At a roundtable discussion organized by China Forex，Guan Qingyou，dean of the Rushi Advanced Institute of Finance，and Xu Qiyuan，researcher at the Institute of World Economics and Politics of the Chinese Academy of Social Sciences，and head of research at the China Finance 40 Forum，shared their opinions on the coronavirus and the Chinese economy. The conversation，which follows in edited form，was moderated by Zhong Wei，China Forex deputy editor.

Zhong Wei: Welcome to this session's "round table" discussion. China has been through a number of big challenges since the reform and opening up program got under way. Each time it overcame the obstacles. Among those past challenges，the SARS outbreak in 2003 was among the most severe. Many researchers have made comparisons to SARS in an effort to provide a reference for quantifying the impact of the epidemic on the economy this time. In your opinion，which epidemic will end up being a greater shock on the economy，SARS or the novel coronavirus?  China's economy has experienced a prolonged expansion since the 2003 SARS outbreak. What are the similarities and differences between the economic effects of SARS and those of the current epidemic?

Guan Qingyou: The coronavirus will result in a greater shock to the economy than SARS. First，the coronavirus has caused a longer suspension of economic activity across more sectors and more territory. Twenty-five provinces and cities，accounting for more than 90% of the country's GDP，were required to postpone resumption of business after the Spring Festival by at least one week，and the ratio of those back in operation remains at a low level. In contrast，SARS mainly occurred in Beijing (which only accounted for 3% of the country's total GDP) while other regions were largely unaffected. Second，the current economic fundamentals are weaker than they were in 2003. China was at the initial stage of three major dividends - the demographic dividend，the global dividend and the urbanization dividend in 2003. Since the economy is already on a downward trajectory，the outbreak of the novel coronavirus of course will add to the pressure. Lastly，the financial contagion is much more intense than what we saw in 2003，and the strain on corporate and personal balance sheets will be more pronounced than in the past.

Xu Qiyuan: I agree with Guan，and there are three more points I want to emphasize.

First，the epidemic emerged right before the Spring Festival，which not only made it more difficult to control，but also harmed production to a great extent. March and April are the peak months for PMI export orders，as this basically determines export volumes in the second and even third quarter. This time，the East China Fair has already been delayed，and whether the Canton Fair can be held as scheduled also depends on how the coronavirus situation develops. In extreme cases，if the outbreak lasts until April or even June，it will accelerate the migration of certain industrial chains.

Second，China has already taken a place at the core of the global supply chain over the past 17 years. According to the World Development Indicators，China's industrial added value accounted for only 6.8% of the world's total in 2003，but this proportion had climbed to 23.9% by 2017. By observing data from the World Integrated Trade Solutions database，we can see that for more than 200 economies that import goods from China，intermediate goods accounted for an average of 21.7% of total imports，and the figure is over 30% for imports of 12 East Asian economies. Disruptions in global supply chains will have global consequences.

Third，nowadays，the so-called Internet dividend is much less apparent than in the past. China is now at the forefront of Internet development，which means the marginal increase from Internet technology at the time of the outbreak is much smaller. Additionally，most of the online enterprises are not able to maintain normal operations without the support of offline businesses. Therefore，except for a few Internet sub-sectors with special circumstances，most of the Internet sector will suffer from this outbreak.

Zhong Wei: The outbreak has dealt a heavy blow to China's economy at the start of 2020. In addition to Hubei province，coastal areas such as Guangdong and Zhejiang are also been hit hard. It is clear that economic growth will stall in the first quarter. But if we look at the economic performance for the full year，what will we see? And regarding the countermeasures，do you think China should issue more special bonds to cope with the novel coronavirus or should we reduce taxes and fees or take even more aggressive action? What's your view of how the economy will hold up this year?

Guan Qingyou: We made a simple calculation for this. Conservatively，the direct economic losses during the Spring Festival period will be around 3 trillion yuan，accounting for 14% of the GDP in the first quarter of 2019，but the indirect losses are immeasurable. Thus，the economic growth in the first quarter will be very slow. From a full year perspective，the economic performance in the last three quarters will matter more，and the result will largely depend on the strength of policies that stimulate steady growth. The impact on commodity prices will not last long; the consumer price index in February rose 5.4%，but it was mainly due to the price rises for pork and vegetables. As for employment，the outbreak did lead to layoffs at some enterprises，especially small and medium ones.

In terms of policy responses，I think the room for fiscal policy is wider than monetary policy and would be more effective. A moderate 3% rise in the fiscal deficit would be preferable. The most direct measure is to further reduce taxes and fees to ease the financial burden of domestic enterprises. Appropriate measures，such as value-added tax relief or temporary delays in payments of social security charges，should be taken to ease the burden on enterprises in severely affected industries such as entertainment，catering，tourism，transportation and retail，for example. Also，we can deduct the income tax for enterprises or individuals which make donations so as to encourage charitable contributions. If traditional fiscal policy is insufficient，it is fine to issue special government bonds and other bonds. Exceptional times call for exceptional measures. In order to strengthen support for the infected regions，we can promote the construction of hospitals，urban transportation and other public services by issuing special bonds，using financial discounts to help affected enterprises and provide special subsidies to pneumonia patients.

Xu Qiyuan: To look from the full year basis，the impact of the outbreak on economic growth can be divided into the following three phases. In the first phase，the overall demand was affected due to the stagnation of production. Consumption in accommodation，catering，aviation，tourism and other industries were all affected to various extents.

