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China Leads Again

US President Donald Trump wears his recent experience with COVID-19 infection as some perverse badge of courage, rather than as a warning of what may lie ahead. And the adverse economic consequences of his administration's approach to the pandemic could not contrast more sharply with the robust recovery in China.

NEW HAVEN – Just as China led the world in economic recovery in the aftermath of the global financial crisis of 2008, it is playing a similar role today. Its post-COVID rebound is gathering momentum amid a developed world that remains on shaky ground. Unfortunately, this is a bitter pill for many to swallow – especially in the United States, where demonization of China has reached epic proportions.

The two crises are, of course, different. Wall Street was ground zero for the 2008 crisis, while the COVID-19 pandemic was spawned in the wet markets of Wuhan. But in both cases, China’s crisis-response strategy was far more effective than that deployed by the US. In the five years following the onset of the 2008 crisis, annual real GDP growth in China averaged 8.6% (on a purchasing power parity basis). While that was slower than the blistering (and unsustainable) 11.6% average pace of the five previous years, it was four times the US economy’s anemic 2.1% average annual growth over the post-crisis 2010-14 period.

China’s pandemic response hints at a comparable outcome in the years ahead. The GDP report for the third quarter of 2020 suggests a rapid return to the pre-COVID trend. The 4.9% year-on-year figure for real GDP growth does not convey a full sense of the self-sustaining recovery that is now emerging in China. Measuring economic growth on a sequential quarterly basis and converting those comparisons to annual rates – the preferred construct of US statisticians and policymakers – provides a much cleaner sense of real-time shifts in the underlying momentum of any economy. On that basis, China’s real GDP rose at an 11% sequential annual rate in the third quarter, following a 55% post-lockdown surge in the second quarter.

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