Bumbling, wasteful US should learn from China’s coronavirus response
- China has Covid-19 under control with draconian measures and tech-based monitoring while the US is struggling with uncoordinated and premature reopenings
- The disease has exposed many institutional weaknesses in US society and economy, which, despite their strengths, are not structured to withstand pandemic shocks
Among the long queues for food banks in the United States were high-end cars. While some Americans suffered from hunger, some US farmers destroyed crops. Among the many closed restaurants across the US, some will close for good.
The contrast above may epitomise the greater resilience of China’s economy. China may be poorer and less developed but more adaptive. Chinese people can also endure great hardships.
What are some underlying reasons the US’s economy is not as resilient against the Covid-19 shock? First is Americans’ low savings. Even someone with a six-figure salary driving a luxury vehicle may live hand to mouth, burdened with high household debts including mortgages, car loans, educational loans and credit card bills.
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Second, consider the US’s consumer-driven economy. Consumption represents more than two-thirds of US’s largely service-oriented economy. Already weakened by tariffs imposed in the US-China trade war, US consumption took a dive from Covid-19, falling 7.5 per cent in the first quarter.
The drop is particularly acute in restaurants, travel, entertainment and other parts of the services sector, which had a fall of more than 10 per cent in the first quarter. From college towns to big cities, retail plummeted. Many of the US’s biggest names in retail have filed or are close to filing for bankruptcy. With more than 40 million unemployed and a real jobless rate estimated at closer to 20 per cent, the multiplier effect of depressed consumption is aggravating unemployment.
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In contrast, consumption accounts for less than 40 per cent of China’s economy. Such underconsumption, a structural weakness in China’s economy, has become a source of resilience in this difficult time. Consumption could replace investments as the key driver for China’s economic growth and recovery.
Third, look at the US’s optimised but inflexible production systems. For example, US production and distribution of food is among the most efficient in the world. Such concentrated and industrialised systems are optimised for normal times, when large portions of food are distributed to restaurants.
But when restaurants closed, there were no easy ways to redistribute those to households. Store shelves were empty while milk was poured down the drain. Pork prices soared while hog prices dropped.
In contrast, China’s food system is less mechanised but more adaptive. In addition to supermarket chains, there is a wide range of grocery stores and traditional markets, as well as online orders from farms. Small lot farmers, while less productive than their counterparts in the US, can sometimes take their fresh produce directly to the end market.
Covid-19 has exposed many institutional weaknesses in US society and economy. Its economy, despite its many strengths, is not structured to withstand pandemic shocks.
In the immediate aftermath of Covid-19, China’s economy will grow much faster relative to the US, accelerating the convergence of economic scales between the two economies.
Winston Mok, a private investor, was previously a private equity investor