The economic lessons from China’s fight against coronavirus
- China shows that we can stop coronavirus through containment but at a significant economic cost.
- Globally, the coronavirus shock is severe even compared to the Great Financial Crisis in 2007–08.
- Policymakers must support vulnerable households and smaller businesses to mitigate the impact of this severe shock.
The impact of the coronavirus is having a profound and serious impact on the global economy and has sent policymakers looking for ways to respond. China’s experience so far shows that the right policies make a difference in fighting the disease and mitigating its impact but some of these policies come with difficult economic tradeoffs.
Success in containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced. In China’s case, policymakers implemented strict mobility constraints, both at the national and local level for example, at the height of the outbreak, many cities enforced strict curfews on their citizens. But the tradeoff was nowhere as devastating as in Hubei province, which, despite much help from the rest of China, suffered heavily while helping to slow down the spread of the disease across the nation.
Mitigating the impact of this severe shock requires providing support to the most vulnerable.
This makes it clear that, as the pandemic takes hold across the world, those hit the hardest within countries but also across countries will need support to help contain the virus and delay its spread to others.
The outbreak brought terrible human suffering in China, as it is continuing to do elsewhere, along with significant economic costs. By all indications, China’s slowdown in the first quarter of 2020 will be significant and will leave a deep mark for the year.
What started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand as visible in the very weak January, February readings of industrial production and retail sales. The coronavirus shock is severe even compared to the Great Financial Crisis in 2007-08, as it hit households, businesses, financial institutions, and markets all at the same time first in China and now globally.
Mitigating the impact of this severe shock requires providing support to the most vulnerable. Chinese policymakers have targeted vulnerable households and looked for new ways to reach smaller firms for example, by waiving social security fees, utility bills, and channeling credit through fintech firms other policies can also help. The authorities quickly arranged subsidized credit to support scaling up the production of health equipment and other critical activities involved in the outbreak response.