China’s economy was the first hit by COVID-19 and the first to rebound. Reform proclamations issued in April and May by implication acknowledged that myriad past plans had never been accomplished, and that work to reorient China to market-based systems remained to be done – urgently. The recovery seen today is not the result of marketization. Quite the opposite, it is the result of emergency government interventions that have buoyed activity in recent months. However, by further placing the burden of public policy on ostensibly commercial or murky quasi-governmental balance sheets, the interventions have made it even harder to realize market allocation reform ambitions without risking a meltdown. Given the hostility leveled at the Communist Party of China from the United States, and China’s superior economic performance amid the pandemic, leaders in Beijing could be forgiven for thinking they had made the right call. But in the long-term picture, China’s deferral of reform is not a response to international hostility but a cause of it, and today’s economic expediency will make the net cost of righting China’s policy foundations much greater tomorrow.
Winning the Battle, but Not the War
As we go into the autumn of 2020, the outlook for China’s economy is more important than ever. The prognosis for recovery from the COVID-19 recession is crucial: even before the pandemic, China accounted for more global growth than the United States, Europe, and Japan combined, and with the rest of the world in various stages of lock down, it is the only place reporting positive year-on-year (yoy) activity.