Covid-19: what can we learn from China?
We are sadly still in the grim stage of the coronavirus pandemic. For far too many, it may seem irrelevant or too soon to look at what’s going on in China, which is about six to eight weeks ahead of us, or to think too much about new tensions in the Sino-Western relationship, which have been sparked by the Covid crisis. Yet, both merit serious consideration. In some ways, China’s experience, in particular post-lockdown, provides us with something of a template for how the crisis might evolve and what’s in store for the economy. It would be a big stretch, though, to see China as role model for governance and in international relations.
According to friends in Beijing and Shanghai, life after the lockdowns and shuttering of the economy is normalising but still far from normal. The drift back to work is happening but slowly and partially. The streets, public transportation and some shops are busier, and schools are in the process of re-opening, but restaurants, cafes and other leisure outlets are lagging. Social media has moved beyond the macabre but there’s an aftertaste of misinformation and deception that lingers from the early weeks of the crisis. People’s behaviour is still restrained, not least amid fears about a second wave of infections. We might expect much the same to happen in Britain, though most likely with government actions and behaviour held up to pubic scrutiny. In the UK, new Labour Party leader, Keir Starmer has promised just that.
From mid-March onwards, the roughly two-month lockdown in China eased slowly but steadily. The government declared that its success in the “people’s war” against the coronavirus made it possible to re-open the economy. With big questions over the accuracy of Chinese infection and fatality data anyway, this has made the epidemiology even more political because the party’s victory roll, so to speak, has to be supported by the data. For now at least, though, anecdote suggests that as construction sites, factories and offices get moving again, there is no material rise in hospital admissions. If this holds, there may be valuable lessons for us as we emerge from lockdown.
China’s economy fell off a cliff in the early part of the year, as we know from an array of published data. In just under two weeks, the National Bureau of Statistics will publish GDP data for the first quarter. Private sector economists think GDP could have fallen by around 10 per cent from the prior quarter, yielding an annual fall of 5 per cent — unprecedented since the Cultural Revolution.
Western nations are going through the same wrenching contraction but one quarter later. The UK and much of the EU probably saw GDP slip in the first quarter of the year, but in the April-June quarter, we are likely to see a contraction in Europe and the US of between 10-15 per cent, possibly more in some cases. The speed and scale defy anything we have seen. But what happens next, particularly as restrictions are eventually eased?
Like China, we will be scarred by unemployment for some time. If economic recovery is drawn out or lacklustre, the politics of high unemployment might be an issue, even or especially in China. The official urban unemployment rate in China rose to 6.2 per cent in February, or roughly 27 million but it is inaccurate and excludes China’s 280 million migrant worker population. There could be as many as 200 million temporarily or longer-term unemployed as suggested here.
In the US, employment fell by over 700,000 in February, and the unemployment rate rose to 4.4 per cent, or 7.1 million, but this is the tip of the iceberg. We know that by the last week of March over 6.6 million people had registered a new claim for unemployment benefit. Economists expect the unemployment rate to rise to 10-15 per cent in the next two to three months, but up to 40 million people, or nearly a quarter of the civilian labour force may be (at least temporarily) unemployed, furloughed, or under-employed by mid year. In the UK, nearly a million people applied for universal credit benefits in the two weeks ending last Friday — about 10 times as high as is normal.
Beyond the jobs market in China, the news is mixed. The chances of a proper V-shaped recovery are low. Supply choke points are being eased but demand is very soft. State enterprises and heavy industry have cranked output back up to about 80-90 per cent of where it was before, and there has been a firm bounce back in rail traffic and automobile congestion, but subway traffic, retail footfall and leisure attendances, such as cinemas, are still weak. The property market remains subdued and banks face a significantly worse outlook on bad loans and distressed borrowers. If China had hoped that exports would come to the rescue, the deep pandemic-induced US and global economic contraction killed that hope stone dead.
We might also expect a mixed bag of outcomes, and no V-shape. There is at least one major difference though. An unusually restrained China — anxious about exacerbating its indebtedness issues — has undertaken a lot of bridge financing, and fiscal measures, but maybe no more than 3 per cent of GDP. We shall have to see if the government holds the line on keeping a lid on credit creation. By contrast, the Western policy response has been far bigger than in China.
Away from the economy, it is already evident that China-US/Western relations have come under even further strain.
China has certainly stepped up as provider of global public goods. It has sold or donated medical supplies including ventilators, testing equipment (some of it useless) and masks to the US and some European nations, including the UK, and helped to organise Covid responses in sovereign states in eastern Europe, Africa and the Pacific Islands. We shouldn’t be churlish, but the Communist Party knows well that this a route to winning hearts and minds in the “long-term struggle”.
Yet, there is no doubt that it also indulged in misinformation, political fear, and deception for at least a month before declaring the “people’s war”, during which coronavirus infections were allowed to spread like wildfire inside China and from there, outside. This was not an error but a classic reflection of structural governance failings, spanning the lack of transparency, openness and civil society institutions, and an obsessive preoccupation with “stability”, not rocking the boat and party rectitude. Sino-Western differences in standards, beliefs and values could not be more stark.
Yet contemporary circumstances demand that both sides find ways to engage in at least practical matters of global importance, such as public health security, climate change, and the vulnerability of poorer nations. It makes as little sense for western opinion-formers to have accused China of causing the Covid crisis, even demanding compensation, as it has been cynical and mendacious for Beijing party officials to deflect blame overseas, citing both the US and Italy.
Long before the Covid crisis is behind us, despite a new war of words and deep-seated clashes of national interest, we must hope for at least some level of cooperation in a few crucial areas such as health where mutual interests are fully aligned.
