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.