A thorough and most importantly brutally rational analysis of the economic effects of COVID-19 on China needs to be conducted with a cool head and while a valid case can be made that it is still too soon for us to claim that the dust has settled to enough of a degree for that to be possible, the ChinaFund.com team will do its best to see the entire situation for the extremely complex equation that it is.
On the surface, the status quo seems straightforward enough for pretty much any nation, not easy to tackle by any means but straightforward nonetheless: we had a medical calamity which generated unprecedented (in terms of its globalized nature, if you will, but more on the globalization dimension a bit later on) economic shutdown scenarios and once the medical part of the equation is properly understood even if not behind us, we analyze the direct effects of the shutdown in question in an effort to tackle the issue as best we can.
Unfortunately, while the above analytical framework may make sense for most countries, that is not the case for China because the economic dimension tends to be much more complex in its case due to the essential “role” the country had when it comes to the COVID-19 calamity. For the most part, here are the main areas of concern, as we see them at least:
- Yes, the fact that the COVID-19 episode and the subsequent economic lockdown measures represented a very potent deflationary force which came on top of an already worrying trend in China when it comes to economic growth. Just as the market as well as Communist Party of China was coming to terms with the fact that the pre-2010 days of double-digit growth are long gone, the powerfully deflationary force represented by the pandemic added gasoline to a timid flame, gasoline which risks jeopardizing the fragile balance which was found in the case of China
- The fact that just as China was on the receiving end in terms of globalization to such a degree that it was considered a let’s call it spoiled child of it (perhaps the number one spoiled child, at that), the same China risks being on the very losing end if the proverbial foot is taken off the table at the very least, let’s not even mention scenarios in which key politicians from various countries decide that the COVID-19 situation taught humanity a lesson, a lesson which revolves around the fact that “too much globalization” leads to an overly-complex supply chain and in times of trouble such as what the world experienced in 2020, the effects cannot help but be felt… with the main takeaway being that not only should our foot be taken off the pedal in terms of globalization but a downright course reversal should be considered, at least when it comes to goods/services relevant to national security
- The fact that as it was, skepticism surrounding any figures coming from China abounded or in other words, that trust in Beijing’s reporting was lackluster at best. In some cases, these concerns were justified whereas in others, they ventured into conspiracy theory territory. In light of the fact that China’s initial handling of the coronavirus problem and poor subsequent communication left much to be desired, we are once again in a situation which revolves around gasoline being poured over an already dangerous fire, this time one that has to do with the trust of various trading partners in the figures which come from China
- The fact that complaints pertaining to anything from sub-par testing kits provided by China to ineffective medical equipment raise concerns about the already lingering product quality dimension associated with China’s exports, concerns China has spent not years but downright decades fighting
… the list could go on and on.
Suffice it to say that for the four previously outlined reasons and many more, jumpstarting China’s economy poses challenges one can consider… well, unique. Challenges which aren’t just related to the monetary and fiscal stimulus dimension but which also have to do with the political one, with there being two dimensions worth highlighting:
- China’s proven mistakes when it comes to its (especially initial) handling of the coronavirus problem, mistakes that have been covered in detail by medical experts and make it clear that no, China definitely has a more than noticeable degree of guilt in the entire equation
- “Invented” mistakes that are attributed to China by politicians of various nations, in an effort to shift the public’s attention away from their own faults. Unfortunately, it is abundantly clear that the West failed the COVID-19 test more so than the East, for a wide range of reasons, from the unwillingness of Western authorities to impose measures as harsh as those chosen in China to the behavior of the general public, who refused to comply to a much greater degree than Chinese citizens, South Korean citizens, Japanese citizens, Singaporean citizens and so on… a harsh reality that brings about many political implications and as such, it should come as no surprise that politicians are eager to find an enemy they can channel negative energy toward so as not to, well, risk becoming the enemy in question themselves
Can China jumpstart its economy?
However, those who either own Chinese assets or are at the very least interested in gaining exposure to them need to understand the particularities of this goal when it comes to China. More specifically, it is vital to come to terms with the fact that despite the general perception that China handled things a lot better than the West, the equation is far more complex than meets the eye and the long-term implications should therefore not be under-estimated. There will be economic consequences, there will be political consequences and those who do not prepare accordingly by optimizing their strategies risk being caught off guard, something the ChinaFund.com team is happy to help clients avoid.