During the Spring Festival holiday in 2020, everyone paid close attention to and discussed the epidemic situation of novel coronavirus (hereinafter referred to as novel coronavirus) in Wuhan. In view of the fact that the contagion of the virus is higher than that of SARS in 2003, since late January, the response measures taken by our country are obviously stronger than those during the period of SARS, and the degree of public concern and concern about this epidemic is unprecedented. So, can the epidemic situation of novel coronavirus (hereinafter referred to as COVID-19 epidemic) be effectively controlled, what kind of impact will it have on China's economy, and how to stabilize the economy? This paper tries to discuss it.

Can the epidemic situation of COVID-19 be effectively controlled?

During this period, many people panicked in the face of the spread of novel coronavirus, such as snapping up masks, alcohol, hoarding vegetables and rice, similar to the situation of buying vinegar and Radix Isatidis during SARS. As a non-virology, medicine and other professionals, I can not judge when the COVID-19 epidemic will be alleviated, can only use some published data to make superficial speculation.

First, on January 26th, the Guangdong Provincial Center for Disease Control and Prevention (CDC) published an article entitled "novel coronavirus's Dynamics of Transmission (2019-nCoV) in 2019". The article pointed out that novel coronavirus's R values were 2.90,2.92, meaning that each novel coronavirus patient (carrier) would infect nearly 3 people on average, while the R values of SARS were only 1.77 and 1.85. In addition, an online paper in the Lancet on January 24 also revealed that there has been a fourth generation of infected people. It can be seen that novel coronavirus is much more contagious than SARS, which is also the main reason for the city closure in Wuhan.

Second, there are a large number of "cytokine storm" (cytokine storm) in the first batch of newly diagnosed patients with severe coronary artery disease. Previous cases of SARS, Middle East respiratory syndrome and Ebola virus have proved that the "cytokine storm" is the most deadly killer, triggering a fierce attack on the patient's body by the immune system. it has become an important cause of acute respiratory distress syndrome and multiple organ failure. This is also the terrible thing that this virus is different from influenza virus, so it needs strict prevention and control.

Third, the data as of January 28 show that there are 5974 confirmed cases of new pneumonia in the country. Excluding 3554 cases in Hubei, the mortality rate is only 0.29%. The mortality rate in Hubei is 3.5%, 12 times that of the whole country (excluding Hubei). According to the unanimous judgment of many medical experts, COVID-19 is a virus with strong infectivity, high morbidity and low fatality rate. With the continuation of intergenerational transmission of the virus, its toxicity also decreases. Of course, it is not too early to draw a conclusion about novel coronavirus's fatality rate. In contrast, in 2003, the total number of SARS patients worldwide was 8437, and the mortality rate was close to 10%. In 2018-2019, 30 million people were infected, with a death toll of about 30, 000 and a fatality rate of 0.1%. Therefore, it is estimated that the number of novel coronavirus patients will significantly exceed the number of SARS patients in that year, but the fatality rate will not be high. Therefore, we should unite as one, deal with it scientifically and effectively, and avoid excessive panic.

Fourth, when will the COVID-19 epidemic be effectively brought under control? In terms of the information disclosed by the media, I think that if the current measures to cut off the spread of the virus can be strictly implemented, it is estimated that it can be basically controlled by the end of February. First of all, the number of new confirmed cases on January 28 was for the first time lower than the previous day, no longer showing a geometric upward trend; after the number of suspected cases reached 3806 on January 26th, the suspected data on the 27th and 28th did not break through the high point. However, this is only a day or two of data, there may be repetition, waiting to be seen.

Secondly, from the perspective of prevention and control measures, it is unprecedented to deal with novel coronavirus's measures this time. For example, from the perspective of blocking the transmission path of the virus, many provinces and cities have taken measures to stop public transport; people from epidemic areas have been strictly screened in various localities, and various isolation measures have been taken. Provinces and cities with more serious outbreaks, such as Shanghai, Zhejiang and Guangdong, have postponed the Spring Festival holiday to 24:00 on February 9, indicating that local measures have been adopted for the prevention and control of the epidemic.

