How ‘Covid first’ China is trumping ‘America first’ in economic recovery
- In 2008, China responded to the financial crisis by addressing the source of the shock itself, not the collateral damage the shock caused.
- Its approach to Covid-19 is similar – first contain the virus’ spread, then deploy targeted stimulus measures. By contrast, the US is paying for its government’s inability or unwillingness to limit the contagion
While that was slower than the blistering (and unsustainable) 11.6 per cent average pace of the five previous years, it was four times the US economy’s anaemic 2.1 per cent average annual growth over the post-crisis 2010-14 period.
Measuring economic growth on a sequential quarterly basis and converting those comparisons to annual rates – the preferred construct of US statisticians and policymakers – provides a much cleaner sense of real-time shifts in the underlying momentum of any economy.
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On that basis, China’s real GDP rose at an 11 per cent sequential annual rate in the third quarter, following a 55 per cent post-lockdown surge in the second quarter.
The comparison with the US is noteworthy. Both economies experienced comparable contractions during their respective lockdowns, which came one quarter later for the US. China’s 33.8 per cent sequential (annualised) plunge in the first quarter was almost identical to the 31.2 per cent US contraction in the second quarter.
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Post-lockdown rebounds are not the real story, however. They are akin to the snapback of a stretched rubber band – or in statistical terms, the arithmetical result of restarting an economy that has just been subjected to an unprecedented sudden stop. The true test comes after the snapback, and that’s where China’s strategy has its greatest advantage.
China’s response to Covid-19 borrowed a page from its playbook in 2008, when it ring-fenced its financial markets from the toxic fallout of the subprime crisis.
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This is very different from the approach taken in the US, where the post-lockdown debate is more about using monetary and fiscal policies as frontline instruments of economic liberation, rather than relying on disciplined public health measures aimed at virus containment.
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In this context, China’s impressive GDP results in the third quarter stand in even sharper contrast with the precarious post-lockdown state of the US economy. Ongoing distress in the US labour market – unemployment insurance claims remained above 800,000 on a four-week moving average through mid-October, and the 7.9 per cent national unemployment rate in September was still more than double its pre-pandemic 3.5 per cent level – leaves America’s consumer-led economy highly vulnerable to a setback.
While China’s 11.2 per cent sequential (annualised) growth in the third quarter of this year builds effectively on its post-lockdown snapback, some lingering signs of weakness are evident in several key segments of consumer services – namely travel, leisure, and entertainment.
Stephen S. Roach is a faculty member at Yale University and the author of Unbalanced: The Codependency of America and China. Copyright: Project Syndicate