Looming Western Recessions Reminds us That China is Still in A Better Position
DATE:  May 13 2022
/ SOURCE:  Yicai
Looming Western Recessions Reminds us That China is Still in A Better Position Looming Western Recessions Reminds us That China is Still in A Better Position

(Yicai Global) May 13 -- The western media are obsessed with negative coverage of China’s economy. The causes are both political and ideological. Upon seeing China’s dramatic economic rise across the past 40 years, there has been longstanding anticipation and assumption that the country “must” fail eventually. Contemporary news articles enjoy talking about “the end of the Chinese miracle” so to speak, a broader theme of excessively negative coverage which overinflates the potential impact of every potential challenge the country faces, which is then whipped up into a zero-sum conclusion regarding a framed geopolitical struggle with the United States.

Yet the phenomenon far pre-dates that. Rooted in Cold war liberal exceptionalism, or the “end of history” thesis, the potential demise or decline of China has long been touted as an inevitability, and is best depicted and now often parodied through Gordon Chang’s 2001 book “the coming collapse of China”, but despite him being personally proven wrong, continues to be a persistent theme for newspapers who out of political bias, dismiss China’s prospects routinely, most notably of late being the Financial Times, who in recent weeks has produced an insufferable amount of negative stories relentlessly cheerleading China’s perceived economic woes over covid.

Whilst of course the reality is true that China has suffered amidst an outbreak of the omicron variant that led to a strict lockdown in Shanghai, predictably the situation has been targeted relentlessly by the western mainstream to ferment pessimism on the economy as a whole. In making this criticism, various outlets have drawn a deliberate contrast to policies in the west, many of which have abandoned covid restrictions altogether, arguing that the west’s model is superior despite a large number of deaths that continue to occur (with the US surpassing 1 million) and that their economic outlook is apparently better for it than China’s. Zero covid is bad, letting covid spread untamed is brilliant.

But these arguments have not aged well at all, particularly because they have been based on short-termism (as has the west’s approach as a whole) and by May, things are looking ominous for western countries. The cheerleading of western economic recovery from covid has been remarkably short-lived as global uncertainties have changed for the worse and multiple nations head for renewed recessions. Last week, US GDP unexpectedly declined by 1.4%. Then as the US federal reserve has been forced to tighten monetary policy to reel in inflation, US stock markets have crashed. Across the Atlantic, a similar inflation crisis has forced the Bank of England to raise interest rates up to the highest in 13 years, explicitly telling the public a recession is looming. This coincides with surging energy prices stemming from the conflict in Ukraine. The money supply is being crunched.

Although uncertainties aggravated by the war have to be taken into account, this looming economic crisis is rooted in the west’s disastrously short-term handling of the covid-19 pandemic, which frequently sought to avoid zero-covid strategies in consideration of the economy, leading in turn to massive outbreaks, inconsistently applied long lockdowns (which were deeply unpopular and implemented ineffectively) and then attempts to forcibly kickstart the economy by injecting trillions worth of stimulus payments and excessive monetary policies, which due to suppressed demand and deteriorating business conditions, then created a tidal wave of inflation and placed burdens on supply chains.

Whilst this strategy allowed western countries to bounce back initially in 2021, the economic merits of such recoveries were exaggerated given the sheer size of GDP slumps some countries had endured, with little consideration given that soon these countries would “come back down to earth” and face additional challenges they had not previously. Even by May 2022, it is quite evident that annual GDP forecasts for most countries were overstated. In particular, the size and duration of the inflation wave were not anticipated, which the US government for one repeatedly wrote off as “transitory”, a miscalculation that proved to be a big mistake, and has forced governments towards fiscal tightening they were not anticipating, posing adverse economic consequences that were not anticipated. In other words, the recovery has faltered before it was even completed.

But China is not in this boat, despite the western triumphalism. Because China has consistently applied a strict, long term and consistent zero-covid policy, which sought to maintain economic stability by pre-emptively quashing outbreaks (from 2020 to 2022), the country was able to maintain natural growth without relying on extreme amounts of stimulus or rolling back interest rates. China grew 2.2% in 2020 and 8.1% in 2021. Without disruption, it was aiming for 5.5% in 2022.  Although consumer growth because of these policies was relatively soft, this has also offset the inflation trap and has produced an economic picture whereby China did not have to make economic policies that produced extreme risk, seeking short-term recovery at the expense of long-term growth options. Therefore, even though Omicron is a challenge, China does not have to resort to extreme policies to get out of this situation which will hamper its future growth, and the People’s Bank of China has seemingly avoided such.

Therefore, whilst China has experienced turbulence, the west in relative comparison is entering a new catastrophe. 2022 is proving all around to be a much bleaker year than anyone expected, yet the western pessimism against China’s own economy aged poorly yet again because blinded by political bias and an obsession with China’s “inevitable failure” it has failed to see the bigger picture. If China can continue to grow in 2022 whilst western countries teeter on the brink of new recessions through unstable and bipolar fiscal policies, then that is a clear display of strength and a vindication, not weakness.

China’s advantageous situation has been underplayed yet again by the obsession of some news outlets to look for the negatives at all costs, even as things started to crumble around them back home. China will recover from this disruption, but the west through its own ill-thought policies will face recession yet again.

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Keywords:   US,China,Economy