Shanghai Lockdown Eased... Domestic Demand Stimulated by Chinese Fiscal Policy

Normalization Expected in 2-3 Months
Calls Grow to Restore Consumption by Easing Finances Amid Economy Damaged by Lockdown

[Asia Economy Beijing=Special Correspondent Jo Young-shin] As the lockdown in Shanghai has been eased after 50 days, Chinese economic experts have expressed the opinion that the government should lift the plummeting economy through fiscal policy.

[Image source=Yonhap News]

They argue that instead of monetary policies such as interest rate cuts, which take time, fiscal policies involving direct government funding should be used to revitalize the stagnant domestic demand (consumption).

According to Chinese media including the official Xinhua News Agency and Global Times on the 16th, Shanghai city decided to partially allow commercial activities based on the principles of "gradual reopening," "restricted movement," and "effective control and management."

Accordingly, from this day, limited operations of some sectors closely related to food life, such as supermarkets and convenience stores, are permitted.

Also, online delivery operations of fast food outlets like McDonald's and Burger King will resume.

Along with this, operations of some manufacturers capable of a closed-loop system completely isolated from the outside will be gradually eased.

Mike Huang, President of AmorePacific China, said, "Some employees have returned to the factory to restart operations," adding, "We have been striving to secure quarantine stability through closed-loop management within the factory."

Although the Shanghai lockdown has been partially eased, the prevailing view is that it will take two to three months to return to normal.

Chinese economic experts pointed out that domestic and international environments such as the COVID-19 lockdown, the Russia-Ukraine war, and global inflation are pressuring the Chinese economy, urging the government to activate domestic demand through proactive fiscal policies.

Yu Yongding, a senior researcher at the Chinese Academy of Social Sciences, attended the "Chief Economist Forum" hosted by Tsinghua University School of Finance on the 14th, stating, "It is necessary to stimulate domestic demand through proactive fiscal policies," and emphasized, "Imports of daily necessities-related products should be increased."

Li Xunlei, chief researcher at Zhongtai Securities, argued, "The existing growth model relying on external demand for economic growth is no longer sustainable," and insisted, "Domestic demand should be driven through consumption rather than investment."

Lu Ting, chief researcher at Nomura Securities, explained, "The Chinese economy is facing complex domestic and international problems," and added, "In the current situation, fiscal policy is more effective than monetary policy."

This is interpreted as a suggestion to distribute consumption coupons with a fixed usage period to activate domestic demand, as monetary policies such as interest rate cuts could cause side effects like price and real estate price increases.