Economic recovery in the early epicentre: the case of Hubei Province in China

ABSTRACT

Taking Hubei as a typical case, this article reviews China’s response approaches and effectiveness during the entire epidemic period. In the short term, the government is able to effectively control the spread of the epidemic by adopting coercive measures, which is inevitably at the expense of production and consumption activities, thereafter bringing serious losses to the economy. However, the negative impact on the macro-economy is short-lived. In the long term, the economy can achieve rapid recovery, with precise policies on resuming work and production as the prerequisite.

KEYWORDS:

• Pandemic prevention and control
• economic recovery

I. Introduction

An unexpected epidemic, Covid-19, has made people from Hubei province in China suffer great losses. It has disrupted the normal routine of social life, consequently having a significant impact on local economic development. In order to effectively curb the spread of Covid-19, Hubei has adopted comprehensive and strict prevention and control measures, which made the epidemic well controlled in a relatively short time. A series of other measures have also been put in place to gradually promote economic and social development as well as normalize people’s lives. However, from an international perspective, the spread of the epidemic abroad is still accelerating, and the downside risk to the world economy is increasing. As for China, the task of consolidating the achievements of prevention and control together with preventing a rebound of the epidemic remains arduous. Taking Hubei as a typical case, this article analyses China’s approaches and effectiveness of response to the outbreak, in order to provide relevant experience to international policymakers who are dealing with the contradiction between ‘ pandemic prevention and control’ and ‘mitigation of economic shocks’.

II. Hubei’s early-stage responses to Covid-19 outbreak

As one of the 31 provinces, Hubei is located in China’s centre. Since the reform and opening up, the economic and social development in Hubei have been keeping up a good momentum. In 2019, Hubei’s GDP ranked 7^th and per capita GDP ranked 8^th in China, with an annual growth rate of 7.5%, faster than the national average rate of 1.4%. In sharp contrast, Hubei’s GDP ranked 13^th and per capita GDP ranked 17^th in 2009. Overall, Hubei’s economic strength stands at the upper-middle level within the country and first in central China.¹ As the capital of Hubei, Wuhan is a mega city with more than 10 million people and an important industrial base in China. Wuhan is the largest hub combining water, land and air transportation in inland China. The city has direct flights to five continents and a high-speed rail network connecting half of China. In addition, Wuhan has 89 universities with strong scientific and educational strength. There are 1.3 million college students, the largest number of college students in a single location in the world.

The starting point of Covid-19 in Wuhan can be traced back to 1 December 2019 (Huang, Wang, and X Ren et al. 2020). The first death of a Covid-19 patient was reported in Wuhan Jinyintan Hospital on 9 January 2020, followed by a severe spread of the epidemic. Until 3rd February, the case fatality rate (CFR) of confirmed COVID-19 cases in China was 2.1%; the CFR in Hubei province was 3.1%, with 97% of the deaths in the whole country; the CFR in Wuhan was 4.9%, with 74% of the national total deaths; the CFR in other provinces was 0.16%.² Until 6^th March, the number of newly confirmed cases in Hubei fell to double digits per day.³ On 19^th March, the number of newly confirmed cases fell to zero for the first time.⁴ On 8^th April, Wuhan lifted outbound transportation restrictions and resumed external traffic in an orderly manner. By 26^th April, Hubei had achieved six ‘zeros’: zero new confirmed cases, zero new death cases, zero new suspected cases, zero existing suspected cases, zero existing confirmed cases and zero severe cases (CCTV, 2020).

As the main battlefield of Covid-19, Hubei has quickly achieved great results in prevention and control through internal and external non-proliferation. Three types of response were adopted at the beginning of the outbreak.

First, the compulsory external blockade, including the implementation of ‘early detection, early isolation, early diagnosis and early treatment’. Wuhan’s lockdown policy immediately blocked the external traffic. The 24 h closed community population flow management was implemented to effectively reduce the risk of virus transmission.

The second is to ensure that all suspected and confirmed cases are examined, accepted and treated. In order to avoid infection, new hospitals such as Leishenshan and Huoshenshan hospitals had been set up and expanded in 10 days. Designated hospitals, rebuilt shelter hospitals, and established centralized isolation treatment points were also used to improve treatment ability and avoid cross-infection among patients.

Third, strict prevention and control in communities were implemented to ensure that there are no remaining confirmed cases. At the same time, volunteers are recruited to work in the community to guarantee the provision of basic necessities, environmental sanitation, helping the groups with special difficulties, visiting the front-line medical staff, carrying out psychological counselling and solving problems of local people (Pan et al. 2020; Hao et al. 2020).

