They have won a victory over the coronavirus, and now they are pulling the world economy

We may never know which path was better from an economic point of view unless the existence of the multiverse is established once. Was significant relaxation and thus W-shaped recovery a good decision? Would a permanently stricter attitude have been better? With the latter, we could generate a longer contiguous shock, but perhaps there would also be less uncertainty today. What is more harmful is impossible to decide from so much information. On the other hand, it is worth looking at the situation in China, because by now everyone has somehow forgotten about them, even though they are currently pulling the global economy, and without them the western world economy, or more. foreign trade well, could not do so well.

China is the driving force of the world

After all, detailed GDP data for the third quarter showed that the recovery in Hungary was driven by net exports. Apart from the positive role of public spending, the year-on-year behavior of net exports had the greatest positive impact (that is, considerably less negative) in the third quarter in the European Union as a whole or even in the euro area. If we broaden the time horizon a bit, what do we see?

According to the latest IMF and OECD forecasts, only one country can expect economic growth in 2020. I think everyone realized what country it was: China.

The IMF expects economic growth of 1.9 percent, while the OECD predicts 1.8 percent. Meanwhile, the world as a whole is in the order of 4.4 and 4.2 percent recession forecast. ING expects China to increase GDP by 1.7 percent, on top of the 4.1 percent decline in the world economy. Furthermore, while global forecasts have generally deteriorated since the summer, forecasts for China have been revised upward.

Of course, now it could be said that China started the crisis earlier, differently in time. This is legitimate as long as we compare quarters, but looking at 2020 as a whole, things are not really good anymore. Also, voices can be heard that China is really responsible for the global recession, as everything is produced there and the disruption of production chains caused the big disruption in the spring. This is also partially true, but let’s also say it didn’t happen in the second wave. There will be a W-shaped recovery in the world’s major economies that the industry welcomes very well. There were no factory closures, no breakdown of production chains, no shortage of raw materials and semi-finished products. China has been able to keep world trade flowing.

China has maintained austerity

But what then changed between the first and second waves? What causes this difference? My answer is that not much has changed in China, and that’s the point. As I wrote at the beginning of the article, while much of the world was relaxed, China maintained its austerity after the first wave. The big farms were with him that even if a second wave came, they would step in to flatten the epidemic curves. China, on the other hand, as in many other cases, often reprehensibly, has implemented its plan in an intolerable way:

They weren’t allowed to have waves, they didn’t want to flatten the epidemic curve, nor did they want to allow anything to flatten out.

Globally, the epidemic curve has risen steadily and exponentially since the beginning of the year. In the European Union and the United States, the curve has become steeper since the fall, but growth in China since the spring has been negligible compared to these examples. According to publicly available data, the number of registered cases in the EU has increased by 31 percent since the end of March, by almost 80 percent in the US, and by almost 78 percent worldwide. In China, the increase is 1.14 percent. Of course, the Chinese statistics are worth treating with reservations. Cukierman (2020) estimates that the difference in the number of cases between the US and China may actually be about a third smaller, but even so, the difference is still notable.

Mass testing, isolation, limitation

The reason for this degree of difference is that China has maintained and continues to apply the strict control measures adopted during the spring. This includes, but is not limited to, massive testing and ongoing contact investigation. At the first sign that a focal point may form, the area is isolated and strict local closures are ordered. In addition, they even require quarantine for those who present any symptoms that suggest a mild coronavirus. There are still a number of entry restrictions: Only a small group of Chinese and foreign nationals (usually diplomats) can enter and must remain in quarantine for two weeks in a designated hotel without exception.

Despite all these seemingly draconian measures, China’s economic performance has already reached pre-crisis levels.

Adherence and compliance with the rules

It follows from all this, at least for me, that due to the high infectivity of Covid-19 and the lack of availability of vaccines so far, reducing the spread of the disease and mitigating the economic damage largely depend on of the rules of social distance, their quality and adherence. Therefore, at the individual level, strict compliance with compliance creates positive externalities for society, while partial or total non-compliance has unintended and harmful consequences for other economic actors.

If we go beyond the level of individuals and look through the eyes of decision makers, it is clear that in classical democracies, enforcing the rules that restrict rights is much more difficult and involves greater political risk. In contrast, in authoritarian regimes, policymakers can rely much more on voluntary citizen cooperation (?) And rigorous enforcement procedures.

No Chinese equipment required

Don’t get me wrong, I still believe that the price that society has to pay in peacetime in such a regime goes far beyond the benefits that can be obtained through a much more controlled and manageable society during a pandemic.

However, the above example also shows that effective social cooperation in such a situation is extremely important and rewarding. And this does not necessarily require Chinese equipment. As Tworek (2020) points out, the key is communication and the proper use of the technology now available, as the examples from Taiwan and South Korea well show.

Advances and decision-making mechanisms induced by previous epidemics in these countries have also contributed to success. To prevent a second wave from forming there either. The lessons learned from previous local epidemics on openness, trust and transparency have now proven to be really useful. The wise man learns at the expense (and example) of another, the fool on his own. It would be nice to be smart now.

This article reflects the views of the author and does not necessarily reflect the views of the Portfolio Editorial Committee.

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