China taps old growth model to boost recovery, as US and European economies flounder

Name: Six months after WHO declared Covid-19 a public health emergency, what more do we know now?
Uploaded: 2020-07-31T15:00:15.000Z
Duration: 7 min 54 s
Description: Six months after WHO declared Covid-19 a public health emergency, what more do we know now?

China’s recovery has been based on its old model of construction, investment and low-end exports, but analysts say this approach does not have a long shelf life

US and Europe lag China in rebounding from the coronavirus pandemic, with experts pointing to Beijing’s unencumbered ability to pull levers of the economy

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China has returned to its old playbook of building and exporting its way out of the coronavirus crisis. Photo: Reuters

Finbarr BerminghamandAmanda Lee

Published: 11:00pm, 31 Jul 2020Updated: 11:00pm, 31 Jul 2020

China’s recovery from the coronavirus pandemic continued in July, but analysts have cautioned that the nature of the rebound represents a step back in time, with the economy once more reliant on heavy industry, infrastructure projects, debt, investment and low-end exports.

Sentiment reflected in the official purchasing managers’ index (PMI) for July, released on Friday by the National Bureau of Statistics, pointed to a fifth successive month of growth in manufacturing, services and construction.

The rebound was powered by a revival in export orders, as well as building projects, with other indicators also suggesting China has returned to its old playbook of building and exporting its way out of the crisis. State funded investment in China is at a 10-year high.

That the Chinese figures come as the economies of the United States and Europe are gripped by severe downturns reflects the fact that China was the first in and first out of the pandemic – despite relatively minor outbreaks continuing to pop up around the mainland.

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Six months after WHO declared Covid-19 a public health emergency, what more do we know now?

The Eurozone economy – roughly 85 per cent of total European Union gross domestic product (GDP) – shrank by 15 per cent in the second quarter compared to a year earlier, new data on Friday showed, while US GDP contracted by a record annualised rate of 32.9 per cent over the same period, essentially wiping out five years of American economic growth, even as cases of coronavirus continue to pile up.

These figures are worse than China’s official 6.8 per cent contraction in the first quarter. While not directly comparable, as the Chinese data compares the first quarter this year with the same period a year earlier, and the US number is an annualisation of the change in the second quarter compared to the first, the US contraction is larger.

It also points to the fact that China’s authoritarian governance model enables it to stimulate or lock down whichever areas of the economy it needs to, unlike economies in the West, analysts said.