Malcolm Riddell: ‘Why is China’s economy doing so much better than other economies?’

Shang-Jin Wei: ‘The IMF is projecting negative growth rates for every major economy. Every major economy except China.’

• ‘The United States is projected to have a growth rate on the order of minus 8%.’
• ‘Spain, France, Italy, Mexico, and others are projected to have growth rates of minus 10% or close to minus 10%.’
• ‘China, according to IMF, is likely to grow at 1% - and major investment banks are higher at 2-3%.’

‘Some argue that China has positive growth because it started at a higher growth rate of 6-7%, than the G20 countries growing at say 2% or so.’

• ‘So if we have consistent downward reduction of growth rate by 4% across all major economies, G20 economies go into negative growth but China is positive.’

‘The problem with this explanation is a country like India.’

• ‘India last year had a growth rate very close to China.’
• ‘Yet the IMF and the investment banks are projecting big negative growth on the order of minus 4.5%.’

‘Others look to China’s stimulus efforts for the answer.’

• ‘Virtually every major economy rolled out more supportive monetary policies, more supportive fiscal policies. China’s were in line with these.’
• ‘So comparatively it’s more or less a wash.’

Malcolm:‘Then what accounts for China’s positive growth?’

Shang-Jin:‘Four factors, I think.’

1.

‘First is China's relatively aggressive and decisive measures on the COVID public health crisis itself that managed to get the pandemic under control much faster than the other large economies.’

• ‘The relative success in controlling the pandemic translates into how much people are willing to go back to their normal lives, to their jobs, and the like.’

2.

‘The second thing is technology, especially digital technology in two aspects.’

‘First, online shopping, online ordering, and digital payments  offset the reduction in brick & mortar consumption.’

• ‘This is much like what happened in many other economies, but China seems to be doing a bit more of that, and China’s delivery system is very competitive.’

‘Second, perhaps more importantly, is the use of this health app on the smartphones, the so-called ‘green code.” ’

• ‘This is an initiative of some technology companies like Alibaba, together with local governments.’
• ‘Different cities and regions rolled out those health apps at different times, but they rolled out fairly quickly within in a two- or three-week period.’
• ‘Now virtually every region has their own version of green health codes.’

‘The green health code does two things.’

• ‘One is it allows contact tracing very quickly, mapping who is in close contact with whom in the last say two weeks or so.’

‘So when a person is discovered to be infected or self-report to be infected, my code will go from green to red.’

• ‘But the app also tracks others I have been in contact with.’

‘When my code turns red, the codes of the people who have had close contact with me in the last few weeks automatically changes to red too.’

• ‘When this happens, they cannot go out, or leave their residential compound, or go to shopping malls, and so on for two weeks.’

‘This of course limits the risk of infection spread.’

• ‘But perhaps more importantly, when you go to a mall, you have greater confidence that the people they will run into are not unlikely to be infected.’
• ‘So you are more willing to consume. You are more willing to go to restaurants. And you are more willing to go back to the office and the factory.’

3.

‘And the third factor is economic structure.’

• ‘Although China's more service-oriented than before, manufacturing still dominates.'

‘China’s relying relatively more on the manufacturing share, than say the U.S., actually helps in its economic recovery.’

• ‘The service sector depends on person-to-person contact; factories don’t.’
• ‘So China has been able to get its larger manufacturing sector open faster than economies where services dominate and start generating GDP sooner and faster.’

4.

‘Finally, China went into the pandemic recession earlier than other countries, and it ended the pandemic earlier than other economies.’

• ‘As China recovered, those other countries’ were now locked down; but people needed to eat, needed to buy stuff, and so on.’
• ‘Because of this, China actually received better than usual orders for its exports.’

‘Chinese exports have boomed starting from late March to now.’

• And this helped to compensate for the loss of the GDP growth in other sectors.’