Stephen Roach

Opinion | 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

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Crowds thronging Sanlitun, an upscale district in Beijing, during the Golden Week holiday. China’s post-Covid rebound is gathering momentum. Photo: EPA-EFE

Stephen Roach

Published: 4:50pm, 27 Oct 2020Updated: 4:50pm, 27 Oct 2020

Just as China led the world in economic recovery in the aftermath of the global financial crisis of 2008, it is playing a similar role today. Its post-Covid rebound is gathering momentum amid a developed world that remains on shaky ground. Unfortunately, this is a bitter pill for many to swallow – especially in the United States, where demonisation of China has reached epic proportions.

The two crises are, of course, different. Wall Street was ground zero for the 2008 crisis, while the Covid-19 pandemic was spawned in the wet markets of Wuhan. But in both cases, China’s crisis-response strategy was far more effective than that deployed by the US. In the five years following the onset of the 2008 crisis, annual real GDP growth in China averaged 8.6 per cent (on a purchasing power parity basis).

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.

China’s pandemic response hints at a comparable outcome in the years ahead. The GDP report for the third quarter of 2020 suggests a rapid return to the pre-Covid trend. The 4.9 per cent year-on-year figure for real GDP growth does not convey a full sense of the self-sustaining recovery that is now emerging in China.

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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China’s hotel industry rebounds from Covid-19 pandemic during ‘golden week’ holidays

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.