The important reason for the success of Hubei prevention and control lies in the effective measures. The early countermeasures are as follows: compulsory social isolation, such as restricting gatherings and personnel mobility, is the most basic policy choice for the prevention and control of an epidemic situation. Other effective prevention and control measures, such as community closure and grid management, are key approaches. Effective supply of medical beds and necessities of life is an important support. In the later stage, due to the comprehensive measures such as wearing masks and social isolation, the transmission routes were effectively cut off. Although some infected people were not isolated, their transmission capacity was also greatly limited, and gradually declined through self-healing.

III. The short-term impact of Covid-19 outbreak on Hubei’s economy

The above-mentioned prevention and control policies also had an obvious short-term impact on Hubei’s economy, with various economic indicators dropping significantly. In the first quarter, the growth rate of GDP decreased by 39.2% year-on-year, and the ranking of GDP dropped from 7th to 13th in China.

The added value of three major industrial sectors (namely, primary, secondary and tertiary industrial sector) declined in an all-round way. Among them, secondary industry has suffered the most severe decline. The added value of industries above a certain scale fell 45.8% from a year earlier. Among the 41 major subdivided industries, the added value of the tobacco products industry, mining industry, oil and natural gas exploitation industry maintained positive growth, while the value of the other 38 subdivided industries decreased year-on-year (HPBS, 2020).

Aggregate demand and supply have been impacted in an all-round way. On the supply side, the national shutdown had an impact on the labour supply, which brought a shortage of labour, thus affecting the restoration of normal production order. This will cause a serious blow to the secondary and tertiary industries, especially the small and medium-sized enterprises with a large proportion of labour input. The impact on consumption is the demand side’s first consideration. Due to the restriction of residents’ travel and isolation from their families, the traditional service industries have been severely impacted, especially the transportation industry and retail industry in the tertiary industry. In the first quarter, the total retail sales of consumer goods in Hubei decreased by 44.9% year-on-year (HPBS (Hubei Provincial Bureau of Statistics) 2020).

The pandemic has had a great impact on investment. Due to abnormal flow factors, a large number of enterprises cannot reopen, resulting in limited investment. Investment in fixed assets decreased by 82.8% in the first quarter. At the same time, local governments were busy dealing with the epidemic, which led to the temporary stagnation of infrastructure investment. Hereafter infrastructure investment decreased by 84.4% and the investment in real estate fell by 73.7% in the first quarter (HPBS (Hubei Provincial Bureau of Statistics) 2020).

As the epidemic has become an international pandemic, it will have a strong impact on international trade departments and cross-border commercial activities for a long time. On the one hand, the slowdown or the interruption of domestic production supply chains would cause foreign producers to seek new alternatives, putting domestic suppliers under pressure. On the other hand, this epidemic might cause other countries to adopt trade restriction policies, thus causing trade barriers to rise further. The total trade volume of Hubei in the first quarter decreased by 20.9% year-on-year. Among them, exports fell by 38.1%, imports increased by 11.1% (HPBS (Hubei Provincial Bureau of Statistics) 2020).

Facts have proved that Hubei has successfully controlled the spread of the epidemic through a series of compulsory measures, such as a blockade policy and family isolation. These coercive measures are very effective in preventing the expansion of negative externalities of the epidemic, although in the short term at the expense of production and consumption activities.

IV. Hubei’s Countermeasures and Economic Recovery under the Normalization of Epidemic Prevention and Control

China’s epidemic prevention work has gradually changed from ‘containment stage’ to ‘mitigation stage’, and from ‘emergency state’ to ‘normalized state’. At present, the focus of epidemic prevention in China is to prevent imported cases from abroad and the domestic epidemic situation from rebounding, and to resume economic and social activities in an orderly manner. More specifically, in addition to firmly grasping various measures to prevent external investment and internal rebound, some macro policies have been adopted to prevent the adverse impact of the epidemic situation on economic and social development, and comprehensively promote the production recovery and normalization under the new order of epidemic prevention and treatment.

In the ‘restart’ process, Hubei carried out various work centring on ‘six priorities’, which include taking employment as the primary goal, basic livelihood as groundwork, market players as a fundamental task, food and energy security as the lifeline of life and production, the stability of industrial and supply chains as a key part, and grassroots operation as a prerequisite for effective public services.

For ensuring the employment of residents, Hubei has introduced ‘25 measures’ to stabilize employment and ‘10 measures’ for college graduates to find jobs and start businesses, which focus on nine aspects, such as safely and orderly returning to work, reducing burdens for enterprises, and promoting multi-channel employment.

In terms of ensuring people’s basic livelihood, Hubei has increased the input of social assistance funds, strengthened the assistance for the needy groups, to ensure their subsistence. With regard to protecting market players, Hubei has drafted a series of policies to stabilize, assist and benefit enterprises, for optimizing the business environment.