Third, the incubation period of the virus is calculated according to 7-14 days. If strict transmission is cut off during this period, it is estimated that by around early February, the number of confirmed cases can basically reflect the scale, path, and distribution of novel coronavirus's transmission. In addition, the number of suspected cases will be greatly reduced, which will be more conducive to the prevention, control and treatment of the epidemic.

From the perspective of lengthening history, the COVID-19 epidemic will not lead to an economic inflection point.

I remember that during the "SARS" period in 2003, some economists exclaimed that the harm of "SARS" was equivalent to "the second Asian financial crisis", and a lot of "SARS economics" emerged. However, in fact, after May 2003, the SARS epidemic gradually attenuated and disappeared, and spread for about half a year.

The impact of SARS on China's economy in 2003 was mainly in the second quarter. In the four quarters of 2003, China's GDP growth rate was 11.1%, 9.1%, 10% and 10% respectively. The GDP growth rate in the second quarter was 1.5 percentage points lower than the average growth rate in the previous two quarters. For the whole year, the added value of the tertiary industry increased by 6.7%, slowing down by 0.8 percentage points. It can be seen that the impact of SARS on the economy in that year was relatively limited. If we simply look at the drag on the GDP growth rate caused by the slowdown of the tertiary industry (assuming a normal growth rate of 8.5%, an increase of one percentage point over the previous year), it will affect the GDP growth rate by 0.58% (the tertiary industry accounts for 32% of GDP).

The COVID-19 epidemic began to spread in December last year, less than two months ago, the scale and scope of the spread is larger than that of SARS, but the intensity and importance of prevention and control is also greater than that during the period of SARS. The SARS outbreak is concentrated in April-May, and the peak of the outbreak is expected to occur in February, after which it will gradually decline. Therefore, it is optimistically estimated that the time for the basic control of COVID-19 's epidemic situation will be earlier than that of the SARS period.

Based on human nature, immediate events are often taken more seriously, while the impact of past events on the future is underestimated. Popularly speaking, when establishing forecasting models, we tend to give too much weight to today's variables and too small weights to past variables.

Let's make a hypothetical analysis: if 30, 000 people were infected with novel coronavirus this time (six times the number of people infected with SARS, more than 4600 cases were confirmed by COVID-19 on January 28), if calculated based on the fatality rate of 2%, the death toll would be estimated at 600.

During the 2018-2019 flu season in the United States, more than 30 million people were infected and more than 30 000 died. It is estimated that the number of infections and deaths caused by influenza in China each year is not less than that in the United States, while the number of patients with other infectious diseases such as tuberculosis and hepatitis B is millions. Therefore, there is a saying that "our only fear is fear itself", which is not without reason. From a long history point of view, SARS, bird flu, Middle East respiratory syndrome and Ebola virus have all become history, indicating that there is a "time limit" for such viruses to spread.

Well, the pessimistic estimate of the impact of COVID-19 's epidemic on China's economy is one year, while it is optimistically estimated that it will only take about half a year, and the greater impact will be in the first quarter, and it will basically return to normal after half a year. Therefore, the epidemic will not change the long-term trend of China's economy and its rising position in the global economy.

The short-term impact of COVID-19 epidemic on China's economy should not be underestimated.

To analyze the impact of COVID-19 's epidemic on China's economy, we must first clearly understand the trend of China's economy. Some people think that China's economy bottomed out in the fourth quarter of last year and is now on an upward trend. In my opinion, economic growth has slowed down for nine years, and some people think that nominal GDP rose to 9.6% in the fourth quarter of 2019, which is obviously a miscalculation-- that is, it did not take into account the fact that the annual GDP data for 2018 were raised after the fourth national economic census, but the GDP data for the fourth quarter of 2018 were not released in time. In fact, economic growth continued to slow in the fourth quarter, continuing to hit a new low.

On the contrary, during the period of SARS in 2003, China's economy was in the high growth stage of heavy industrialization, urbanization and consumption upgrading. Today, the steady and downward growth of China's economy is not a big problem, and it is also conducive to supply-side structural reform and economic transformation, but in the face of this sudden epidemic, there may be some problems that are not originally a problem.

