Contrary to cries of a “China doomed” by the anti-Communist Party crowds, China could play an important role in the post-Covid-19 pandemic world as it did in the post-2008 financial crisis period.
Reckless financial reforms and management in the US wreaked havoc on the global economy, causing Chinese economic growth to plunge from more than 10% to 6.5%, reducing the world economy from 4.3% to 1.8% and sinking the largest developed economies into a deep recession in 2008, according to the World Bank.
In response, the Chinese government quickly mounted a huge stimulus package of more than US$580 billion, or almost 14% of its GDP. Spending the money largely on infrastructure construction, environmental projects and other employment-creation projects, the massive package helped China reverse the economic downturn, from 6.5% in 2008 to 9.2% in 2009.
The Chinese stimulus not only put its own economy on an upward trajectory, but also that of the world, particularly those of resource-based economies. Buying large quantities of resources from and investing in countries around the world accelerated economic development in emerging markets such as Brazil and prevented Australia from falling into a recession.
Since then, China has contributed to more than 30% of global economic growth since 2009, according to the World Bank and other organizations’ statistics.
China might again be the world’s engine of economic growth, partly in light of its successful containment of the Covid-19 pandemic because the “draconian” or “illiberal” – as some Western critics termed them – measures afforded it an early start to re-opening the economy.
April economic indicators released by the China National Bureau of Statistics showed industrial production rose by more than 11% and exports increased by over 3%, just to name a couple of key figures. The retail trade declined by more than 16% in the same period because of business shutdowns.
However, shops, malls and other retail businesses are starting to reopen, giving rise to the expectation that the economy could enjoy a sharp rise in private consumption in the months to come. Indeed, consumer and investor confidence might be increasing in light of the more than 830,000 new businesses entering the market in April, as reported by the Global Times and other Chinese state news media.
As its economy is inching towards full recovery, China could buy large quantities of imports, thereby helping the global economic recovery as it did in the aftermath of the 2008 financial crisis.
Then there is China’s Belt and Road Initiative. The British Broadcasting Corporation’s prediction that Covid-19 would derail the BRI in 2020 might be wrong again – the BBC and other Western news media have been predicting China’s economic demise for more than 40 years – because it is still “kicking.”
Two-way trade of more than $6.5 trillion between China and the participating countries rose by over 3% in the four months of 2020, according to the China General Customs Commission. Turkey, Nigeria and other countries recently signed new BRI investment projects, while existing ones such as the Kunming to Laos project are humming along.
Because of the proven economic benefits the BRI has brought, it would not be a surprise if more countries, including staunch US allies, join the Chinese globalization initiative in the years ahead. The BBC, and other Western news outlets, should be more concerned with the British economy.
The West, on the other hand, is still struggling to “flatten the curve” or reduce the number of people infected or who have died from Covid-19. Not heeding China’s January 3 warning about the danger of Covid-19 hit the US, UK, Italy, France and Spain hard, respectively accounting for the majority of the more than 4 million infected and 300,000 killed around the world so far.
Instead of taking responsibility for its policy failures and incompetence, the West, the US in particular, has blamed China.
The Trump administration seems to be intensifying its “blame China” game, using it as the “cornerstone of its presidential campaign.” The Republican Party was reported to have issued a 57-page campaign strategy of blaming China for not only Covid-19, but everything under the sun.
Yahoo News reported that the Pentagon hired defense contractor Sierra Nevada to produce an “intelligence” report that was supposed to support senior US officials such as Secretary of State Mike Pompeo’s claims that the virus was incubated in and released by the Wuhan Institute of Virology.
However, the Daily Beast revealed that the “evidence” is “provably false,” suggesting that the authors were inventing “fake evidence” and spinning it to make it look “real.”
The problem of blaming China with “subjective if not fake information” is it could exacerbate the US’ and the West’s economic and health issues. The stance not only hinders cooperation in finding an effective vaccine for stopping Covid-19, but could plunge the US and China into “Cold War Two.”
Hardening relations with China could damage the US economy further, particularly the agriculture and energy sectors. And re-opening the economy without containing the spread of Covid-19 could cause more infections and deaths, according to Dr Anthony Fauci, the director of the US National Institute of Allergy and Infectious Diseases.
Indeed, blaming China for the pandemic and initiating a trade war against it has gained nothing for America except garnering some popular support for the self-serving politicians and sowing racial hatred against Asian Americans.
Although Covid-19 and the trade war have hardened Americans’ negative views on China, from about 50% to more than 65% according to the latest Pew Poll, the numbers of people infected and died from it continue to climb. The economy is sinking further in that US government statistics showed unemployment is rising and economic growth is in negative territory.
Amid all the issues, the US decided to ratchet up “toothless” but costly military tensions against China by increasing the number of “freedom of navigation operations” (FONOPs) in the South and East China seas and the Taiwan Strait. These “photo op” stunts gained nothing for the US except wasting its taxpayers’ money, infecting sailors with the coronavirus and making countries in the region nervous.
Instead of “scaring” China, the country deployed more military assets in the region and became more assertive by sending more warships, submarines and warplanes to warn and reject US navy ships from its claimed territories. The countermeasures seemed to suggest that China was willing to defend its territorial claims or “core interests” with force if necessary.
Unless the US is willing to go to war with China, no American economic or military coercion could stop the “communist” country’s rise. Since most Americans would not support a China-US military conflict, particularly one based on fake information, one could argue that the tensions might be politically motivated, the US doing whatever it takes, except going to war, to prevent China from challenging its global supremacy.