In terms of protecting food and energy security, Hubei has put forward 19 specific measures from tightening the responsibility of food security, stabilizing the grain planting area, improving the level of planting technology, consolidating the foundation of grain production, doing a good job in disaster prevention and mitigation, cultivating and strengthening the main body of grain production, operation and processing, strengthening brand cultivation and implementing other support policies. As for ensuring the stability of the industrial chain and supply chain, based on its industrial bases and key industries, Hubei implements strategies to strengthen foundations, make up for shortcomings, promote innovations, accelerate the construction of industrial chains, and cultivate advanced manufacturing clusters. In the last aspect, Hubei has comprehensively coordinated several types of funds, vigorously reduced general expenditures, strictly controlled non-essential, non-key, and non-rigid expenditures, as well as revitalized existing assets to free up more funds for basic operations.

With the orderly advance in Hubei’s resumption of work, production, business, and market, the province’s epidemic prevention and control have achieved decisive results, together with the positive results on the economy. ‘Narrow decline’ and ‘positive growth’ have become the two main characteristics of Hubei’s economic operation. In the first three quarters of 2020, the GDP of Hubei was 2.9 trillion yuan, dropping by 10.4% year-on-year, 8.9% less than that of the first half year. Besides, Hubei’s economic recovery is faster, though more difficult than for the whole country, and it has a better momentum, showing a good state of comprehensive recovering growth. Specifically, the economic recovery in Hubei shows ‘four continuities’. The industry continued to grow, as the added value of the industrial enterprises above a certain scale fell by 11.3% in the first three quarters, and the rate of decline narrowed by 9.5% compared with the first half year. Investment continued to recover, as the decline in fixed-asset investment (excluding rural households) narrowed by 22.3% over the first half year. Consumption continued to recover, with the province’s total retail sales of consumer goods falling by 27.4% year-on-year, and the rate of decline narrowing by 6.7% from the first half year. Employment continued to improve, as a total of 436,900 new urban jobs were created, with the rate of decline narrowing 37.15% from the first quarter.⁵

V. Conclusion

In the case of a pandemic, the government faces a ‘Trilemma’ in formulating control measures, that is, choosing between ‘epidemic spread’, ‘epidemic containment’ and ‘social and economic costs’. Reviewing Hubei Province’s response approaches and effectiveness during the entire epidemic period, this study has mainly two conclusions: First, in the short term, the government is able to effectively control the spread of the epidemic by adopting coercive measures, which is inevitably at the expense of production and consumption activities, thereafter bringing serious losses to the economy. Second, the negative impact on the macro-economy is short term. In the long term, the economy can achieve rapid recovery, with precise policies on resuming work and production as the prerequisite.

Based on local conditions and the national macro-policy framework, Hubei has formulated detailed implementation measures and achieved initial results in hedging the epidemic’s impact on the economy. However, the advantages and disadvantages of the public health management system in Hubei need to be seen dialectically. The most obvious drawback is the initial lack of an effective mechanism to issue an early warning, so early prevention and control measures are difficult to put in place in a timely manner. On the other hand, the epidemic prevention and control reflects China’s system advantages to a certain degree, especially its outstanding strengths in social mobilization, policy implementation, and grassroots organization. Then in the post-epidemic era, there are two views on the likely shape of economic recovery, a ‘V-shaped’ pattern in which economic growth picks up at the same pace after a slump (Ambrocio 2020), and a ‘K-shaped’ pattern because different groups have different abilities to resist the epidemic (Powell 2020). However, the ‘K-shaped’ recovery pattern is not obvious in China, especially in Hubei. The reason may be that China has carried out effective prevention and control in accordance with the principles of public health science in the early stage, while it has integrated prevention and control with economic development in the later stage. Finally, viewing comprehensively from the rest of the world, the epidemic situation is still spreading abroad, so the pressure of domestic epidemic input has not been reduced, and new challenges are ahead if the economy is to return to its pre-outbreak trajectory. Therefore, in the future, dynamic fine-tuning policies and precise measures should be adopted according to the new situation in practice, so as to promote sustained and healthy operation of the economy.

Acknowledgments

Mr. Jianhua Zhang is a professor of economics at Huazhong University of Science and Technology. The author would like to thank Professor Xiaolan Fu for her valuable suggestions and Miss Huiling Liu for her outstanding assistant research.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Source: http://www.hubeitoday.com.cn/post/1/115059 and http://www.hubei.gov.cn/zwgk/hbyw/hbywqb/202003/t20200323_2187765.shtml

2. Source: https://www.chinanews.com/sh/shipin/cns-d/2020/02-04/news846760.shtml

3. Source: https://baijiahao.baidu.com/s?id=1660615194410991099&wfr=spider&for=pc

4. Source: http://www.nhc.gov.cn/yjb/s7860/202003/e644c2fc18b4448db7ed4b30f68b91a6.shtml

5. Source: Hubei Provincial Government’s press conference on October 20. Retrieved from http://tjj.hubei.gov.cn/bmdt/sjdt/202010/t20201021_2966196.shtml