Recovery-led China amid COVID-19 needs preparation for 'revenge spending'

"Enhancing Mid-Term Capabilities to Respond to Economic Recovery Momentum from China"

[Asia Economy Reporter Kim Cheol-hyun] An analysis has emerged suggesting the need to prepare for so-called 'revenge consumption' driving growth in China following the end of the novel coronavirus disease (COVID-19) crisis. Research fellows Jae-sung Park, Kyung-jin Hwang, and senior researcher Yu-tak Jeong from the Small and Medium Business Research Institute revealed these findings on the 4th in their study titled 'Policy Tasks for SMEs in Preparation for Economic Recovery after COVID-19 ? Using China-led Economic Recovery as Momentum.'

The researchers noted that referring to past cases such as SARS and MERS, the economy rebounded in a 'V' shape during the stabilization phase of the crisis. Although it is still difficult to predict the end of the COVID-19 crisis, they expect discussions on economic recovery to emerge once the spread of COVID-19 enters a stabilization phase. They particularly anticipate recovery led by China, given China's increasing share in the global economy and its massive economic power driving COVID-19 recovery. They emphasized the importance of policy formulation focusing on demonstrating 'economic resilience' sufficient to fully compensate for losses caused by the COVID-19 crisis.

According to the analysis, in China, consumption sentiment is expected to recover in the second half of the year due to the effect of releasing funds for economic stimulus after the end of the COVID-19 crisis, leading growth through so-called 'revenge consumption.' Consumption demand in service sectors such as travel, dining out, culture and entertainment, and beauty industries, which suffered significant damage due to quarantine measures and recommendations to refrain from going out, is expected to increase substantially after the end of the COVID-19 crisis, and the Chinese government is expected to prioritize economic recovery immediately after the crisis ends.

Research fellow Kyung-jin Hwang stated, "Although the term 'revenge' in revenge consumption may sound negative, it refers to 'consumption yo-yo,' where consumption suppressed by external factors is released." He added, "This year is the final year for the Chinese government to realize the so-called Xiaokang society, aiming to double the GDP size compared to ten years ago, so the Chinese government will use all possible means to recover the economy after the COVID-19 crisis."

Research fellow Jae-sung Park, in an empirical analysis of the impact of expanded Chinese consumption on the Korean SME economy, said, "If the Chinese retail sales growth rate rises by 1 percentage point, our SME manufacturing production is estimated to increase by about 1.4 percentage points." He added, "To leverage the consumption boom from China as an opportunity, it is important to activate direct purchasing on e-commerce platforms, support shopping festivals, and promote awareness of Clean Korea and Safety Korea, which highlight domestic quarantine capabilities and public health management."

Senior researcher Yu-tak Jeong pointed out, "If the spread of COVID-19 is contained early, anxiety will ease, and the economic recovery trend may become visible." He emphasized, "Attention should be paid to the possibility of improved economic conditions such as monetary easing and fiscal expansion in major countries including China, and interest rate cuts by the U.S. Federal Reserve."

This content was produced with the assistance of AI translation services.