"I'm glad you used (the term) aid package, instead of a stimulus package," professor Bai Chong'en, dean of Tsinghua University School of Economics and Management, told CGTN when asked for his take on the pledge from G20 leaders to inject five trillion U.S. dollars into the global economy.
Bai said a normal stimulus package is implemented when demand is low. But this time the problem originates on the supply side, with production hampered by the coronavirus outbreak.
"In this case, the supply is hit, people cannot produce anymore. Restaurants and theaters are closed, for example. We need to help people to overcome this period of time in which production is basically stopped. So we need to give households help so that they can live a normal life, and give enterprises help so that they don't fail. "
Bai said challenges on the supply side have contributed to China's recent economic slowdown too, but the foundations are in place for the economy to bounce back after the outbreak. At a time of many external challenges China should be cautious about the scale and speed of policy changes, he added.
"If we make too big moves during this period, we may regret that after a few months when things get back to normal. If those big moves we are making now make it hard for us to change course again, it's difficult for us to meet the normal demand," Bai explained.
"New infrastructure" projects, including 5G networks, inter-city transit systems and industrial internet, are now under the spotlight since they have become part of China's efforts to hedge against the economic impact of COVID-19.
Bai emphasized that with China eyeing such projects to offset economic losses, it should also pay extra close attention to the pace of the process.
"If we do it too quickly, then we may choose investment projects in too much haste. We may choose the wrong type of investment. And what we invested may not meet the demand, and that will be a waste for the resources. Moreover, technology in the information sector is rapidly advancing. So if you do too much now, you can't incorporate the new technology into your infrastructure (when they come into being) as there will be less room for new infrastructure investment then. "
When asked about the likelihood of another crisis, Bai said the vital difference between the challenges we face this time and the 2008 financial crisis must be stressed.
Shocks of the 2008 financial crisis were caused from within the economy. But this time, it's an external shock, a disease. It's a public health issue that forced us to stop production in many sectors. When the public health problem is solved, then things should get back to normal as long as we don't allow key firms to fail.
According to Bai, this is an issue that "cannot be emphasized enough," since without understanding the essence of the situation "policy design will be mistaken."
Source: CGTN
