What’s the long-term price of the Wuhan virus? It’s hard to gauge, but we’re still paying it. Our economy, from top to bottom, is a dysfunctional mess. China appeared to have come out of it better than we did, but that’s another ‘Potemkin village’.
The Chinese economy’s decades-long run of tremendous growth has finally found its end, Ruchir Sharma wrote in the Financial Times.
Now, the world’s second-largest economy accounts for a smaller share of global GDP.
In nominal dollar terms — which Sharma argues is the most accurate measure of an economy’s relative strength — China’s share of world GDP began slipping in 2022 as strict zero-COVID measures remained in place for most of the year.
Despite expectations for a blowout rebound, China’s share will fall further in 2023, hitting 17%. That puts China on pace for a two-year drop of 1.4 percentage points, a slide not seen since the 1960s and 1970s, when Mao Zedong presided over a weak economy, he added.
17% is still massive, but the real issue is growth. China was already hitting all sorts of limits, urban, agricultural, resources, and land in its effort to transition from manufacturing products for wealthier countries to building its own robust economy.
Defaults are rising and the Evergrande mess is emblematic of a phantom economy. Even Chinese manufacturing is struggling.
Still, COVID lockdowns damaged China’s economy by applying pressure to many of these fault lines.
As for China, it “was held back by strict adherence to its zero Covid policy, resulting in a lack of immunity via infection and lockdowns that stifled activity,” Lupton and Parrish wrote
The moral of the story is that it’s easier to wreck a country than it is to fix it.
Lockdowns exposed fragilities and instability in both our economy and China’s economy. Not to mention both of our societies. As stress tests go, lockdowns were revelatory in similar and different ways.
Both China and America’s social controls proved more vulnerable than expected. There came a point when Chinese and Americans wouldn’t put up with lockdowns anymore. But where our economy faltered due to massive welfare, fraud and the failure of ‘smart’ systems, China’s economy faltered because everything depended on a forward momentum that had collapsed.
Where our economy all too often runs on trends, China’s is a war machine. It works until everyone stops for a moment and then it’s much harder to get started again. While our economy chases trends (back to the office, away from the office, AI, metaverse), China depends on smoothly turning resources into products, filling orders and then trying to grow its domestic economy.
China destabilized us, but in doing so it also destabilized itself and its lockdowns set back its momentum. Its economy is still growing, but the momentum has faltered.