China Power | Economy | East Asia

China’s Coronavirus Outbreak and Economic Performance: Test for Performance Legitimacy?

What does the Coronavirus outbreak mean for China’s future development?

Dingding Chen
By Dingding Chen and Yu Xia for
China’s Coronavirus Outbreak and Economic Performance: Test for Performance Legitimacy?
Credit: AP Photo/Dake Kang

With 14,840 new cases and an additional 242 deaths, China’s Hubei province reported a sharp increase in the toll from the novel Coronavirus on February 12 from the previous day, as “clinically diagnosed” cases became included for the first time in official data (13,332 of the new cases fall under that classification). The number of confirmed cases soared to 48,206 in the region on February 12, putting the death toll at 1,310. Hubei province’s Wuhan city in particular is the most severely infected area and therefore was closed soon after it became apparent that the virus had a high level of people-to-people transmission. Yet the virus managed to spread to the whole country within a few days. Moreover, outside China, 24 countries had reported more than four hundred infected cases and at least one death, according to the eWHO. A public health crisis in China has now evolved to a global health emergency.

Due to the epidemic, China saw an unprecedentedly bleak Lunar New Year. In the Spring Festival of 2019, the box office in China reached 5.859 billion yuan ($839 million) and the retail and catering enterprises across the country achieved sales of about 1,005 billion yuan ($143 billion) within 6 days. In addition, during the 2019 Spring Festival holiday, China received a total of 415 million tourists, with a revenue of 513.9 billion yuan ($73 billion). In 2020, however, by the end of January, the box office remained empty, while retail and catering industry had been severely damaged. Similarly, the number of trips had decreased by about 70 percent. It is roughly estimated that the direct economic loss of the aforementioned industries alone will exceed 1 trillion yuan ($143 billion) in just 7 days, accounting for 4.6 percent of the GDP 21.8 trillion in the first quarter of 2019 (other industries are not included though).

In 2019, China’s  GDP growth was 6.1 percent, down from 6.6 percent the year before. As the coronavirus outbreak hits the world’s second largest economy, analysts are downgrading China’s GDP growth forecast, varied in the level of pessimism. The Economist Intelligence Unit predicted that, if the virus comes under control by February, China’s revised real GDP growth in 2020 will be 5.7 percent. Ren Zeping, one of China’s most renowned economists, estimated that, if the impact could be contained in the first quarter, but the growth in 2020 will be 5.4 percent. Nevertheless, if the situation extends, the baseline is 5 percent. Meanwhile, the ratings agency Moody’s maintains forecast of a 5.8 percent GDP growth as it believes that the impact would be offset by stimulus measures. A Nomura analyst did not provide exact figure yet comments that the growth could be “significantly” lower than in 2019. Zhang Ming, an economist at China’s top government think tank, forecasts that the possibility of falling below 5.0 percent could not be ruled out.

An economic downturn, however, is going to affect more than just the economy.

Professor Zhao Dingxin, an expert at China studies, has argued that performance legitimacy played a critical role in the history of China as well as today’s Chinese politics. Performance legitimacy is not fixed, and economic and moral performance have become significant criteria of state legitimacy of China since the 1990s. Professor Zhao noticed the potential drawbacks of the pattern. For one thing, he pointed out that the pattern would continually stimulate new demand that are increasingly more difficult to satisfy. Once promises are unfulfilled, unlike legal-electoral legitimacy, the state offers no alternatives for diffusing grievance, and, therefore, a political crisis could be triggered. For another, as the regime relies heavily on its performance, any challenge to the moral and economy performance of top leaders or specific policies directly imperils its legitimacy.

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The outbreak of epidemics does not necessarily pose threat to the government’s performance legitimacy. In retrospect, China’s real GDP growth plunged by 2 percentage points from the first quarter to the second quarter of 2003 due to the SARS outbreak. Yet it was then still the fastest growth for China’s economy since 1997. During the time of SARS, the government was criticized for the delayed declaration of an emergency, allowing the disease to spread unchecked. As a result, the transparency and openness of the government were improved in response to public dissent.

However, compared to 2003, China is under tougher circumstances both internally and externally when it comes to sustaining satisfying performance.

Internally, Chinese economist Zhang Ming estimated that the impact of the coronavirus on China’s economy could be significantly bigger than that of SARS, as China is relying more on services and consumption now than then. Similarly, economist Ren Zeping demonstrated concern of greater impact, since domestic economy is in a transition period, confronting downward pressure, and limited space for fiscal and monetary policy. Moreover, the timing of Spring Festival adds up difficulties of rebooting. It is reported that small-to-medium-size companies are struggling, behind which is an increase of unemployment rate. Externally, with neither advantage of WTO’s newcomer nor smooth relations with the US, as in 2003, China is in the face of more obstacles to recovering economy. However, without the epidemic, China’s economy has already entered a period of new normal, and therefore it is not going to be a new phenomenon.

Apart from economic performance, moral performance is the other key component of the legitimacy, according to professor Zhao. The Coronavirus outbreak raises public distrust of the authority, which is rare to be put on the table. The government received similar criticism in 2003, yet grievance has been accrued considerably by more robust social media today. The public anger peaked on the day Doctor Li Wenliang died of the Coronavirus infection. Li had stood out to warn the public about incoming danger yet was punished for spreading rumors by the local authorities.

The misconduct of the Wuhan Red Cross and all other news disappointing the public further damaged the government’s credibility. Chinese netizens are now less tolerant of deleted comments and blocked articles. Indeed, the efficiency of case reporting has been improved since 2003. With the help of technology and more access to the outside world, Chinese people can raise their demands of transparency and openness. Apparently, there is a gap between public requirement and the bureaucracy’s capability as Professor Zhao has claimed.

It is urgent to tackle this outbreak and it is necessary to reflect on the crisis. The Coronavirus outbreak seems to be a litmus test for the current performance legitimacy, which is likely to accelerate the reform process in the long run.

Chen Dingding is the founder and president of Intellisia Institute, an independent think tank in Guangzhou, China. Xia Yu is an assistant research fellow at Intellisia.