Whose hype do you buy?

The China-China-China crowd has been predicting the collapse of the Chinese economy for years. But is it actually as vulnerable as they believe? More than a few international economists simply don’t buy that assumption:

RT talked to economists to find out if Beijing may have foreseen the economic crash and about the Chinese government’s response to it.

“Nobody, including Beijing, could have foreseen the depth and gravity of this pandemic, specifically the cryptic transmission parameters by which the Covid-19 virus spreads. It is truly a once-in-100-year pandemic event,” said Sourabh Gupta, senior fellow at the Institute for China-America Studies.

According to him, China was better prepared because “it is in a much healthier fiscal position compared to most advanced economies and many emerging economies too.”

Gupta explained that the central government’s debt level as a percentage of GDP is fairly modest, which means there is ample space on the government’s balance sheet to ramp up policy support. Also, consumers’ debt levels relative to income is modest, so they are not overleveraged either and can open up their wallets.

He was echoed by Andrew Leung, international and independent China strategist, who said “China is always very long-term strategy-minded” and is better prepared for any crisis thanks to its state capitalism. “The state can direct massive funds and mobilize businesses and people more effectively than the West. The same capability was demonstrated during the Asian financial crisis of 1997-98 and the world financial crisis of 2008-09,” said Leung.

According to Temur Umarov, an expert on China and Central Asia at Carnegie Moscow Center, every country is in a different economic situation, so their response to the coronavirus pandemic also differs. While numerous economic stimulus packages were announced by some countries, China has focused on recovery of domestic consumption, as well as on help for small- and medium-sized businesses, he said.

All the analysts agreed that neither China nor other countries could have foreseen the magnitude of the current crisis.

“There is a tsunami of negative views about China as a result of the spreading coronavirus crisis. America’s bad-mouthing has also helped. But China remains by far the second-largest economy, bigger than the rest of the BRIC countries combined,” said Leung. He noted that many more countries have China as their largest trading partner than the United States.

I think the Chinese economy is better poised to survive the crisis simply because it is less financialized, which is another way of saying that it is less fictional. And I would remind those who cite the failed predictions concerning Japanese preeminence of the 1980s of three things.

  1. The US economy of 2020 is not the US economy of 1985. The USA of 2020 isn’t even recognizably American anymore.
  2. China is not Japan.
  3. The Japanese economy of 1985 was very heavily financialized. Most of its massive real estate wealth was as fictional as the Silicon Valley wealth is today.