China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

The corona-strategy dilemma of Chinese leaders

March 25, 2020

I had my doubts for years about the accuracy of Chinese statistics – a view that I also expressed many times on this page. I also used to add that real progress in accuracy and transparency will take long time to be acknowledged by neutral analysts. This may be the case also right now if we just assume that reported low numbers of new corona infections in China really should be true https://www.worldometers.info/coronavirus/. Anyway, one has to wonder how reality will look like when Wuhan now gradually returns to normality.

Obvious strategy dilemma
In my view, Chinese political leaders right now struggle with two possible strategies – or even a combination of these two strategies. One strategy is to show the superiority and efficiency of the Chinese system compared to the Western world, aiming at least at finding strong support by the Chinese people. Another strategical priority may be to relatively smoothly turn back GDP growth to acceptable levels in order to present China’s economy as strong and clearly recovering during the Communist Party’s 100th anniversary year of 2021. Of course, one may suggest that these two strategies are linked to each other.

The first test in this respect will be the statistical outcome of national GDP accounts for Q1 this year. Will it be a very weak number in order to allow for a relatively good recovery later this year? Or prefer the highest decision-makers a still quite moderate slowdown in order to achieve rather a smooth downsizing of the Chinese economy during 2020 -with the objective to avoid an uncomfortable statistical slowdown of average GDP growth this year?

Compromise?
My own belief is that China’s political leadership will compromise between these two strategic approaches. However, it seems to be impossible to have an idea about the preferred bias. Thus, it can be recommended to follow developments in China and political statements from there as closely as possible.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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The corona conundrum in China

March 17, 2020

Frågor om Kinas corona-återhämtning

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Sammanfattning på svenska / summary in Swedish 

Kommunikation från det officiella Kina har tveklöst präglats av påtagliga brister vid en historisk tillbakablick. Själv har jag uppmärksammat detta problem framför allt vid BNP-analyser. Min slutsats var vid upprepade tillfällen att denna historiska malus kan hänga kvar under ansenlig tid även när kommunikation och statistisk kvalitet verkligen förbättrats. Därför verkar det svårt att aktuellt kunna bedöma lätt optimistiska kinesiska ställningstaganden kring coronaviruset. Jag har en del historiskt betingade tvivel. Förhoppningsvis har jag fel, för Kinas och hela världens skull.

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English version

“It’s only make believe” was one the nicest songs in the 1960s, performed by the British popstar Billy Fury. This song came into my mind this morning when I started my readings and reflections on the Chinese economy. Is it really only make believe when it comes to Chinese reports on the corona virus and the described strong return to work and production?

Of course, I wished it were so – for the sake of China itself and the rest of the world. However, I still have – right or wrong – a serious trust problem when looking at current statistics and comments from China. This is a trust problem mainly based on historical experience. At different occasions, I have been pointing in the past at the risk that, for example, China’s obvious long-lasting shortcomings in GDP-statistics will make it difficult to recognize or appreciate really achieved progress in communication and statistical reporting.

The return to work and production

Chinese media report these days more and more about a sizeable and strong supply chain recovery. This is an area all neutral external and/or foreign observers cannot have a distinct opinion on. Hopefully, this is the case. However, such a phenomenon still would not say anything about future production plans. Demand itself from many countries still may be alive right now but may be shrinking onward because of more dampened or reduced growth in many countries.

The enormous and sudden drop of new corona cases

Currently, China has around 81 000 reported corona-infected people. Almost 69 000 are statistically totally recovered https://www.worldometers.info/coronavirus/. This is the highest share among the most strongly affected countries as far as I can note – but I cannot have a strong opinion on this issue since China was the first affected country. What surprises me more are the extremely low numbers of new corana cases in China. I really do not know what conclusion on this number may be appropriate.

Avoidance of a recession – still a realistic scenario?

Hope of a visible recovery later this year is still alive in China – not only in official statements. But I really wonder what official GDP statistics will show for the first and second quarter. Indicators for the first quarter are indeed worrying. In February, the PMI has dropped dramatically. So did, for example, retail sales (minus 20.5 % yoy in Jan-Feb), fixed investments (minus 24.5 % yoy in Jan-Feb), and industrial production (minus13.5 % yoy Jan-Feb) – a crash also when considering the special circumstances.

My impression is that China’s GDP development in the first quarter 2020 in both real terms and in reality was in negative territory (somewhere between a slight or a more recognizable minus). I emphasize the chosen word of “impression” because it is really impossible to be more precise right now.

For the first time since quite some time it has become hard to make a forecast on Chinese quarterly GDP growth. Do Chinese decision-makers prefer an understandable major drop in order to praise a possible sizeable recovery later on – or do they prefer a more even growth development downward as they did in the past? Or a position somewhere in between – which actually is my view?

Summary: Altogther, there is no doubt that the official China will do everything to show that the economy is on the right track again when the 100th anniversary of the foundation of the Communist Party will be celebrated in 2021. However: to make this really credible, recognizable progress should be visible also at the end of this celebrated century, i.e. by the end of this year!

Back to Billy Fury: It is not only make believe anymore…

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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The Swedish analysis of the corona virus and the need of understanding globalization

March 10, 2020

The corona virus is a top topic also in Sweden. This should not be a surprise since Sweden currently is ranked as number 13 among the countries with most corona infections (as of March 9) https://www.worldometers.info/coronavirus/#countries. This is a relatively high position.

Official communication about the corona virus is mainly handled by the Public Health Agency of Sweden (PHAS, Folkhälsomyndigheten) https://www.folkhalsomyndigheten.se/the-public-health-agency-of-sweden/about-us/our-mission/. One important task of PHAS is “to provide expert support to investigations of suspected or confirmed outbreaks of communicable diseases and to maintain laboratory preparedness needed for effective communicable disease control in the country”.

There is no doubt that an infection by the corona virus must be regarded as a “communicable disease”.

The lagging understanding of globalization

In my view, the PHAS has shown serious shortcomings in understanding globalization and its consequences. Sure, the PHAS admitted that developments and trends in China were underestimated https://omni.se/tegnell-medger-miss-i-virus-bedomning-trodde-att-kina-skulle-fa-stopp-pa-det/a/pLkM9E. However, if PHAS had looked for more information of global forces in general, global productions chains and China’s close integration in the world economy, the underestimation of China’s corona conditions could at least showed up milder.

And now adding that corona infections in China are slowing down is also a quite risky official statement by PHAS. Theoretically, it may be the case but there is no applicable evidence. From the economic area we know that official Chinese statistics often are not credible enough, particularly when it comes to the calculation of GDP. How much correctness is in the statistics of March 9 that China on that day had less new cases than Sweden, i.e. only 44 versus 57? Obviously, the PHAS could have been (more) in touch with regular users of Chinese statistics and the experience of these analyzing people.

Another example of insufficient consideration of global impact on the spread of the corona virus can be picked from the too narrow view on the imported corona virus by Swedish skiers in South Tyrol. PHAS believed that the end of the Swedish winter holidays for school kids a week ago would mean a peak for new corona cases – but at the time forgetting that Italians and people with recent trips to Italy nowadays get around in the whole world https://www.dn.se/nyheter/sverige/antalet-coronafall-i-sverige-kan-ha-natt-toppen-kommer-snart-att-klinga-av/. This is globalization in real life and on the corporate level.

A very strong bilateral view on global virus risks has become outdated!

Conclusion:

The Swedish example shows the cooperation between government organizations certainly should include different areas like the environment, institutions and psychology – but also more frequently the characteristics of modern globalization as shown above.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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