China’s Economy Is Bouncing Back—And Gaining Ground on the U.S.

Date: Tuesday, August 25, 2020
Source: The Wall Street Journal

Success in containing Covid-19 is bringing life back to normal and helping close the economic gap with a rival

BEIJING—As much of the world struggles to contain the coronavirus, China’s recovery is gaining momentum, positioning it to further close its gap with the U.S. economy.

Across China, restaurants and gyms are busy again. Subway cars and airport departure lounges are packed. Children are preparing to return to classrooms with few of the restrictions U.S. officials say will be hallmarks of post-coronavirus life. In some schools, children are being asked to bring masks—but they don’t have to wear them.

With the coronavirus smothered for now, thanks to draconian control measures, J.P. Morgan recently boosted its 2020 China growth forecast to 2.5% from 1.3% in April. Economists at the World Bank and elsewhere have also upgraded their forecasts for China, the only major economy expected to grow this year.

That bounceback, while far from China’s heady expansions of past years, should nonetheless help the world’s No. 2 economy move faster in catching up with the U.S., which could shrink by as much as 8.0% in 2020.

It is also buttressing Beijing’s belief that China’s state-led model, which helped the country navigate the 2008-09 financial crisis with minimal pain, is better than the U.S.’s market system, emboldening Chinese leaders at a time of rising geopolitical competition with the U.S.

China’s inflation-adjusted economic output will likely hit $11.9 trillion this year, said Nicholas Lardy, an economist and China expert at the Peterson Institute for International Economics in Washington. That is roughly 70% of the U.S.’s expected output—a seven-percentage-point increase from last year, and the largest advance China has made on the U.S. in a single year.

Homi Kharas, a senior global economics and development fellow at the Brookings Institution, said the coronavirus puts China’s economy on track to reach parity with the U.S. in 2028 in absolute terms, using current dollars—two years faster than his pre-coronavirus estimate.

The pandemic will also help magnify China’s economic power compared with other developing countries such as Russia and Brazil, said Mr. Kharas, a former World Bank chief Asia economist. India will now likely lose so much ground that its economy will be less than one-fifth the size of China’s by the end of next year.

“China will emerge even stronger as the largest economy in the developing world,” said Mr. Kharas. He added that China will likely come out of the pandemic even more firmly entrenched as Japan—the world’s No. 3 economy, which the International Monetary Fund expects to shrink by 5.8% this year—falls further behind.

China’s recovery remains fragile and warning signs abound, from the threat of double-dip recessions among its trading partners to geopolitical concerns. Many experts remain dubious of China’s economic numbers. Others say its rebound, even if real, is unsustainable.

Daniel Rosen, founding partner of New York-based research firm Rhodium Group, warns of mounting debt in China, uneven growth across the country and festering problems in the banking system. Much of the activity in recent months has been producing things that people aren’t buying, he said, temporarily goosing economic numbers but creating an inventory glut that will weigh on growth later this year.

Mr. Rosen, comparing China to a speed skater that appears poised to pass the U.S. in the inside lane, said that despite the gains, China faces deeper problems: “The skates are cutting into China’s feet, there is bleeding and all they have eaten this year is sugar.”

Even so, the recovery under way is enough to make daily life in China feel significantly better than in much of the West.

Ren Jianmin, a 57-year-old Beijing ride-share driver, said his earnings fell by two-thirds in February and March, when parts of China went into lockdown. He relied on savings to support his family.

Things began turning in April. Mr. Ren said he is now logging 12 hours of steady work each day. That is enough to earn 5,000 yuan ($725) each month to supplement his wife’s income as a nurse. His biggest complaint is that Beijing’s notorious traffic jams have returned.

Mr. Ren credits the government’s forceful response to the coronavirus for the turnaround in public confidence, particularly compared with the rest of the world. “The ability of foreign countries to deal with the pandemic is really not good,” he said.

Even in Wuhan, the pandemic’s original epicenter, life is returning to normal, with many residents no longer wearing masks in streets and restaurants filling up again. Images of a DJ hosting a water-park rave party with hundreds of people packed together earlier this month garnered global attention.

Wuhan hasn’t registered any local coronavirus transmissions in three months. Zhao Lijian, a spokesman for China’s Foreign Ministry, said the pool party “reflects a strategic victory achieved by Wuhan and the Chinese government in fighting the virus.”

In the U.S., authorities have warned that a full recovery to pre-Covid ways of life may not be possible, envisioning classrooms, restaurants, concerts and plane flights altered by social-distancing requirements.