From pandemic to greater resilience: Enhancing disaster risk financing in the People’s Republic of China

This paper explores innovative solutions to help manage economic and financial risks arising from disasters in the People's Republic of China (PRC). It suggests strategies that blend the use of reserves and contingent financing instruments. Many countries around the world are confronted with disaster risks at levels and varieties far greater than their public finances could manage efficiently and effectively. The People’s Republic of China (PRC) is no exception. The outbreak of the coronavirus disease (COVID-19) pandemic has increased the likelihood of severe impacts from risk exposure and vulnerabilities from disasters. A flood in Zhengzhou, Henan Province in July 2021 was described as a once-in-a-thousand-year event. The off-budget fiscal demands of a government’s response to disasters can reduce its financial capacity to fulfill other functions and undermine socioeconomic progress and development. Economic losses from disasters in 2019 amounted to about $47.5 billion. These catastrophes can have a material impact on fiscal and financial stability.

The paper proposes five market-based parametric insurance pilot schemes to enhance the PRC’s public finance capacity for disaster risk response, to soften budget shocks, and to bolster long-term fiscal stability and resilience. The paper highlights the inadequacy of public finance instruments—such as fiscal reserves, contingent credit arrangements, and traditional indemnity insurance—to manage the contingent liabilities that disasters represent. It also discusses the effects of disasters on economies, societies, and global supply chains, particularly in the context of climate change.