According to an expert, China is suffering from “economic long Covid”. Lintao Zhang/Getty Images China
China is suffering from an “economic long Covid,” writes Adam Posen in Foreign Affairs.
The sluggish recovery after the corona pandemic could be a long-term trend, according to the president of the Peterson Institute.
As with other authoritarian regimes, China’s economic development follows a predictable pattern, according to Posen.
This is a machine translation of an article by our US colleagues at Insider. It was automatically translated and checked by a real editor. We welcome feedback at the end of the article.
The Chinese economy can rightly be compared to corona cases, where the symptoms persist and those infected remain weak in the long term. An expert writes in “Foreign Affairs„.
However, according to Adam Posen, the financial markets have not yet fully grasped how bad the situation is. He is Chair of the Peterson Institute for International Economics. “Let’s call it a case of ‘Economic Long Covid,'” he wrote. Posen added that China “has not regained its vitality and remains sluggish even now that the acute phase – three years of extremely strict and costly zero-Covid lockdowns – has ended.”
read too
Over 10,000 new orders in one month: how successful VW is in selling its electric car ID.3 in China
After Beijing lifted China’s zero-Covid restrictions in late 2022, markets expected a quick recovery.
This was indicated in the first quarter. But after that, the growth of production, consumption, exports and investments collapsed drastically. Meanwhile, the debt turmoil continues to weigh on the local governments and the country’s vast real estate sector.
Still, growth forecasts for the country remain relatively optimistic, albeit down from previous highs. For example, Bank of America and Goldman Sachs cut their 2023 forecasts by less than a percentage point. The International Monetary Fund sees growth of 4.5 percent in 2024. This is exceeded by a forecast by the Organization for Economic Co-operation and Development, which is 5.1 percent.
China’s situation is serious
However, according to Poznań, China is in a much more serious, long-term plight. That’s not because of the pandemic, but because of Beijing’s growing grip on the economy.
“Economic development in authoritarian regimes usually follows a predictable pattern. There is a period of growth when the regime allows politically compliant companies to flourish, fed by public generosity,” he said. He pointed to Russia, Venezuela and Turkey as further examples.
“However, once the regime secures support, it begins to intervene in the economy in increasingly indiscriminate ways. Eventually, in the face of uncertainty and fear, households and small businesses are beginning to favor cash savings over illiquid investments. As a result, growth is permanently declining.”
In the case of China, President Xi Jinping’s extreme response to the coronavirus has made the public “immune” to major intrusions. This in turn has led to a less dynamic economy, according to Posen.
read too
Temu: This cheap strategy is behind the hyped shopping app
Economic stimulus measures may not be successful
While the Chinese Communist Party tended to sit back and relax in the preceding decades, the zero-Covid era saw growing control over the private sector peak. The abrupt end of this policy will not stimulate growth again. It shows that the economy remains “at the mercy of the party and its whims,” Posen added.
To “insure themselves” in the face of this uncertainty, people are hoarding cash and spending less on assets that cannot be easily converted into cash. This includes, for example, cars, office equipment and real estate.
“The condition is systemic. And the only reliable remedy – namely, credible assurances to the Chinese people and businesses that there are limits to government interference in economic life – cannot be delivered,” Poznan said.
read too
China’s economic slowdown means a glass of milk could soon cost a lot less – globally
Also, Beijing’s stimulus measures would not bring the desired results as consumers balked at further disruption. “Low appetite for illiquid investments and low susceptibility to supportive macroeconomic measures: this, in short, is the economic Long Covid,” he wrote.
China’s problems are also serious for the competition
There are some indications that the forecasts are coming true. Although the Chinese central bank lowered interest rates and pledged stimulus measures at the recent Politburo meeting, economic activity showed little improvement.
Despite rising tensions between the West and Beijing, China’s economic woes don’t necessarily bode well for its rivals either, Poznan said.
“If there is another global recession, China’s growth will not help stimulate overseas demand like it did last time. Western officials should lower their expectations, but not get too excited,” he wrote.