The second phase starts from the end of the Spring Festival holiday to the time when businesses basically resumed operation. The restoration of production will be a great challenge in this phase. Even if business recovers quickly in certain areas，the lack of intermediate supplies elsewhere may lead to bottlenecks throughout the process. This phase will last from mid-February to early March.

When it comes to the third phase，the outbreak will be basically under control and production generally restored. We may lose some new export orders and some enterprises may be forced out of business due to financial pressure. That could affect employment，repayments of bank loans and payments of taxes，in turn weakening overall demand. The third phase covers early March and part of the second quarter.

Zhong Wei: The outbreak has also had an impact on China's financial markets and foreign trade. The A-share market encountered short-term volatility but rebounded quickly. As for the China-US trade friction，despite the signing of the Sino-US phase one trade deal，China's foreign trade is facing more stringent quarantine constraints due to the outbreak. The global supply chain may also be affected by the stalling of China's manufacturing. What do you see for this year as far as China's foreign trade and financial markets are concerned?

Guan Qingyou: The outbreak is not bad news for the capital market. It will accelerate monetary easing and financial reform，which in turn will mean added liquidity for the capital market. This will boost valuations and leave little chance of a collapse in asset prices. Moreover，financial reform is also accelerating. Regarding foreign trade，both exports and imports could suffer. The World Health Organization's declaration of a Public Health Emergency of International Concern will mean more stringent quarantine constraints on China's exports. An example from the past is the Zika virus，which began in Brazil in 2016. The Zika virus was listed as a Public Health Emergency of International Concern between February 1 and November 18 of that year. It led to a continued decline in Brazil's export growth and a sharp drop in the nation's economic performance in the first half of the year. China's export orders may also be affected by the coronavirus outbreak，and that would have a greater impact than in the SARS case in 2003. One reason is that the international trade environment is unfavorable at present due to a spreading anti-globalization movement. The other reason lies in the outbreak itself. Compared to the SARS outbreak in 2003，this novel coronavirus epidemic has affected many more regions，and caused a severe impact on several major exporting provinces along China's southeast coast. Additionally，the significant decline in domestic demand will hit imports.

Xu Qiyuan: The foreign trade performance over the full year will probably be something like this: the major impact of the outbreak of the epidemic in the first quarter will be on deliveries of existing orders. Around the end of the first quarter and the beginning of the second quarter，the impact will be in the loss of new orders，which in turn will damage the export performance in the second and even third quarter. By the beginning of the fourth quarter，the impact of the epidemic on foreign trade is likely to be gone.

In the financial sector，A-shares rebounded strongly after the market plunge on the first day of trading following the Spring Festival. The GEM has hit a three-year high since trading resumed. The impact of the outbreak on the global financial market is also likely to be short-lived. Currently，the US stock market has surged to new record highs with the Nasdaq nearly reaching 10,000. (Editor's note: Shortly after this discussion was held，concerns about the spreading coronavirus sent global stocks plunging. As China Forex went to print，the markets were still volatile.) International crude oil prices have remained weak. International investors generally hold a more pessimistic view toward the recovery of the global economy.

Zhong Wei: To many people，the medium- and long-term effects of the coronavirus are a bigger concern than the immediate disruptions. Before the outbreak of the epidemic，the main focus of society was on manufacturing，infrastructure and property investment. So，after this event，would society shift its focus to areas concerning people's livelihood，such as public security，social security，education and technical training? Is it likely that industry will migrate to areas where local governments have a stronger governance capacity? And do you think the outbreak will have a lasting impact on China's economy?

Guan Qingyou: The outbreak of the novel coronavirus has made certain issues clear to us. A good example is that public hospitals have shouldered the heaviest burden in this emergency. For certain sectors，a moderate degree of participation by non-state capital should be allowed in order to increase market vitality. But state capital should maintain its dominant position in these areas，which include public health，social security and education. Over the longer term，manufacturing，infrastructure and property investment will continue to be the pillars of China's economy.

Xu Qiyuan: There are two points that I would like to make. First，global producers may re-examine China's position in the global supply chain. Some leading multinational companies have already begun to reassess the global supply chain as a result of Sino-US trade friction. Under the twin shocks of the coronavirus epidemic and Sino-US trade friction，the global supply chain may undergo changes. This might lead to industrial chain migration in some areas. But infectious diseases can occur in other nations，and countries besides China may also have trade friction with the US. It is therefore more likely that there will be efforts to diversify the global supply chain.    

Second，the outbreak has taught China and the rest of the world a lesson in public health. In China there has been a marked improvement in the understanding and the degree of attention given to public health by the government and society at large. At the 12th meeting of the Shenzhen Reform Commission on February 14，President Xi Jinping stressed the need to improve the institutional mechanisms for the prevention and control of major outbreaks of disease and improve the national public health emergency management system. It can be expected that public health system construction will become an important task for China in the near future. This will push China to develop towards becoming a more mature economy.

Zhong Wei: Thank you both very much for your in-depth analysis. We are still struggling against the novel coronavirus as we speak. It has been largely controlled at this point but is still a threat to our government，enterprises and people. Just as the sun will rise as usual tomorrow，China will stay strong despite this outbreak. We wish our country and people a safe and healthy future. We all look forward to better social and economic development in China.