Bloomberg Businessweek - USA (2020-06-29)

8

 REMARKS

○ If anything was going to get in the

way of China’s rise, it was Covid-19.

The country shuddered but kept goi

○ By Tom Orlik

Pops

critical driver of China’s construction boom—plummeted. Tax

revenue and land sales, which are the main source of revenue

for local governments, followed them down. Workers faced

rising unemployment and shrinking incomes. The official data

showed the jobless rate rising above 6%. Cynics assumed the

realitywasworse.

Inthegrizzlybearnarrative,thearchvillaininChina’secon-

omyis debt.A four-trillion-yuan($565billion)stimulusthat

startedasa powerfulresponsetothe 2008 greatfinancialcri-

sisrantoostrongfortoolong.Debtfortheeconomyasa whole

roseprecipitately—climbingfrom140%ofGDPin 2008 allthe

wayto260%in2019.EveryonefromInternationalMonetary

FundpolicywonkstoWallStreetmoneymanagerstoChina’s

owncommunistcadreswerewarningofa dangerousbubble.

Thebiggestborrowers—state-ownedenterprises,realestate

developers,localgovernments—weretheverysamegroups

Don’t tell President Trump, but China is winning.

The U.S. has thousands of new Covid-19 cases a day. China’s

reported daily case count is down to double digits. The U.S. is

braced for an historic 6% contraction in gross domestic prod-

uct. China’s rapid rebound means it’s poised for another year

of growth—and a speedier catch-up in the race to overtake

the U.S. as the world’s biggest economy. America’s interna-

tional standing has seldom been lower. From the corridors of

the World Health Organization to the protest-ridden streets

of Hong Kong, China’s global clout increases.

For many, China’s world-beating rebound must come as

a surprise. To read the history of China analysis in the last

30 years is to be bombarded with predictions of imminent

demise. Sure, the skeptics conceded, double-digit growth

looked impressive. But, they said, just poke beneath the

surface, and the reality was an unsustainable bubble. The

authoritarian political system was too constricting for the

economy to truly thrive. Banks were stuffed with bad loans.

The industrial landscape was littered with zombie compa-

nies, the urban landscape with ghost towns.

At first, it appeared Covid-19 would confirm that narra-

tive. Reports about a virus contracted from bats and spread

in a crowded wet market confirmed prejudices about a prim-

itive and backward people. The story of Dr. Li Wenliang—the

whistleblower who tried to alert China’s authorities but had

been silenced—affirmed the superiority of the open U.S. sys-

tem. Footage of mechanical drones barking “go home” at

lockdown dodgers added fears about the rise of a surveil-

lance superstate.

The lockdown hammered China’s economy. With facto-

ries closed, profits for state-owned enterprises slumped, fall-

ing close to 50% in the first months of the year. Home sales—a

e

ing

ILLUSTRATION BY 731. DATA: COMPILED BY BLOOMBERG

China’sCrisisResponse

WHO

identifies

Covid-

virus

Shanghai

Composite Index

China

reports

first death

Wuhan

quarantined

PBOC adds

500-billion-

yuan

relending

quota

PBOC cuts

rates by

10 basis

points

Joint statement

from regulators

promises support

for market

Markets reopen

PBOC injects

1.7 trillion yuan

in liquidity

Extended

Lunar NewYear

holiday

Dec. 31, 2019

3,