economy gradually returned to normal operations. In the recovery period, China’s economic development is being driven heavily by four key factors:
First, a rebound of supply and demand after the epidemic is a general law of economics. According to analysis of historical data, after the end of each epidemic since World War II, supply and demand in each affected country rebounded, which hedged the impact of the epidemic. In the recovery period, the consumption atmosphere improved, and consumption potential of residents was unleashed. Demand for tourism, catering and other industries, which have been greatly affected by the epidemic, will recover rapidly and generate a large rebound of demand for the next holiday. After the resumption of production, enterprises will organize their operations to catch up on an accumulated backlog of orders, leading to recovery and rebound of supply. This fundamental economic tendency will be the biggest driving force for economic development in the post-outbreak era.
Second, the epidemic has triggered the development of new industries. Facing the impact of the epidemic, some new technologies and business models have emerged. Application of new technologies is a process of disruptive innovation, which depends not only on the advanced nature of technologies themselves, but also on the conditions of technological application. In the process of disruptive innovation, some exogenous shocks are often needed to break through the barriers of the old model. As far as telecommuting technology is concerned, the COVID-19 epidemic triggered new demand on it. The epidemic affected the return of employees to work and students to school, resulting in a huge need for teleworking video conferencing software. The technology for teleworking and video conferences has been relatively mature and can improve the efficiency of commercial operations. However, traditional office culture and business models in China are highly reliant on face-to-face communication, and a lack of trust in video communication among many stakeholders has curbed the application of new technologies. Behavioral habits present the greatest threshold for a new model to replace an old one. This epidemic will be a catalyst for numerous new technologies and business models.
Third, China’s measures to actively expand domestic demand involve favorable policies. China has introduced many policies and measures to expand domestic demand, especially policies to promote resumption of work and production in the consumption sector and create an atmosphere in which consumers can consume without worries, which is conducive to the recovery and rebound of consumption. China has also introduced a series of long-term policies and measures including tax cuts to further promote consumption and investment by expanding domestic demand.
Fourth, China’s further opening up will become a new driving force for economic growth. China has revised a series of institutional arrangements to further expand its opening up. In particular, access requirements for foreign investors have been adjusted, and more areas have been opened to foreign investment. Revision of the new negative list for foreign investment has started, and regulations on foreign investment will continue to loosen. Industries like finance, service and manufacturing are expected to embrace breakthroughs in foreign holdings or sole proprietorships to accelerate the inflow of foreign capital. China’s further opening up to the outside world will effectively advance global division of labor, improve the global industrial chain, and promote economic growth for China and the world.
The author is an associate professor with the School of Applied Economics at Renmin University of China.