What lessons does China’s fast economic recovery from Covid-19 hold for the US and Europe?

China has rallied resources with carefully placed investments in strategic areas of the economy. Conversely, the US and Europe have relied too much on blanket stimulus to turn things around, with less effect

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People line up to enter an Apple store in Beijing on October 23 as the sales begin for the new iPhone 12 and iPhone 12 Pro. China’s economy is recovering and consumer demand is picking up. Photo: EPA-EFE

Published: 9:30pm, 26 Oct 2020Updated: 10:18pm, 26 Oct 2020

China has been proved right in how it has dealt with the pandemic. Beijing has met the challenges head-on and flouted recession. After two successive quarters of positive growth, it looks set for a dramatic turnaround in fortunes.

Success in marshalling early lockdowns and factory shutdowns, coupled with the right policy mix of tax cuts, government spending boosts and cheaper credit, has been the correct response for China’s economy. But are there lessons here for the West?

This might be the best model for China’s socialist market economy, but the problems faced by the United States and Europe suggest a different approach is needed for market-based economies. To beat the crisis, the West needs better reflation plans, targeted with pinpoint accuracy, instead of relying on the hit-and-miss macro methods employed so far.

It has been hard work but China has achieved a spirited recovery over the past two quarters after the economy’s dramatic 6.8 per cent contraction in the first quarter, with GDP growing 3.2 per cent in the second quarter and 4.9 per cent in the third. Consumer demand is picking up, with retail sales up 3.3 per cent in the year to September.

Meanwhile, industrial production has rallied 6.9 per cent in the past 12 months to September, boosted by four straight months of export-led recovery. China’s exports rose 9.9 per cent year on year to a record high of US$239.8 billion in September.

According to World Bank forecasts, China’s GDP is expected to grow 1.6 per cent this year, while the global economy is likely to contract 5.2 per cent based on its summer projections. The contrast with Western economies couldn’t be more marked.

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