The coronavirus pandemic embroiling China and slowing large swaths of its economy, likely for a prolonged period, comes on the back of two sets of policy problems in China: the decline of economic reform and the U.S.-China trade war.
The pandemic relates to our China Dashboard policy appraisal in profound and complicated ways. Nevertheless, the virus is not a reason to put the reform discussion on hold, but rather a pressing cause for bolder leadership. Given that the economic system is already under great strain, aspects of reform that require near-term pain and sacrifice are off the table for now. The need for a credible commitment to a reform agenda, however, has never been greater. For firms, individuals, and international partners to remain engaged with China for the long term, they need better assurance that a reformed economic system lies ahead. Even before the virus hit, expectations were eroding in the face of evidence of economic weakness, credibility problems with other data, and indications of the radical slowing of reform and, in some cases, reforms being walked back.
A brave face and insistence that business as usual will be maintained do not match the reality of the economic standstill. Locking down the economy is, in part, a central effort to control the virus, but a radically franker acknowledgment of the collateral effects, for instance on the banking system, is essential. It is not overnight reform that is called for, but leadership and a rededication to policy adjustment that puts transparency and market functionality above doctrine and political pride.