A week after the start of confinement in Spain, the time has come to learn from the Chinese experience. Most of the Asian country – Beijing, the city I live in, included – closed in early February and began obsessively hoarding food and toilet paper and turning its back on strangers; antisocial behavior. But the worst part ended soon: in early March, life had stabilized, as people settled down and began to find routines in their quarantined lives.
Video game sales and rentals skyrocketed, students attended online classes, and Chinese musicians began hosting online concerts. Society began to move, almost entirely, to an online environment and, perhaps not surprisingly, divorces began to grow strongly. From the many conversations I had with my students, I make it clear that, if they could, many parents and children would also have divorced.
The coming weeks may seem endless for many in Spain, but the good news is that now, five or six weeks after the start of the confinement in Beijing, conditions are changing for the better and the number of coronavirus cases has plummeted. There are cars and pedestrians on the streets. Some children have returned to play in the parks, many stores have reopened (although still with few customers). People have returned to take the bus and the subway, although always leaving a free seat between passenger and passenger. As people gradually return to work, my prognosis is that – assuming there is no new wave of infections – in the next two weeks, Beijing and much of China will have returned to substantially normal.
Of course, the pandemic will not be entirely behind. Only when life returns completely, many of us will really begin to feel the full economic impact. So far, China’s results are dire: Consumption in the first two months of the year contracted by 20%, while industrial production and exports have fallen between 15% and 20%. There will be a rebound in activity in the second quarter, but tens of millions of immigrant workers cannot find jobs today; and many small businesses – and virtually all restaurants and small businesses – have gone bankrupt or are close to doing so.
China will try, like the rest of the world, to implement expansionary policies to help its economy recover. But after a decade of overspending and with the world’s largest debt growth, options are limited. For example, it has not been able to match the cuts in interest rates applied by the United States, Europe and the rest of the world. And you cannot depreciate your currency. Both actions would create distortions that would worsen their indebtedness and undermine growth potential.
As the first country to enter the pandemic and probably the first to emerge from it, China has much to teach Spain about the likely course of things in the coming weeks. Given that everyone in Spain is focusing on the tragedy of the disease, it is easy to remember that it will also bring with it a second and terrible impact on the economy. The government must remember that, after halting the spread of the disease, the virus will leave many people unemployed, many businesses bankrupt and a sharp economic downturn. The time to help the poor, the unemployed, young people and SMEs is now.
Michael Pettis He is a professor of finance at Peking University and a senior fellow at Carnegie.