China’s A-share market reopens on Monday, its first trading day of the Year of the Rat, losing heavily across the board. Photo: CNS Photo
How will the outbreak of the novel coronavirus (2019-nCoV) impact the Chinese economy this year? A glance at the bloodshed in the mainland stock markets on the first trading day since the Spring Festival break is enough to indicate the pessimism many are feeling about the future economy.
While experts and officials are generally saying that the long-term growth trend of the Chinese economy – which still has solid economic fundamentals – hasn’t changed, that is doing little to allay market fears.
The central bank announced it would inject 1.2 trillion yuan ($174 billion) into the market, and securities regulators have reportedly suspended short-selling activities, but these actions do not seem to have had much of an impact on market confidence.
At this critical juncture, China should put forward its goal of ensuring a 6 percent economic growth this year. Toward the end of 2019, this was a hot debate. Many thought the central government should take measures, if necessary, to prevent economic growth from falling below 6 percent in 2020.
The overwhelming view was that China needed to maintain an economic growth above 6 percent to stabilize expectations, which is very important for the entire macroeconomy.
The set goal of ensuring a 6 percent growth would now not be exclusively intended to hit a specific figure, but also to stabilize confidence. The central government needs to establish a clear goal so that all policies, including fiscal and monetary ones, will be made under that direction, and so that all departments will work to figure out ways to close in on the target.
Of course, there is no denying that a 6 percent growth target will be a great challenge for the Chinese economy, which was already under pressure and has been hit by the epidemic. But current economic difficulties are exactly why China needs to have a pressing goal to improve confidence.
While the proper scale of the stimulus remains to be discussed, as does whether or not the stimulus package should focus on the fiscal or monetary side, a clear macro policy objective is the key to stabilizing expectations. In this way, all levels of society will have clear expectations of future policy direction, thus reducing uncertainty and panic to a minimum. History shows that macro-policy doesn’t need “surprises,” which may only impact the effectiveness of policy implementation.
For now, it is worth nothing that China should continue to push forward with reform, which would not conflict with a 6 percent growth target. In fact, under the current circumstances, reform dividends and targeted measures are essential to ensure a 6 percent gain for the economy.
Moreover, the openness and transparency of information will also help authorities at all levels better understand the situation and make more realistic policies to reach the target. Distorting information will not help build confidence; it will only cause distraction and the judgment of China’s economic environment.