The Economist - USA (2020-03-28)

TheEconomistMarch 28th 2020 37

1

I

n good timesGu Changshi’s job is to per-

suade companies to invest in Lingang, a

wind-swept free-trade zone on the edge of

Shanghai, abutting the Pacific Ocean. But

over the past two months, as China has bat-

tled covid-19, his job has been to ensure ba-

sic survival, both physical and corporate.

First his agency requisitioned two hotels to

quarantine anyone coming to Lingang

from virus-hit regions. Then it started of-

fering conditional cash grants to belea-

guered companies located there. “There is

no fixed limit to the subsidies,” he says, his

hands spreading wide.

When China went into lockdown in late

January, economists thought that its

growth trajectory would be v-shaped.

There would be a sharp slowdown, fol-

lowed by a swift rebound as soon as the vi-

rus was under control, as happened with

China’s outbreak of sars in 2003. They

were right about the slowdown. Hundreds

of millions of people stayed inside for

weeks on end. Factories, offices, restau-

rants and shops closed, in scenes now be-

ing replayed around the world. Most an-

alysts think that China’s economy shrank

in the first three months of 2020, perhaps

by as much as 10%. The last time it con-

tracted was more than four decades ago, at

the end of the Cultural Revolution, accord-

ing to official data.

The prediction of a quick, strong recov-

ery is more debatable. With barely any new

cases of covid-19 now being detected, the

government is trying to restore normal life.

At four separate meetings of the ruling

Politburo since late February, leaders have

declared that they want to restart the econ-

omy. But doing so is far from simple when

the pandemic is still raging elsewhere.

Reviving growth involves boosting both

supply and demand. Officials schooled in

Marxist theory, which emphasises produc-

tion rather than consumption, have natu-

rally turned first to the former, ie, to ensur-

ing that goods are made. The main problem

has been a dearth of blue-collar workers,

many of whom went to their hometowns

for the spring festival just before the lock-

down and have not yet returned. Produc-

tion hubs along the coast have chartered

trains and buses to bring them back.

Officials boast that things are almost

normal again. Fully 98% of all listed com-

panies have resumed work, says the securi-

ties regulator. Around the country 89% of

big investment projects, from airport ex-

pansions to the laying of gas pipelines, are

also under way, according to a planning

commission. “Roaring Chinese factories in

full swing”, Xinhua, a state news agency,

proclaimed on March 21st.

The reality is less exuberant. When any

measure becomes an official target, it is

susceptible to distortion—a  phenomenon

known as Goodhart’s law. It has been amply

demonstrated in China over the years. In

this case an obsession with the “work re-

sumption rate” has invited fiddling. Some

low-level officials have told firms to embel-

lish their recoveries, reports Caixin, a mag-

azine. To prevent such trickery, the central

authorities started checking electricity

data. The logical next step? Some compa-

nies were told to consume more power by

turning on idle equipment.

Measures aimed at preventing another

surge of covid-19 have added to the com-

plexities of manufacturing in China. The

The post-virus economy

Back to work

SHANGHAI

But not back to normal

China

40 Chaguan:Eyeingtheworld

Also in this section