After a clear understanding of the general trend, it is also necessary to analyze the impact of the COVID-19 epidemic on major industries. From the perspective of the three industries, the tertiary industry must bear the brunt, followed by the secondary industry, and finally agriculture, forestry, animal husbandry and fishery.

Let's first look at the impact of the epidemic on the tertiary industry. In 2003, the total GDP of our country was only 11.7 trillion, but now it is more than 100 trillion in 2020. Moreover, at that time, the scale of the tertiary industry was small, and its added value accounted for 32% of China's GDP, which reached 54% in 2019. Of the initial verification of the composition of the tertiary industry GDP in 2019, wholesale and retail accounted for 17.9 per cent, finance 14.4 per cent, real estate 13.0 per cent and catering and accommodation 3.4 per cent.

Wholesale and retail account for the largest proportion of the tertiary industry. However, according to the data in 2003, the growth rate of Social Zero is not high, but the growth rate in 2002 was even lower. Is this related to cyclical factors? But it rose to 13% in 2004. Is there a lagging consumption factor? At present, the proportion of online shopping in retail sales is increasing. I estimate that the epidemic will have an impact on social zero, and the growth rate will be lower than that in 2019, but the decline should not be too large.

Logically, the negative impact of COVID-19 's epidemic on the consumption of tourism, restaurants, hotels and other services will be more direct and obvious. For example, in 2003, due to SARS, the growth rate of passenger turnover was-2.3%, the number of domestic tourists decreased by 0.9%, and the total tourism revenue decreased by 11.2%. It coincides with the traditional holiday spending golden week, but the measures taken to deal with the epidemic are far more severe than during the SARS period, and the decline is expected to be even greater.

Judging from the impact of SARS on real estate investment in 2003, it is not obvious. The growth rate of real estate investment in that year was 28%, which was not much different from that in 2004. Today, the growth rate of real estate investment has slowed down somewhat, and even if there is no epidemic, the growth rate of real estate investment will slow down significantly in 2020. However, real estate sales in the first quarter are expected to decline significantly, thus casting a shadow on real estate investment.

What will be the impact of the epidemic on finance? From the perspective of the direct impact on the financial industry, it seems small, but as finance involves foreign exchange, futures, stocks and other markets, the change of the epidemic will change the expectations of market participants, thus increasing the volatility of the market and easily lead to systemic risks. For example, since the spread of the COVID-19 epidemic, the exchange rate has depreciated and the stock market has fallen by a relatively large margin. The offshore renminbi fell from 6.86 on January 21 to 6.97 on January 28, while the Shanghai Composite index fell 4.5 per cent from its January peak.

Although I judge that the peak of the epidemic will come in February, the decline rate of the epidemic may be lower than that in the later period of SARS, because the virus spreads several times faster than SARS and has now reached the fourth generation of transmission. Therefore, its negative impact on the economy in the second half of 2020 is likely to be greater than that of SARS in 2003. In other words, just because the peak of the epidemic has passed, we cannot think that the economy will return to normal.

The impact of COVID-19 's epidemic on the secondary industry should not be underestimated, which mainly includes industry and construction. As the COVID-19 epidemic has hindered the flow of labor, and logistics will also be affected to a certain extent, various localities may face the problem of "labor shortage" after the Spring Festival holiday, especially in Hubei, Guangdong, Zhejiang and Shanghai, where the epidemic is more serious. The shortage of labor or the different starting time in different places, production matching, transportation problems and so on will affect the normal production of some enterprises.

In addition, China is the largest commodity exporter in the world, and we do not rule out the possibility that some countries and regions will reduce or suspend the import of goods from China that are closely related to the epidemic because of the isolation of China's COVID-19 epidemic. Thus it has a certain negative impact on China's export commodity manufacturing industry.

The impact of the epidemic on the primary industry should be limited, and the primary industry accounts for only 7.1 per cent of GDP. But the overall impact is still negative. At present, the growth rate of the primary industry is only about 3%. After novel coronavirus's spread, people will pay attention to the issue of food safety, which will affect consumption. in particular, the export of agricultural and animal husbandry products may be hit by a sharp drop in orders.

