Sunday, October 18, 2020
How the 'China virus' hurt China less than most others
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

As we approach the end of this Covid year, with new restrictions popping up all over the place, cast your mind back nine months to January, when we had barely heard of the coronavirus, and it had yet to be christened Covid-19, let alone SARS-Cov-2, its current scientific identifier.

Nobody at that time expected a world recession. The UK economy was set merely for weak growth. The International Monetary Fund (IMF), which has just released a new world economic outlook, predicted in January that the world economy would enjoy a slightly better year in 2020 than in 2019, 3.3% growth versus 2.9%.

Its main worries then were rising global geopolitical tensions, and what it described as a further worsening of relations between the United States and its trading partners. Those issues remain important but they have been put in the shade by the coronavirus.

The time of deepest gloom about the global economy was in the spring and early summer, and again that can be tracked by the IMF’s forecasts. In June it predicted a huge 4.9% contraction in the global economy this year; a negative swing of more than eight percentage points compared with January. Advanced economies were predicted to slide by 8%, while a double-digit decline was forecast for the UK economy.

All these things are relative, but the latest position in slightly less gloomy than it was. This is because downturns in the April-June quarter in America and the eurozone were less extreme than feared, and in some cases recoveries have been stronger. It now expects a 4.4% slump in the world economy this year, followed by a 5.2% recovery next year.

The big difference is for advanced economies, now predicted to shrink by “only” 5.8%, followed by growth of 3.9% next year, which will leave some ground to be made up before getting back to 2019 levels. The UK numbers have been shaded slightly less than most; a 9.8% drop this year followed by a 5.9% recovery next.

The IMF was not the only body to have a look at global economic performance in a time of Covid in recent days. Citi, the investment bank, also did so as part of the Institute for Fiscal Studies’ annual green budget.

It found, perhaps unsurprisingly, that countries with the most effective lockdown and containment strategies had the best economic and political outcomes. In this respect, Britain is part of a cluster of poorly performing European countries along with France, which has just also introduced new restrictions, along with Spain and Italy. Japan, Germany and, in economic terms, America, have done much better.

One interesting aspect of this, highlighted by Citi is that, despite the heroic efforts of NHS workers, the UK entered the crisis with an underpowered health service. There were seven intensive care beds per 100,000 people, compared with 29 in Germany and 35 in America. Health spending as a proportion of gross domestic product, 10.3%, was among the lowest.

As Citi’s economists put it: “The UK had the worst starting point among the G7 countries and Spain.” That may be marginally better than having a good starting point and still getting it wrong. As they also point out: “The US had the best starting point but has had the worst pandemic, while Japan had one of the worst starting points but the best outcomes [in the G7] so far.”

Perhaps the most remarkable story is that of China. Back in January, when we were only dimly aware of this new and deadly coronavirus, to the extent that anybody thought much about the economic impact of this mysterious disease, it was that China would bear the brunt of it.

There was talk of shifting global supply chains away from production-disrupted Chinese factories and of China’s four-decade growth miracle coming to an abrupt end, with serious consequences for the Chinese president Xi Jinping.

Well, it has not quite turned out like that. China has certainly suffered a hit to growth as a result of Covid-19, but it has come through it a lot better than other big economies. The coronavirus may have originated with an outbreak in a wet market Wuhan, in China, having got there from a bat cave,but its economic impact has been deadlier elsewhere.

China, as both the IMF and Citi’s economists say, will be the only significant economy to record growth this year. While everybody else has been mired in deep recessions, some the deepest for decades, China will have a positive number for growth; 1.9% this year according to the IMF, followed by an impressive 8.2% recovery next year.

China stands out not just in comparison with advanced economies but also with the emerging world, with those economies expected to experience an average 3.3% contraction this year.

While other countries will have to wait to get back to pre-Covid levels of GDP, China has already done so, a big drop in GDP in the first quarter being recovered in subsequent months. And, though a note of scepticism is justified regarding Chinese health and economic information, this short, sharp shock appears to have been achieved through a combination of very tough lockdowns – tougher than anything in the West – and robust testing.

China’s bounce has ramifications, many of which some will regard as entirely undeserved. What Donald Trump described as the China virus, before it became his virus, will mean that China closes the economic gap with America. Over 2020 and 2021, China will have grown by more than 10 percentage points relative to the United States.

China’s great emerging economy rival, India, has had a coronavirus crisis which in economic terms is more like the worst-hit European countries, including the UK, with a big 10.3% drop in GDP this year, followed by an 8.8% rise next. Like America, it will have done slightly worse than standing still over two years, while China has continued to grow.

The Covid-19 crisis has thrown up big changes, and a lot of economic pain. It’s an ill wind, however, that does not blow somebody some good. Many will think it very unfair that that ill wind has favoured China.