On that stance, Republicans or Democrats are on the same page, maintaining global supremacy and preventing any nation from challenging that position. For example, it was a Democratic president who widened the Vietnam War because of the fear that a “Communist domino effect” could erode US dominance.
Today, Republican President Donald Trump has made China the main target of US foreign and economic policies because the Asian giant is becoming a “peer power,” affording it to challenge American economic, technological and military hegemony.
America’s obsession with dominating the world might be a major reason it is spending too much on the military and not enough on socio-economic enhancement programs such as healthcare services and infrastructure construction and repairs. Making weapons it hopes never to use is a gross waste of money and impairs the US ability to pull itself or lead the world economy out of the post-Covid-19 recession.
The EU and Japan appear to be in no better economic shape in that their GDPs, respectively, are expected to contract by 3.4% (IMF) and 7.5% (European Union). Their economic woes might not improve for a lack of fiscal and monetary muscles. Japan’s government debt and GDP ratio exceeded 230%, and that of the EU averaged about 90%. The lending interest rate is nearing zero.
What’s more, the consumer confidence index in Japan plunged from 39 to 22, according to Trading Economics. The EU fared no better as its country consumer confidence index plunged between 28.8 and 65.8 points. This imposed a huge challenge for economic recovery because consumption accounts for more than 70% of Japanese and EU GDP.
For reasons explained earlier, China seems to be the only economy capable of pulling the world economy out of its doldrums. In addition, the Chinese government has effective fiscal and monetary policy tools to stimulate economic growth.
Reducing the required reserve ratio would inject additional liquidity into the economy, spurring consumption and investment. Accounting for less than 56% of GDP, the Chinese government could spend heavily on infrastructure and other economic-enhancing projects.
Contrary to Western analysts and officials claiming China would be drowning in a “sea of debt,” China’s financial position and system are in relatively good shape. With an accumulated capital formation of almost $30 trillion and foreign reserve above $3 trillion, the country has considerable monetary power to weather any crisis.
What’s more, China’s “huge debt burden” is more of an accounting issue in that the largest debtors (state-owned enterprises) and lenders (state-owned banks) are owned by the state. According to the CIA Factbook, China’s international indebtedness, estimated at less than $2 trillion or 14% of GDP, is considerably lower than those of the US, UK and Japan, respectively estimated at about $20 trillion (almost 100% of GDP), $8 trillion (280% of GDP) and over $3 trillion (60% of GDP) in 2019.
Another point that Western analysts seemed to ignore is the credit side of the balance sheet – debts were largely spent on infrastructures, housing, factories, etc. These assets have value and generate economic activities or value.
On the US and Japan urging their businesses to depart China, the US-China Chambers of Commerce found very few takers. The revelation is not surprising for a number of reasons.
One, most would stay in China because of its manufacturing comparative advantage, huge domestic market and the politically-motivated allegations. China’s comprehensive infrastructure affords its factories to produce more efficiently than any country, including the US. Besides, moving out of China will be costly, time-consuming and firms would be losing a profitable and huge market.
Two, crises are “normal” short-term unfortunate phenomena, emerging from time to time. For example, the H1N1 flu and 2008 financial crisis received considerable attention at the beginning, but are largely viewed as “unfortunate historical inconveniences” today. It will be the same for Covid-19 and the trade wars.
Furthermore, Covid-19 will not be the last pandemic to hit the world. It is absurd to suggest China deliberately created and released the virus to infect itself and the world.
Three, politicians and their policies come and go, including Trump and his populist “America First” posture, but businesses are in for the long haul. His misguided and harmful policies would likely be abandoned by his successors if not by himself if Trump receives a second term because he wants to be remembered as the “Make America Great Again” president.
The fact of the matter is moving out of China just to escape paying the politically-driven tariff does not make economic sense, explaining why businesses are defying Trump’s “order.”
Nor did the Japanese government’s plan to pay its businesses to relocate out of China convince many to do so. A recent survey of five big Japanese businesses including Toyota showed that none would take up the government’s offer.
Other developing economies simply do not have the infrastructure or a pool of skilled labor to compete with China. The domestic Japanese economy is literally dying because of an aging and declining population. For these reasons, the Chinese market is indispensable to the country’s business enterprises.
Although some EU and British politicians talked “tough” on China, their economies are highly dependent on the Chinese market as a source of investment and destination for exports. China is Germany’s largest trade partner outside the EU, buying much of the latter’s automobiles and industrial products.
The UK would be even more dependent on China because of Brexit because it will be less accessible to the European market and the US, at least under Trump, is less reliable as a trade partner.
So one could therefore argue that China might emerge stronger in the post-Covid-19 pandemic period, not only because of its economic prowess, but also because the charges against China are becoming increasingly debatable if not being manufactured.
New scientific studies are increasingly defending China’s harsh virus-containing measures and refuting the claim that it was brewed in a lab. And no scientists definitively claim China was the origin of Covid-19.
The US, on the other hand, is becoming increasingly isolated and discredited for doing an “Iraq” intelligence report of trying to find “evidence” in support of Trump’s and his senior officials’ claim. Even the United States’ staunch ally, Australian Prime Minister Scott Morrison, is saying the virus was not made in the Wuhan lab.
Ken Moak taught economic theory, public policy and globalization at university level for 33 years. He co-authored a book titled China’s Economic Rise and Its Global Impact in 2015. His second book, Developed Nations and the Economic Impact of Globalization, was published by Palgrave McMillan Springer.