China is claiming victory over coronavirus, but the true costs of the pandemic are yet to come

In the short-term, China has come out of this crisis much better than anyone else. However, the long-term is another matter, writes Hamish McRae

A bit of maths shows why China has come out better

China has declared victory over the war against Covid-19, and another example of the superiority of the Chinese communist authorities over the governments of the west. In a grand ceremony in the Great Hall of the People in Beijing, medals were given to citizens who were deemed to have played key roles in the fight, and as a symbol that China was through this one, president Xi Jinping did not wear a mask and shook hands with a number of officials.

Meanwhile infections in Europe are on the rise again, India is adding 90,000 cases a day, and the uneven response in the US has become a central election issue. The contrast is stark indeed.

To many people it will seem a bit of a cheek that China should allow a virus to spread wildly, denying what was happening, infect the rest of the entire world, then declare victory. But in the short-term at least China has come much better out of this crisis than anyone else. We have to accept that. The long-term however is another matter.

A bit of maths shows why China has come out better. As most people now realise, China is the world’s second largest economy and is steadily closing the gap with the US. In recent years it has been growing at around 7-8 per cent a year, while the US has been growing at 2-3 per cent. So there was a 5 percentage point gap. This year, if you take IMF forecasts, China is expected to grow by 1 per cent, while the US will shrink by 8 per cent. That is a 9 point gap. The gap between China and Europe, by the way, is even wider.

Those figures could turn out to be wrong, and we should always be cautious about any Chinese economic data. But we cannot avoid the harsh conclusion that the virus has hit the west much harder than it has hit China. It has, if anything, brought forward the date about a decade hence when China passes the US in economic size. You can see the rationale behind those celebrations in Beijing.

The longer-term effects, however, are likely to be very different. It has always been possible in totalitarian societies to force people to do things that you can’t force them to do in liberal ones. Thus China was able to mount a more effective lockdown than anywhere in the west, though some smaller countries such as New Zealand appear to have been able to isolate themselves quite effectively. But there are costs to China’s policy and these will gradually become more evident. The costs come in economic terms and human terms.  

The main long-term economic fallout will be that the rest of the world, particularly the US, will be more cautious about trade and financial relations with China. What has happened in a way vindicates Trump’s policy of mounting a trade offensive against China. If China cannot be trusted to be open when faced with a health emergency, it cannot be trusted in other ways. So the rest of the world, including Europe, will increasingly have to choose. Do they want to sell more to China or would they rather sell more to the US?  

The Huawei issue predates Covid-19, but American suspicion of Huawei being an agent of the Chinese government is, to some extent, at least being validated by its handling of the virus crisis. It will not be a shut out, but Chinese business will find itself facing greater headwinds as it attempts to penetrate western markets, reversing some of the progress it has made over the past two decades.

The human fallout may matter even more. If China is to move beyond being a middle-income economy and become a fully-developed one, it has to have access to the global knowledge economy. Its companies and universities have to be able to attract the best minds from all over the world. China is, of course, a big generator of human capital; for example, its mathematicians are arguably the best in the world. But one of the lessons of the collapse of the Soviet Union is that without cooperation with other countries, you fall behind. You can create pockets of excellence but you cannot be competitive in everything.

Even the US can’t be competitive in everything, but it can attract brilliant ambitious people from around the world. China can’t. Western experts might have hesitated emigrating to China a few years ago. They are likely to hesitate rather longer after the experience of recent months.

We should all seek to learn from the way China has got on top of Covid-19, and give proper respect to that achievement. But we should also be aware of the long-term consequences of China’s policies on this and other matters, and be on our guard.