Opinion – Samuel Pessôa: Dilma, China and Covid’s inflation

Former president Dilma Rousseff lavishly praised China at a book launch event. China would represent “a light before the situation of decadence and darkness traversed by Western societies”.

The demonstration generated a lot of fuss in the networks. However, in addition to the ex-president finding normal an authoritarian society in which social control over the individual reaches levels never before imagined, there is a point that went unnoticed.

China represents a recent case of the Asian development model. Two are the main features of the Asian model. First, very strong State intervention in economic development, with great effectiveness. They manage to do, competently and without major waste, what we tried in the Geisel government and throughout the PT.

Second, it is the idea that public insurance typical of a welfare state is not a state responsibility, but rather the responsibility of individuals.

The risks faced by individuals in a market economy—loss of work capacity due to aging or disability; sick leave; need to provide health and education; risk of impoverishment, etc.—are the responsibility of families and there is no need for public action.

These facts are crystal clear when we look at Chinese numbers. In 2019, public expenditure on education, pensions and health was, respectively, 3.6% of GDP; 3%; and 1.8%. For the three areas, total public spending is around 8.5% of GDP, compared to more than 23% of GDP for Brazilian spending for the same items. Note that Chinese society is older than ours and that these numbers were valid a decade ago, when GDP per capita was lower than in Brazil, and they are valid now, when GDP per capita is higher than ours. It is worth remembering that the inequality there is not much smaller either.

In other words, the Asian countries, in order to finance the development effort, chose to place public insurance on the shoulders of individuals. The result is that the savings rate of Chinese families is 22% of GDP, which means savings of around 50% of the families’ disposable income. For Brazil, household savings hardly exceed 5% of GDP.

Model differences have now been noticed in the epidemic. Both in Latin America and, in particular, in Brazil, as in the US and now in Europe, as I discussed last week, inflation has been spreading. However, if you look at China, there is no inflation there.

We know that inflation has been produced by an immense sequence of shocks. I’ve been taking care of them since the second half of last year. The shocks put pressure on commodity prices. In fact, inflation in China for raw materials is extremely high. In 12 months, producer inflation is 14%, against 1.5% of consumer inflation, corresponding to our IPCA.

In other words, in China there was no transfer from producer inflation, which is strong, to consumer inflation. Reason? Just look at the retail series. It is currently 5% below the last quarter of 2019, while, for the US economy, it is 22% above.

In China, there was no emergency aid. The cost of quarantine and loss of income from the epidemic was thrown on families’ shoulders. They paid their bills with the resources of their financial savings and, with normalization, they need to rebuild them. Demand is weak. I’m curious to know Dilma’s opinion about these characteristics of the Chinese model.