To sum up, I think the main impact of COVID-19 's epidemic on China's economy is in the tertiary industry, and the annual impact is estimated to be about one percentage point, which also means a negative impact on GDP growth or more than 0.5 percentage point. From the perspective of the impact period, it mainly occurred in the first quarter. Because the proportion of GDP in the first quarter was the smallest of the four quarters, the impact was relatively limited. It is hoped that GDP will pick up steadily in the second three quarters after hitting a low in the first quarter of this year.

In addition, what is more important at present is to assess the financial risks and employment pressure brought about by the spread of the COVID-19 epidemic. Financial risks have been mentioned earlier, and there is a need for bottom line thinking. The key is that the employment problem needs to be paid great attention to. From the point of view of the service industry most affected by the COVID-19 epidemic, hotels, catering, transportation and so on are mainly middle and low-end labor force. And many of the export industries in China's manufacturing industry are labor-intensive, such as clothing, shoes, hats and toys caused by the epidemic. The downward growth rate of exports will also affect the employment of the labor force in these industries.

How to deal with the impact of COVID-19 epidemic on the economy

From an economic point of view, it is a more economical means to control the epidemic and restore the economy to normal operation as soon as possible, which is consistent with the current medical prevention and control measures to cut off the path of transmission. Although the shutdown of public transport facilities, the closure of tourist attractions and entertainment venues, and the cancellation of all kinds of collective activities in the key areas of the epidemic will have a negative impact on the economy, long-term pain is not as good as short-term pain. if we relax the prevention and control of COVID-19 's epidemic in order to prevent an economic downturn, or lead to repeated and long-term uncontrolled epidemics, it will do more harm to the economy.

Therefore, my suggestion is that we must resolutely take strict precautions against the COVID-19 epidemic in February, including delaying the start of school, starting work, and holding meetings, so as to prevent the spread of the virus and significantly reduce the number of new cases of COVID-19. So that people's travel and various social activities can return to normal in March (for example, the National two sessions will be held in March).

At the economic policy level, in order to deal with the negative impact of the COVID-19 epidemic (belonging to Black Swan) on the economy, it is necessary to readjust the established fiscal and monetary policies in 2020. Assuming that under pessimistic expectations, the drag on GDP growth will reach 1 percentage point, then about 500 billion more investment and consumption will be needed to hedge in order to achieve steady growth.

Therefore, the fiscal policy should be more active, the scale of fiscal expenditure should be expanded, and the fiscal deficit ratio should be raised from 2.8% in 2019 to 3%, that is, an increase of about 200 billion yuan in fiscal expenditure. Horizontal comparison shows that Japan's fiscal deficit ratio is about 7%, the United States is about 4%, and China is 3%, which is not unacceptable.

In terms of monetary policy, a prudent and relatively loose monetary policy should be implemented, and interest rate cuts should be considered in the first quarter, and the target of cutting reserve requirements and interest rates for the whole year should be increased by about X billion (X: adjusted according to the impact of the epidemic on the economy).

In addition, in the context of the prevention and control of COVID-19 's epidemic situation, all sectors of the community should be encouraged to actively donate, and the target should be around 100 billion. If we can increase the financial, monetary input, and social donations, a total of about 500 billion of the investment or other expenditures, we can basically offset the negative impact of the epidemic.

Why should I put special emphasis on the importance of social donations? So far, China has not collected property tax and capital gains tax, which is estimated to be difficult to levy in the short and medium term, which is also an important reason for the long-standing problem of excessive income gap between high-income and low-and middle-income residents. Narrowing the income gap is an important guarantee of social harmony. In the past, poverty alleviation mainly depended on state-owned enterprises and a small number of large private enterprises. Can the high-income class also lend a helping hand in the future?

Many people are worried about the lack of transparency in the use of fund-raising funds. I think that through this epidemic, from top to bottom, we can fully realize the importance of truthfully and timely notifying the whole society of the epidemic, and realize that integrity and information symmetry are essential to China's social and economic transformation. Therefore, it is a rare opportunity for government departments to improve the business environment, enhance service awareness, and improve quality and efficiency by standardizing and expanding the cause of fund-raising, so as to increase social transparency and integrity.