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Coronavirus crisis puts ‘immune systems’ of market and state capitalism to the test
- While the US economy is predicted to contract 8 per cent this year, China’s GDP is expected to grow slightly
- Governments around the world should take their cue from China and boost investment in infrastructure
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The time seems ripe for reflection on the relative merits of market capitalism and state capitalism, given the very different performances by the two economies that occupy pole positions within these systems – the US and China – and also given their differing future prospects.
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The divergence in short-term performance by the world's first- and second-largest economies during and after the first wave of Covid-19 infections is remarkable. But what is of greater significance is how the pandemic is likely to affect the longer-term outlook for the two countries.
Both were hard hit by the coronavirus, but whereas the US economy is projected by the International Monetary Fund to contract by 8 per cent this year, China’s economy is forecast to expand by 1 per cent. Next year, the US should grow by 4.5 per cent, but China’s gross domestic product is expected to surge by 8.2 per cent.
The Chinese economy in fact grew by a better-than-expected 3.2 per cent in the second quarter of 2020 which, as Shaun Roache, Asia chief economist at S&P Global, observes, “suggests that China's economy is well on the road to recovery and could grow by above 2 per cent for the full year”.
02:19
Chinese exporters turn to domestic consumers as coronavirus hits overseas markets
Chinese exporters turn to domestic consumers as coronavirus hits overseas markets
Much of the blame for the sorry state of the US economy can be attributed to the Trump administration’s botched response to the pandemic in terms of health measures. But China also made early mistakes in this regard yet its economy is recovering much faster than those elsewhere.
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