Thread by @ChinaFinance40

China’s macro policy response should be public-well-being-orientated amid the #novelcoronavirus pandemic, said Peng Wensheng in a recent article: mp.weixin.qq.com/s/TswuZ7IM6frm…

To cope with downward pressure on the economy, a typical policy response is easing monetary policy and fiscal expansion, but the impact of the pandemic on economy is different from past downward pressure on economic or financial cycle.

The pandemic is mainly a supply-side shock. Although demand-side shock has been seen in Europe and the US, it is not a typical demand-side shock which tends be caused by income decline, rising interest rates, etc. So the role of money to stimulate demand will likely be limited.

The impact of the pandemic is short-lived. When panic rises, people tend to focus only on the present, and the medium-term view is prone to excessive pessimism. If policy response is based on this, it might end up exacerbating the medium- and long-term imbalances.

The pandemic will also hit harder on the real economy sector. The focus of policy response should be to support the real economy rather than finance. It also should be public-well-being oriented, focusing on helping SMEs and middle- and low-income groups.