China's Fiscal Response to the COVID-19 Shock : Policy Review and Effect Estimation

Fiscal policy is at the core of most rescue packages worldwide to cope with the economic shock caused by the COVID-19 pandemic. Understanding the fiscal policy options of China, which first identified and responded to the pandemic, is of importance to policy makers not only from China but also from other countries. In 2020, China spent around 5.06 trillion CNY (4.76% of its gross domestic product) in additional government purchases, infrastructure investment, consumption stimulus, income subsidies, and industrial support to ensure the economy’s recovery from the shock of COVID-19. This study reviews China’s fiscal response to the pandemic and estimates the impacts of its policies. Using an input–output framework to model the economy with industrial structure details, the empirical results suggest that: (1) government purchases and infrastructure investment expand output while imposing the least net fiscal burden; (2) consumption stimulus and income subsidies are more advantageous in protecting people’s livelihoods; and (3) industrial support performs a prominent role in sustaining employment and ensuring enterprise survival. Compared with Japan, the United Kingdom, and the United States, China's fiscal policy package is less intensive and pays more attention to employment and business. Based on the findings, we advance policy suggestions regarding the need to expand infrastructure investment, guarantee the basic living needs of low-income residents, design a support policy targeted at specific industries, reshape international economic relationships, and improve the data available for statistical analysis