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NEW HAVEN, Connecticut: Just as China led the global economic recovery after the 2008 global financial crisis, it plays a similar role today. Its post-COVID rally is gathering momentum amid a developed world that remains on shaky ground.
Unfortunately, this is a bitter pill for many, especially in the United States, where the demonization of China has reached epic proportions.
The two crises are, of course, different. Wall Street was the zero point of the 2008 crisis, while the COVID-19 pandemic was generated in the wet markets of Wuhan.
But in both cases, China’s crisis response strategy was much more effective than that deployed by the United States. In the five years after the onset of the 2008 crisis, annual real GDP growth in China averaged 8.6 percent based on purchasing power parity.
While that was slower than the breakneck and unsustainable average pace of 11.6 percent of the previous five years, it was four times the anemic 2.1 percent annual average growth of the US economy during the post-crisis period. from 2010 to 2014.
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CHINA’S RAPID RETURN TO PRE-COVID TRENDS
China’s response to the pandemic points to a comparable outcome in the coming years. The Q3 2020 GDP report suggests a quick return to the pre-COVID trend.
The 4.9 percent year-on-year figure for real GDP growth does not convey a complete sense of the self-sustaining recovery now emerging in China.
Measuring economic growth on a sequential quarterly basis and converting those comparisons to annual rates, the preferred construction of American statisticians and politicians, provides a much clearer sense of real-time changes in the underlying momentum of any economy.
On that basis, China’s real GDP increased at a sequential annual rate of 11 percent in the third quarter, following a 55 percent post-close increase in the second quarter.
FILE PHOTO: A worker wearing a protective suit takes a measurement of a man’s body temperature inside the Shanghai Stock Exchange building, as the country is affected by the coronavirus outbreak, in the Pudong financial district in Shanghai, China on February 28, 2020. REUTERS / Aly Canción
The comparison with the United States is noteworthy. Both economies experienced comparable contractions during their respective lockdowns, which came a quarter later for the U.S. China’s 33.8 percent annualized sequential decline in the first quarter was nearly identical to the 31.2 percent contraction in United States in the second quarter.
Based on high-frequency incoming monthly data, the Atlanta Federal Reserve’s so-called GDPNow estimate places sequential third-quarter real GDP growth in the United States at around 35%.
While that’s a marked and welcome change from the record decline during the lockdown, it is about 20 percentage points below China’s post-lockdown rally and still leaves the US economy roughly 3% below. from its peak in late 2019.
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AFTER THE SNAPBACK
However, post-lock rebounds are not the real story. They are similar to the snapback of a stretched rubber band or, in statistical terms, the arithmetic result of restarting an economy that has just been subjected to an unprecedented sudden stop.
The real test comes after the snapback, and that’s where China’s strategy has its biggest advantage.
China’s response to COVID-19 borrowed a page from its playbook in 2008, when it protected its financial markets from the toxic consequences of the subprime mortgage crisis.
The goal back then was very clear from the start: to address the source of the impact, itself, rather than the collateral damage that caused the impact.
The 4 trillion yuan ($ 596.4 billion) fiscal stimulus from 2008 to 2009 worked only because China had taken strong steps to insulate its markets from virulent financial contagion.
Travelers wearing masks to help slow the spread of the coronavirus walk against commercial buildings in the Central Business District as they exit a subway station during morning rush hour in Beijing, Thursday, Oct. 29, 2020. (AP Photo / Andy Wong).
China’s current approach is similar: First, isolate its citizens from a virulent pathogen contagion with public health measures designed to contain and mitigate the spread of the disease, and then, and only then, to make judicious use of monetary policy. and fiscal to reinforce the situation. – locking snapback.
This is very different from the approach taken in the US, where the post-closing debate is more about using monetary and fiscal policies as front-line instruments of economic liberation, rather than relying on disciplined public health measures aimed at contain the virus.
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COVID-FIRST VS AMERICA-FIRST
This underscores the stark contrast between China’s COVID-first strategy and the US-first approach of US President Donald Trump’s administration. In China, unlike the US, there is no political and public resistance to masks, social distancing, and aggressive testing as required norms of the COVID-19 era.
Meanwhile, the US is in the midst of its third serious wave of infection, while China continues to exert swift and effective control over new outbreaks.
Earlier this fall, for example, some 9 million citizens in Qingdao were tested in just five days after a relatively small outbreak that affected fewer than 20 residents.
Rather, Trump uses his own experience with COVID-19 infection as a perverse badge of courage, rather than a warning of what may happen.
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Against this backdrop, China’s impressive GDP performance in the third quarter is in further contrast to the precarious post-shutdown state of the US economy.
Ongoing distress in the US labor market: Unemployment insurance claims held above 800,000 on a four-week moving average through mid-October, and the national unemployment rate of 7.9% in September it was still more than double its pre-pandemic level of 3.5% making the US consumer-led economy highly vulnerable to a setback.
FILE PHOTO: People line up outside the Kentucky Career Center ahead of its opening to find help with their unemployment claims in Frankfort, Kentucky, USA on June 18, 2020. REUTERS / Bryan Woolston / File Photo
The confluence of a new wave of COVID-19 with intermittent political debate over another tax relief package has effectively neutralized the animal spirits that have long fueled the economic recovery in the US.
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LINGERING WEAKNESS
While China’s 11.2 percent sequential annualized growth in the third quarter of this year is effectively building on its post-lockdown pullback, some lingering signs of weakness are evident in several key segments of consumer services, namely , travel, leisure and entertainment.
Human nature is the same everywhere, with enduring fear and caution, even in countries where aggressive containment measures are working.
For those unwilling to focus on containment, like the United States, the long shadow of COVID-19 speaks volumes about the ever-present dangers of a double dip recession.
That is exactly what has happened after eight of the last 11 recessions in America. The contrast to China’s self-sustaining recovery couldn’t be more striking.
Stephen S Roach is a member of the faculty of Yale University and the author of Unbalanced: the codependency of America and China.
