Growth, interrupted: COVID-19 and China’s 2020 economic outlook

Author: Justin Yifu Lin, Peking University In order to realise its goals to double 2010 GDP and per capita GDP by 2020, China needs to achieve at least 5.6 per cent growth this year. This growth target would not have been difficult to achieve if not for the unexpected outbreak of COVID-19 in January. China […]

Growth, interrupted: COVID-19 and China’s 2020 economic outlook

Author: Justin Yifu Lin, Peking University

In order to realise its goals to double 2010 GDP and per capita GDP by 2020, China needs to achieve at least 5.6 per cent growth this year. This growth target would not have been difficult to achieve if not for the unexpected outbreak of COVID-19 in January.

China took effective measures to suppress the pandemic. The whole country was under lockdown in February. In March, control measures were relaxed and production and business started to resume. But many export-oriented enterprises encountered a sudden drop or cancellation of orders due to the impact of COVID-19 in Europe, the United States and other parts of the world. China’s GDP fell 6.8 per cent year-on-year in the first quarter of 2020.

The risk of a possible second wave of COVID-19 infections means prevention measures need to be instilled and normalised as China embarks on the long road to economic recovery. In the second quarter, China’s economic growth is likely to experience a slow recovery. China’s growth in 2020 will depend on a rebound in the third and fourth quarters.

The World Trade Organization predicts that global merchandise trade will decline by between 13 per cent and 32 per cent this year. China’s growth will thus depend mainly on the increase of its domestic investment and consumption demands. If the growth rate can reach 10 per cent in the third and fourth quarters, the annual growth rate will be between 3 per cent and 4 per cent.

From the perspective of China’s fiscal and monetary policy space, and bearing in mind the government’s implementation capacity, it is not impossible to achieve a growth rate of 5 per cent or higher for the year by stimulating domestic investment and consumption. But to achieve this, year-on-year growth in the third and fourth quarters will need to reach about 15 per cent.

Considering the need to normalise epidemic prevention and control measures as well as the uncertainties facing the global economy, China should preserve some room for policy leeway over the coming years. According to the IMF’s released in April, the global economy will contract by 3 per cent in 2020. If China can grow 3 to 4 per cent this year, it will be a great achievement.

As long as it maintains 3 to 4 per cent growth next year, the goals of doubling its 2010 GDP and per capita GDP will be achieved by 2021. In this once-in-a-century global pandemic and economic recession, it is entirely understandable and reasonable to postpone a target set 10 years ago by one year.

In the past, the impact of financial and economic crises on the economy were generally felt on the demand side. COVID-19, on the other hand, has shocked both the demand and supply side at the same time. Previously the Chinese government mainly relied on monetary and fiscal policies to support infrastructure investment that created jobs and stabilised economic growth. This time, in addition to new infrastructure projects, China needs to support household consumption and help small- and medium-sized enterprises weather this difficult storm.

To increase consumption, China can issue vouchers to the urban poor, middle and low-income families and the unemployed, and raise the standard of minimum living insurance and assistance to low-income families in the countryside.

According to a Tsinghua University survey, 85 per cent of private enterprises in March will struggle to survive over the next three months. Bankruptcy of enterprises will lead to an increase in unemployment. Additionally, once the pandemic is over, bankrupt enterprises will face numerous difficulties as they rebuild. The protection of enterprises is therefore critical as it protects jobs and maintains the foundation of the Chinese economy. In terms of supporting enterprises, China can delay loan repayments, increase loans to enterprises and reduce their taxes and rental expenses.

Overall, the Chinese government should take advantage of its favourable fiscal and monetary policy space to stabilise the financial system, increase credits to help enterprises, invest in new infrastructure and provide necessary support for families adversely affected by the pandemic. These measures will help to expand domestic demand, maintain social stability and eliminate the bottleneck of future economic growth. China has the ability to maintain a reasonable growth rate in 2020. Like it has since 2008, China will drive the world’s economic growth and recovery as it emerges from the coronavirus crisis.

Justin Yifu Lin is Dean of the Institute of New Structural Economics and Professor of the School of National Development at Peking University.

This article is part of an EAF special feature series on the novel coronavirus crisis and its impact.

Source : East Asia Forum More   

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China–US blame game hampers COVID-19 response

Author: Suisheng Zhao, University of Denver The world is entangled in the blame game between China and the United States as it confronts the largest public health threat in a century. Each is trying to divert attention from its own missteps to the other side, hampering international cooperation and multilateral responses to the COVID-19 pandemic. […]

China–US blame game hampers COVID-19 response

Author: Suisheng Zhao, University of Denver

The world is entangled in the blame game between China and the United States as it confronts the largest public health threat in a century. Each is trying to divert attention from its own missteps to the other side, hampering international cooperation and multilateral responses to the COVID-19 pandemic.

