The Aftermath of Reopening: China’s COVID-19 Recovery (w/ Pedro da Costa and Adam Posen)
PEDRO DA COSTA: Well, certainly. I want to actually, before we get to the European context, I want to ask you about China because it straddles the developing and developed world. It's the bridge. It's also of course, the country where the crisis started so it perhaps offers a window into our future. How big an economic hit are you guys projecting China has taken and will take from this pandemic? Now, that you see some reopening happening, what are you hearing from your contacts out there because it's not like you sound the all-clear and everybody goes back to business as usual. ADAM POSEN: Absolutely and it's really interesting to think about China which you rightly characterized, Pedro, excuse me, as being part developing country and part rich big country. It is both. My colleague, Nick Lardy at Peterson, who's probably the best US analyst of the Chinese economy at least I still think so. He is a little bit out there in believing that the Chinese recession is less bad than many people thought, and the recovery is a little stronger than people thought. This is, again, this is not say, it's not terrible. It's just some of the numbers, as he view, is exaggerated. The way to think about it is China probably grew, Nick's numbers, something 1% roughly in the last three months. A good rule of thumb for all your listeners is rich countries, US, Europe, Japan, a recession is when you go below zero. Developing countries, because of population growth and because of the catch up, a recession is when you go below 3%, just rough order of magnitude. This was definitely a recession but it's not the contraction. Some people are seeing the data and it points to things like the industrial data, the pickup in energy is pickup in pollution, frankly, but also, as he and another colleague of ours, Mark [?] talk about, you can see going back to the issue of migrant workers, China has hundreds of millions of migrant workers within China who moved from the provinces, as they're called, to the coast, to the big cities to where the jobs are. We have seen, and again, like in India, how they were basically sent home when the economy went into lockdown. Well, as best we can tell, 80%, 90% of those migrants have moved back to where their jobs are. They're not as desperate as the poor Indian people [?], but they certainly would not move if there were not jobs really. We see it as potentially, I've referred to this for a number of the rich countries, and in this case, China is like a rich country, I think of it as having a checkmark, maybe a reverse checkmark, recovering. Down incredibly quickly, back up at less than half the slope it came down but definitely positive slope. Now, two cautions to the somewhat rosy picture in China. First, as many people worry about rightly, you do expect to have intermittent local lockdowns. We are already seeing that in one county, in one city in China, even if you've got the disease largely under control, and even if people do get immunity once they've survived the disease, at least for a while. You're just inherently going to have intermittent lockdowns and interruptions. The question is how you manage it. Do you stop it before it gets big? The second is retail hospitality. China as far as we can tell, have not come all the way back. This goes to issues like you said lessons for the rest of us. The intermittent lockdowns question and how you manage that disruption once most of the economy reopen is one issue. Another is just how much permanently do face-to-face retail and we associate real estate with that, restaurants, theaters, entertainment, tourism, how much of this there are permanent or at least persistent shift of people's tastes do they change? Nick also points out, Nick Lardy also puts out, reminds us of a blog he just put out that there's a lot of chatter about how dependent China is on exports. China actually is in the fortunate position like the US being so large and diverse that even though it needs critical supplies, as we spoke about, overall, the economic growth is not that dependent on exports. Even though China is recovering along with Taiwan, and South Korea, and we hope Singapore and a few others sooner than the West, they are not dependent on global demand. It'll be a small drag on them that they don't have much room to export, but it's not going to be a constraint I think.