Recovery, consumer spending will ensure economy regains momentum after epidemic

The novel coronavirus epidemic has had a huge impact on China’s economy. The first quarter should have been the peak season of consumption with the highest contribution rate to GDP growth, but the epidemic has severely suppressed consumption.

Although one bright spot has been the boom in e-commerce.

In fact, in 2019, China’s online retail sales reached 10.6 trillion yuan (US$1.5 trillion), a year-on-year growth of 16.5 percent, accounting for 25.8 percent of the total retail sales of consumer goods.

The fresh food e-commerce market has developed in the past few years, but it is still on a very small scale — accounting for less than 5 percent of the whole channel — compared with the traditional agricultural markets and supermarket sales channels. The coronavirus outbreak has led to people worrying about the safety of crowded food markets and supermarkets and choosing to stay at home. Fresh food e-commerce has thus become an important channel.

Apart from fresh food, a large number of other food, clothing and daily-use items have experienced a sharp increase in online orders. With the rapid increase of demand, China’s postal industry achieved rapid growth during the Spring Festival. 

According to the State Post Bureau, from Jan 24 to 29, the national postal industry received 91.25 million parcels and delivered 78.17 million, an increase of 76.6 percent and 110.34 percent respectively compared with the same period of the 2019 Spring Festival holiday. Of course, those numbers also cover a large quantity of transportation and delivery services for epidemic prevention and control.

Online education and online office work are also experiencing explosive growth due to the epidemic. Over the past month, more than 1 billion Chinese people have stayed indoors. With people telecommuting and students engaging in online education, hundreds of millions of mobile phones and computer devices are online at the same time. More than 100 million students attend online classes, and over 200 million people work online. 

These traditional offline activities are now on online platforms, putting the servers and bandwidth under a severe test. According to the statistics of the Ministry of Industry and Information Technology, during the Spring Festival holiday, mobile internet traffic consumption reached 2.716 million terabytes, a year-on-year growth of 36.4 percent.

In addition, as a place where people gather, hospitals mean a relatively higher probability of infection than other places. Hence the online medical industry has obtained the government’s advocacy and residents’ favor. 

On Feb 8, the General Office of the National Health Commission issued a notice on online diagnosis and treatment consulting services in epidemic prevention and control. Many hospitals have provided online diagnosis and offline drug distribution.

Although online consumption is growing, it cannot fully compensate for the sharp decrease in offline consumption. However, the impact of the severe acute respiratory syndrome (SARS) in 2002-03 saw the growth rate of consumer goods’ total retail sales fall to 4.3 percent at the lowest level in May of that year, rising to 9.8 percent in July when the epidemic was basically under control. 

Today, China’s per capita GDP has exceeded US$10,000, and its consumption capacity and potential are far greater than they were in 2003. It can be predicted that with the gradual improvement of the epidemic prevention and control situations, China’s social consumption will also rebound.

At that time, perhaps a lot of online consumption will return to offline consumption and the real economic scenario. However, a considerable amount of incremental online consumption should continue to be maintained and further combined with offline consumption to form a momentum of integrated development. 

As the contribution rate of consumption to China’s GDP growth has reached nearly 60 percent, the recovery and expansion of consumption will play an important role in promoting the recovery of China’s economic growth and the realization of the goals of economic and social development throughout the year. To this end, it depends first on the progress of epidemic prevention and control, and second on the guidance and support of government policies.

At present, except for Hubei province and its capital city Wuhan where the epidemic situation is still complex and severe, the situation in other provinces and cities in China is improving, which provides favorable conditions for enterprises to resume work and maintain employment stability. Stable employment is essential to maintain the income of residents and ensure the inexhaustible power of consumption. 

In addition, individual income tax deductions, targeted cash subsidies, consumption vouchers and other measures can also boost consumption. A general principle is that the government should give benefits to and keep wealth with the people, while stimulating consumption desire suppressed by the epidemic.

China’s economic activities will be able to gradually recover and expand. The consumption restrained by the epidemic will show retaliatory growth over time, driving the recovery of investment, so as to push China’s economy back to the track of balanced growth.

The author is an assistant research fellow at the Institute for Advanced Research at Shanghai University of Finance and Economics. The author contributed this article to China Watch, a think tank powered by China Daily. 

The views do not necessarily reflect those of China Daily.