Chinese Journal Review: Can Hubei Province Drag Down Other Parts of China's Economy?

Thanks for your patience while I put the Chinese Journal Review on pause for the past few weeks. 

But now that life in the COVID-19 era is becoming the new normal, old routines are setting in, and it is time for me to return to CJR.

For those new to CJR, I put this newsletter on a break as my full-time day job as the global director for emergency response at the technology firm Zenysis really picked up in the past few weeks. We are helping low- and middle-income countries across three continents respond to COVID-19 by integrating and interpreting data to inform their COVID-19 response policies. So, my attention was elsewhere, especially in the early days when many governments were just developing their COVID-19 strategies.

If you’re keen to follow my work with COVID-19, please follow me on Twitter @WalterAKerr, or write to me, and I’m happy to discuss more.

In my quick scan of academic journals published this past month, it is clear that increasing numbers of Chinese scholars are trying to understand the economic, social, and foreign policy impacts of COVID-19 on China’s core interests. 

I have summarized research by one research team below, published in the State Council-affiliated Management World journal. Led by Liu Shijin, who is the former vice minister of the Development Research Center of the State Council, this group of scholars paint Hubei province’s economic recovery as an important indicator to understand how well the rest of China’s economy will recover from the impact of COVID-19. Liu and his colleagues point out that other provinces’ economies are highly dependent on Hubei’s economy, so if Hubei’s economy drags, so too will many other provinces, including the economic workhorse Guangdong province. 

Their research is interesting but lacking in one regard: it only looks at the interaction effects of China’s domestic economy with itself. It does not take into account what will happen to China’s economy if, say, global demand for Chinese goods declines or if global supply chains remain disrupted as a result of COVID-19. 

Other research of note from this past month includes this piece published in the Journal of Quantitative and Technical Economics, which estimates that China’s 2020 GDP growth will range between 5.6 - 5.8 percent, which I think is too optimistic. This research, published in Management World, is also worth taking a look at. It evaluates which industries are most exposed to risk during public health emergencies, taking SARS and COVID-19 as the research’s primary data points. Consumer confidence dives during public health emergencies, affecting industries like real estate and consumer goods, their research shows, which has spillover effects to other sectors.

If you found this newsletter online or if someone forwarded it to you, please subscribe. This newsletter summarizes research published in top Chinese-language academic journals on topics in foreign policy, economics, technology, and international development.

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Title:  An Impact Path Analysis of the COVID-19 Outbreak in China and Policy Response (基于投入产出架构的新冠肺炎疫情冲击路径分析与应对政策)
Journal: Management World Journal (管理世界)
Author: Liu Shijin (刘世锦); Han Yang (韩阳); Wang Dawei (王大伟)
Link: https://bit.ly/2TAzNdU
Publication Date: May 2020

  • In early 2020, China shut down large parts of its economy to control its COVID-19 epidemic. It imposed its most restrictive policies in Hubei province, the outbreak epicenter.

  • Hubei experienced the greatest economic shock among all Chinese provinces as a result of COVID-19. In the weeks since China began to get a handle on its COVID-19 outbreak, many parts of China’s economy have begun to pick back up. Chinese across the country have started to go back to work as officials have relaxed the quarantine policies and work restrictions they put in place to stop the virus. However, Hubei is struggling more than other provinces to return to normal.

  • In this paper, Liu Shijin and colleagues write that if Hubei’s economy does not recover, this will have significant follow-on effects for other Chinese provinces. Shanxi, Inner Mongolia, Shaanxi, Shandong, Jiangsu, Hebei, and Guangdong provinces all have high degrees of economic dependence on Hubei. Like Hubei, these provinces face high risks of future economic shocks if Beijing does not provide them sufficient policy support. Hubei is either a major upstream or downstream producer of goods for these provinces.

  • (Note: While many provinces’ economies are dependent on Hubei, Hubei is actually one of the most self-dependent provinces in China as it is both the producer of both inputs and finished goods in many sectors.)

  • Certain sectors in Hubei and its dependent provinces are at a high risk of economic shock. Hubei receives inputs from other provinces to produce finished goods in the following industries: agriculture (including forestry, animal husbandry, and fishery services), metals (including smelting and processed metals products), and chemicals. It is a major producer of inputs for other provinces in the following industries: building and construction, food and tobacco, and transportation equipment.

  • This composition of industries is concerning for policymakers because so many of these sectors are interconnected with other major parts of the economy. If the government cannot restart these industries in Hubei, this will have “considerable internal impact” on the rest of China’s economy, writes Liu and his colleagues.

  • The paper’s authors conclude with a series of policy recommendations. These include: 1) prioritize finding ways to allow production capacity in Hubei to restart as quickly as possible; 2) boost consumption nationwide, including by providing direct subsidies to low-income people; and 3) develop region-specific and industry-specific economic-recovery plans. Avoid the temptation to design a one-size-fits-all economic recovery approach.

  • For example, as a first step, the authors recommend that policymakers should design fiscal and monetary policies specifically for Hubei province. These can include targeted interventions that reduce corporate taxes and fees, programs to help small- and medium-sized businesses, and the introduction of new rent and wage subsidies for Hubei residents.

  • Second, policymakers should also develop a second set of economic-recovery policies for Jiangsu, Guangdong, Zhejiang, Shandong, Shanxi, Shaanxi, and Inner Mongolia, they write. These provinces were either hard hit by COVID-19 or have a high dependence on Hubei.

  • Finally, they recommend that policymakers develop sector-specific programs to support industries that have been most affected, or are likely to be affected in the medium term, by COVID-19, including agriculture, transportation, and buildings and construction, among others.