When the Covid-19 outbreak spread beyond Wuhan, the global economy collapsed like dominoes. With factories closed, commercial demand declined, intercontinental production sank – leaving even the world’s largest economies with the monumental challenge of getting their economy on its feet. However, one major economy, in particular, seems to have bounced back at a faster pace than others.
Earlier in the outbreak, Chinese officials reported that the Chinese economy had shrunk for the first time after a half-century-long run of growth. Analysts expected nearly 30 million job losses in China this year and a 3.7 per cent contraction was in the forecast. However, China has seen a bigger rebound in activity than expected. The Chinese economy grew 2.3% last year – being identified as the only major economy to have expanded in 2020.
It was expected for China to be the only economy to show growth in the last year, as it was the first to be hit by the virus and likely first to bounce back. Its success certainly is attributed to Beijing’s rapid response in the early stage of the health crisis. Strict lockdown measures in high-risk areas, coupled up with efficient surveillance and mass testing were key parts of the government’s strategy – and they appeared to have worked well.
Industrial production has been at the heart of the Chinese recovery. Factory output jumped a further 7.1% in the final three months of 2020, after growing 5.8% in the previous quarter. Although this is a significant boost in aiding the country’s rebound, some observers say it has led to a lopsided recovery, where the focus has been on the supply side of the economy while the demand side has been omitted. Meaning that companies manufactured a lot of goods while people did not purchase a lot.
The recovery has also been criticised as being uneven and raised questions about the way the Chinese government has responded to the pandemic. While most countries have adopted a consumer-led approach and provided the public with direct cash support in order to protect businesses, Beijing has focused much of its effort on stimulating investment and construction. This approach mainly offered cash incentives to businesses rather than providing relief checks for families – leaving lower-income households unable to spend. On the other side of the spectrum, China’s rich have been “revenge spending” as sales of cars and luxury goods have significantly rebounded – offering a window into the country’s widening wealth gap. Therefore, the concern is that the recovery is led by debt and spending of the rich. And this situation is expected to generate greater financial instability in the country, particularly for low-income families.
Despite the traces of discontent about the way China dealt with its economy, it is the only major economy to grow in 2020; and while China shows growth in a troubled world, the same cannot be said for other countries. Developed economies as a whole are estimated to have contracted 5.4% in 2020, with the US shrinking 3.6% and the Eurozone diminishing 7.4%.