The COVID-19 pandemic has had a huge impact on China's economy, similar to the 1997-98 Asian financial crisis and 2008 global financial crisis－different only in scope and extent of the effects.
Despite the rapid surge in cases in the early stage, the COVID-19 epidemic's impact on China, however, appears to be relatively short-lived, as its economy grew 3.2 percent in the second quarter of this year after shrinking by 6.8 percent in the first quarter. China has been working to offset the negative impacts of the epidemic on its economy, so it can maintain a medium-high economic growth rate for some time to come.
Although China's economic growth rate has declined since it entered the "new normal", various agencies' estimates suggest China's potential growth rate is still in the 5-6.5 percent range, which is expected to be the biggest support for the country to achieve a medium-high growth rate in the near future. After all, even after 30 years of rapid growth, the economies of Japan and the Republic of Korea managed to maintain a growth rate of 4-5 percent for more than 20 years. And compared with Japan and the ROK, China's economy is bigger and more resilient, and its vast underdeveloped central and western regions still have huge growth potential.
In terms of growth dynamism, China's market players remain very active. By the end of 2019, the number of newly registered market players nationwide was 23.774 million, an increase of 2.27 million or 10.6 percent over the previous year. And now that China has effectively contained the virus, its economic vitality is expected to further increase in the second half of the year.
Moreover, thanks to China's huge workforce and developed digital economy, a large number of new internet services have come to the fore. And the further development of these new forms of businesses, especially those of new production and living services expected in the post-COVID-19 era, will narrow the existing digital divide while helping low-income people get jobs and increase their incomes.
Yet, as the digital economy has already extended to all sectors of society, its potential to further propel economic growth is on the wane. New, disruptive and revolutionary technologies, however, are still in their infancy and can become a new driving force for sustained growth. In this context, emerging countries can take advantage of their faster development rate and economic vitality to realize the new technological revolution earlier than the traditional technological powers to ensure sustained growth.
As for traditional macro-economic drivers, consumption has now become the ballast of China's steady growth. Due to the combination of a series of macroeconomic policy tools, China's household income growth is expected to be higher than its overall economic growth, which will lead to sustainable growth in its final household consumption.
Since China's better-than-expected imports and exports in the first half of 2020 were mainly due to the slower resumption of production and other economic activities in the Unites States and European countries, the rising external uncertainties should remind China to follow a "dual circulation" development pattern, which is centered on the domestic economy (or "internal circulation") and aims to integrate the domestic economy with the global economy (or "external circulation"), in order to reduce its dependence on foreign trade and foster endogenous growth driven by rising domestic consumption. This will ensure China grows at a medium-high rate in the medium to long term.
The fluctuation in China's potential growth rate has been slowing, especially after 1997, which shows the government's capability to implement scientific economic policies to minimize risks. China's well-judged responses to the Asian financial crisis, the global financial crisis and the COVID-19 pandemic all highlight the value of its scientific decision-making. And since China is not expected to make any irrational deviation from the existing development policies, it has the institutional and policy guarantees to achieve healthy growth in medium to long term. But to achieve medium-high growth, China has to take certain measures.
First, it should continuously push for market-oriented reforms, allow the market to play a decisive role in resource allocation, promote the circulation of production factors in the domestic market, and take steps to encourage market entities to play a bigger role in economic development.
Second, China should make scientific decisions to minimize, if not altogether prevent, the adverse impacts of exogenous shocks on the economy and rule out systemic risks.
Third, it should make efforts to expand the coverage of social security policies, improve the income distribution pattern, and lay the foundation for an endogenous demand-oriented economic growth model.
And last, the country needs to strengthen basic research, streamline the innovation mechanism, promote the application of research results in businesses, and make concerted efforts to realize a new technological revolution.
The author is a researcher at the Institute of Economics, the Chinese Academy of Social Sciences.