The Chinese government faces strong domestic criticism on their accountability and transparency after suppressing early warnings about COVID-19. Several liberal activists — like Tsinghua University Professor Xu Zhangrun, private entrepreneur Ren Zhiqiang and political activist Xu Zhiyong — publicly denounced the ‘crisis of governance’ provoked by Chinese President Xi Jinping’s concentration of power. While these criticisms were silenced, some foreign organisations and governments filed lawsuits demanding compensation for damages caused by the pandemic.

In response, the central government blamed the mishandling on local leadership and fired the party chief of Hubei province, Jiang Chaoliang, and mayor of Wuhan Ma Guoqiang, along with some health officials. After confinement measures contained the virus, Beijing became increasingly aggressive in spreading conspiracy theories and blaming foreigners. The spokesperson of China’s Foreign Ministry crudely blamed the US military for bringing the virus to China during the Military World Games in October 2019.

In the United States, President Donald Trump was unprepared, ill-equipped and overwhelmed in trying to manage the pandemic. After the World Health Organization (WHO) declared a ’Public Health Emergency of International Concern’ in January, he spent more than a month downplaying the threat and delaying diagnostic testing and stockpiling of essential equipment.

In response to criticism from Democrats and medical professionals, Trump focussed his efforts on rewriting the timeline of his response in a distorted and inaccurate manner and blamed the WHO and China for his failure to contain the pandemic. He temporarily halted funding to the WHO because they took China’s claims about the coronavirus ‘at face value’ and failed to share information about the pandemic. Blaming China for the suppression of early warnings, he is calling for an international investigation into the alleged origin of COVID-19 in a Wuhan lab.

The blame game between the United States and China is eviscerating international cooperation and preventing multilateral institutions from fighting the pandemic. Despite the threat to global security, the UN Security Council (UNSC) is not mobilising global resources against the pandemic.

The UNSC passed Resolution 1308 on HIV/AIDS in Africa in July 2000, transforming a public health concern into an international security matter by recognising the importance of a coordinated international response. The UNSC’s actions helped establish the Global Fund for AIDS, Tuberculosis, and Malaria in 2002. It also passed Resolution 2177 in September 2014, declaring the Ebola outbreak in West Africa a ‘threat to international peace and security’. The resolution empowered the UN secretary-general to create the UN Mission for Ebola Emergency Response — the first UN emergency mission directed at a public health crisis.

But the UNSC failed to issue a resolution or declaration this time. China held the rotating presidency in March and insisted that its involvement in COVID-19 was unwarranted and an intrusion into the sovereign affairs of UN member states. China’s UN envoy explained that this ‘public health’ matter did not fall within the UNSC’s ‘geopolitical’ ambit. Sovereignty became a shell for China to ward off any blame for its initial cover-up of the outbreak.

Washington also dragged its feet, demanding that any resolution specify the Chinese origins of the virus. Beijing blasted Washington for politicising the outbreak and blaming China.

Estonia, a rotating member of the UNSC, proposed a joint statement expressing ‘growing concern about the unprecedented extent of the COVID-19 outbreak in the world, which may constitute a threat to international peace and security’. China rejected the draft because it included a phrase that all countries show ‘full transparency’, interpreting it as a veiled attack on its handling of COVID-19.

While big power rivalry paralysed the UN response to the pandemic, the G7 meeting in March also failed to agree on a joint declaration because of US Secretary of State Mike Pompeo’s insistence on describing COVID-19 as the ‘Wuhan virus’ and the others gave up in disgust. The G20 meeting on the following day was unable to coordinate a global economic strategy to protect critical global supply chains and avoid deepening the recession. The China–US infighting prevented convening another G20 meeting in April.

The WHO remains the technical focal point for the pandemic response within the UN system, but it lacks the authority to cut through political obstacles. Turning the tide on the pandemic and dealing with its economic fallout will require unprecedented international cooperation — including prompt collective decisions on matters that are fundamentally political in nature, rather than purely technical.

The COVID-19 pandemic could be a moment for the United States and China to tackle a shared challenge. The pandemic is a non-traditional security threat that transcends rivalry and enmity, diluting the concept of a zero-sum military-led national security threat. Like an earthquake or climate change, COVID-19 is non-discriminatory and unbiased when it comes to wealth, ethnicity, nationality, ideology and systems of government.

Unfortunately, the global leadership needed for international cooperation is absent when it is required most urgently. The blame game between the two largest economies is hampering the global coordination and multilateral responses that are now urgently needed.

Suisheng Zhao is Professor and Director of the Center for China–US Cooperation at the Josef Korbel School of International Studies, The University of Denver. He is Editor of The Journal of Contemporary China.

This article is part of an  on the novel coronavirus crisis and its impact.

Source : East Asia Forum More   

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