It’s now clear the impact of the virus is going to be global and sustained, with a recession that will likely extend into 2021. The numbers out of China over the past week have painted the same picture of massive economic slowdown, and while there are signs that the very low infection rate in China now is translating into a revival of economic activity, it is at a level far from that pre-virus. There will be no sharp V recovery and the economic impact on the rest of the world will rebound on China in all sorts of ways in the months ahead.
The kind of massive stimulus packages being implemented elsewhere do not appear to be possible in China – if they believed the system could handle it, they would have done it already. Which must mean the Chinese economy is already leveraged close to the max.
So how will this play out for the two different systems we watch – China’s tightly controlled system versus the less controlled, more diversified systems in the West? It’s too early to say. The Western system offers maximum transparency and the Chinese system minimal, and that always skews perceptions. But it is also true that the kind of centralized national control mechanisms inherent in China’s system has allowed it to achieve real lockdown quickly and efficiently in a way that is very difficult in most other places. The virus shock is giving the West a feel for what social order and control is like in China, and has also opened up thinking paths in Chinese minds that were previously rarely traversed.
This shock would ideally force people to look again at the fundamentals of the respective systems. But the ultimate answer probably involves something that is currently impossible – a truly international framework of responsibility, decision-making and implementation. The problems the world faces now are increasingly global – medical, climate, internet, tax, trade – and allowing even the nation-state, let alone smaller social units, to determine the responses doesn’t make much sense to us. Regardless of how you feel about intrusive governments and system control, we can only hope those who manage the global financial system stand together to overcome this, and that governments coordinate medical, social, logistical and information issues like never before.
The poor – both countries and people – are going to suffer the most, and the rich will relatively speaking not suffer all that much. The question we are interested in is how the pain and the consequences impact on the systems themselves. It all puts into perspective the questions of trade balances and decoupling that we were mulling so furiously just a few weeks ago. And it could be that it turns out to be a win for the China system, not necessarily because of its inherent advantages but more because of the quality of leaders the West is currently lumbered with. But it’s as dangerous to make predictions today as it is to invest in the stock market.