When the Chinese city of Wuhan went into lockdown due to coronavirus a year ago this week, the country’s economic and political model seemed to face a moment of reckoning. Authoritarianism and secrecy — doctors were admonished for whistleblowing and a crackdown on information allowed the virus to spread further — hamstrung the government’s initial response to the public health emergency. Meanwhile, foreign nations and businesses accelerated efforts to diversify supply chains away: the shuttering of factories and border problems left automakers having to take components out in suitcases.
China’s strong growth figures for 2020 provide, on the surface, a rejoinder to the doubters. Successful suppression of the virus has allowed its economy to operate closer to normal than many foreign nations which, at first, tried to avoid lockdowns to preserve growth. Output managed to expand by 2.3 per cent in the year, compared with a forecast of a 3.7 per cent contraction from the OECD last June.
The pandemic has exposed, in part, the extent to which China is the workshop of the world. Efforts at diversification have taken a back seat to the race to secure protective equipment such as face masks, many of which are made in China. The country’s dominant position, too, in the manufacture of consumer electronics has helped its factories to thrive when billions are looking for distraction from months at home in lockdown. Swift virus containment meant initial factory closures proved temporary.
Beyond exports, however, growth looks less healthy. The long-awaited rebalancing of the economy away from fixed capital investment and towards consumption, as well as the deleveraging of the country’s vast debt boom, has been at best delayed. At worst, it has gone into reverse: retail sales fell by 3.9 per cent over 2020 while industrial production was up 7.3 per cent. The overhang of misdirected investment too will increase as the government removed barriers to real estate and infrastructure investment to offset the drag from the pandemic.
The response to the virus, then, has been a short-term success but the medium- and long-term difficulties remain unaddressed. The same anxious authoritarianism of the Communist party that punished whistleblowing doctors also lies behind the recent disappearance from view of the entrepreneur Jack Ma. If the country is to become more than the world’s workshop it will rely on the ambitions of private sector leaders such as Mr Ma. Terrifying them over the consequences of speaking freely may remove potential threats but it hobbles attempts to compete in frontier industries.
Diversification away from China, too, remains a priority for other countries. The exit of president Donald Trump may change the tone of US-China relations but a more sceptical approach to Chinese growth commands bipartisan support. In Europe, too, governments are looking to build more domestic resilience. The recently concluded EU-China investment accord may struggle to pass the remaining hurdles to ratification.
The contrast with the floundering European and US responses to the virus, and the delivery of its own vaccine to many developing countries, have enhanced China’s international standing. Beijing could attract further goodwill if it co-operated openly with the World Health Organization probe into the origins of coronavirus. If its reluctance to open up to scrutiny continues, it will only reveal how little the pandemic has really changed the way the country operates.
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