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Xuan Tian: Achieving Positive Interaction Between Epidemic Prevention and Control and Resumption of Work

Time: 2020-02-14 14:50 Print

Tian Xuan, Associate Dean and Chair Professor of Finance at PBC School of Finance, Tsinghua University

There is no absolute contradiction between epidemic prevention and control and the resumption of work by enterprises. On the premise of not affecting epidemic prevention and control, resuming to work as soon as possible, is the key measure to solve the difficulties some enterprises are currently facing. Therefore, when formulating policies, local governments should do everything possible to support enterprises in work resumption and on the premise of preventing and controlling the epidemic.

Recently, at the press conferences on the joint prevention and control mechanism for the pneumonia epidemic caused by COVID-19, the State Council responded to the relevant market concerns regarding the resumption of work and production. The State Council required that different regions should reasonably determine the time and ways for orderly work resumption according to the epidemic situation, which does not neccessarily means to require full resumption for all regions, or rough intervention among enterprises. Ou Xiaoli, Director of the National Development and Reform Commission’s Department of Social Development, said that the practice of restricting enterprises from resuming work and production by simple and crude means such as examination and approval would be strictly curbed.

Among the different means of support, the most important one is to help SMEs  resume to work and production. To get rid of the predicament, enterprises still need to resume production as soon as possible. On the premise of not affecting the epidemic prevention and control efforts, letting enterprises resume work as soon as possible is a key measure to solve the current difficulties.

There is no absolute contradiction between epidemic prevention and control and the resumption of work. Although local governments have made a lot of efforts for enterprises to resume work and production, excessive restrictions still exist in many regions. Some local governments adopted unrealistic, extreme methods of shutting down residential communities, villages and roads, and terminating production, work and transportation. All this is obviously a “one-size-fits-all” policy of laziness, which will bring all harms and no benefit. If local governments fail to take the pressure of the “returning workers” or respond flexibly to enterprises’ call for work resumption, the real economy will be under impact.

First, during the annual Spring Festival holiday, most enterprises stop production and the vast majority of workers return home. As such, the supply of production capacity basically depends on pre-holiday reserves. Usually, enterprises resume to work on lunar January 7 and factories resume their production capacity on a large scale after lunar January 15. Affected by the epidemic, the resumption of work was postponed until after lunar January 16. During the more than half a month “vacuum” period of production capacity, some business owners are enduring great pressure. If they fail to weather this period, the supply side of the macro economy will be impeded, which will impact the overall economic cycle.

Second, as production arrangements roll out after the Spring Festival, production requires the orderly circulation of labor, capital, raw materials and other factors. An interruption in any link of the production chain will bring the whole production to a halt. Without production, there will be no material supply, and the inventory will soon be exhausted. Lack of living materials will also endanger people’s security and health, and will be even more detrimental to epidemic prevention and control.

Third, if an enterprise does not resume to work and generate income, it may face operating difficulties and thus be forced to reduce wages or lay off its employees, which will reduce the household income and weaken the consumption demand. The epidemic has caused a delay on a massive scale in the return of migrant workers. This, coupled with the cancellation of on-site job fairs, has made it difficult for enterprises to recruit a large number of staff in a short time. In addition, they are facing the pressure of labor loss, resulting in a shortage of labor force. This is undoubtedly a heavy blow to the labor-intensive service and manufacturing industries.

Enterprises have provided jobs and taxes for the local government. Now that they are facing difficulties, the local government, when making policies, should do everything possible to help them in resuming to work on the premise of epidemic prevention and control. For example, the local government may issue feasible policies to reduce or exempt taxes, fees, rents and interest to be paid by the enterprises, and to actively share their costs, so as to help them tide over the difficulties.

To relieve SMEs from the difficulties caused by the epidemic, the governments can cut back its expenditure and make full use of the remaining margin of fiscal policies and step up efforts to help SMEs raise efficiency and reduce pressure. In terms of monetary policy, accurate measures should be taken to increase source of income to help SMEs endure the pressure. During the critical period of combating the epidemic, unconventional monetary policies can be adopted to provide liquidity support for private enterprises and encourage them with strong shock resistance to obtain funds through direct financing such as issuing bonds. As a matter of course, it is more important to ensure the smooth operations of the communication mechanism for monetary policies, so as to ensure the income flow are truly tapped by SMEs.

In addition, we should encourage innovation in business models and dig into new resources for growth. Back in 2003, in the face of the SARS epidemic, the logistics industry for e-commerce created a self pick-up mode to avoid direct contact; unattended retailing was introduced as an optimized operating model with a low labor input; and traditional industries such as telecommuting, virtual social networking, online games and even media culture all demonstrated renewed vitality for innovation. The momentum for innovation lies in the private sector, which deserves more resources from the top levels of the state. Full attention and support should be given to the emerging commercial models, and new resources should be actively explored to cope with the pressure of a possible economic downturn after the epidemic.