Restorative for Global Growth
Why China’s early work resumption means hope for world economy
China’s economic recovery is stronger than expected, predicted to grow by 1.9 percent in 2020, according to the latest World Economic Outlook report released by the International Monetary Fund (IMF) on October 13.
Compared with the earlier IMF report in June, this forecast on China’s economic performance is up by 0.9 percentage point, indicating accelerating recovery and a growth rate for the entire year might be higher than the IMF prediction.
The IMF has also assessed that the world economy is showing a positive tendency, and revised the recession rate from its earlier 4.9-percent estimate to 4.4 percent. But according to its projection, most developed and emerging economies will still be in recession, with China the only major economy to register growth.
Policy priorities
The key to the Chinese economy taking the lead in recovery and maintaining its upward trend is taking the right policy priorities at the different stages of the novel coronavirus disease (COVID-19).
Since the virus hit in January, the government spent three months on epidemic control and prevention with the most stringent measures. They included implementing strict quarantine rules countrywide, temporarily suspending economic operations, and shutting down Wuhan, capital city of the central province of Hubei where infections were first reported in China.
In March, when the situation began to be brought under control, work and production resumed in monitored phases with areas where the epidemic was less serious taking the lead.
In May, the disease was mainly under control across the country. The following months have been devoted to fostering economic growth. The government overcame the pressure of economic stagnation during the epidemic control period and made every effort to facilitate production resumption.
Despite the suddenness and seriousness of the epidemic, the Chinese economy suffered less than two months of shock. Some regions maintained growth even in that period. Wuhan lifted the shutdown on April 8, which means its economy was in suspension for less than three months.
Earthquakes, floods and epidemics are exogenous shocks to the economic system and normally do not cause a structural shock if they are not prolonged. The economy will rebound to normal rapidly after a disaster; sometimes it bounces back even more rapidly.
China’s GDP neared 100 trillion yuan ($14.54 trillion) in 2019. It boasts a strong production capacity and a market with high potential thanks to its 1.4-billion population whose purchasing power is growing. Considering its economic vitality and resilience, the impact of COVID-19 will be mild from a long-term view.
In other words, the contraction of China’s economy during the epidemic would be very small when viewed as an average in the next 12 or 24 months. The negative growth in the first quarter has been completely offset in the second and third quarters, and the first three quarters totally achieved a growth of 0.7 percent.
The Fifth Plenary Session of the 19th Communist Party of China Central Committee in October rolled out the framework of the 14th Five-year Plan (2021-25) and the new plan will further put the economy back on track.
Therefore, COVID-19 is not likely to produce substantial impact on the long-term growth of the economy. The situation is similar to that in 2003, when China was hit by the severe acute respiratory syndrome (SARS). Although the economy was hugely affected by SARS, the impact lasted no more than five months. And the annual economic growth in that year exceeded 9 percent. From 2003 to 2011, the average yearly GDP growth rate surpassed 10 percent.
World scenario
Currently, many economies are facing a resurgence of the pandemic, and some of them hit new records in daily new COVID-19 cases. That means we might live with the virus for a long time. A pessimistic outlook is that the pandemic may continue until 2022 or even longer.
In this scenario, the repercussion of COVID-19 on the world economy will turn into long-term hindrance. For example, if a large number of enterprises go bankrupt and a large workforce withdraws from the labor market, productivity would contract and the economic cycle would be directly changed long-term.
Some countries have adopted massive relief measures and continued to push up their capital markets, which sustained their prosperity statistics-wise but actually exacerbated capital mismatch and hurt the economy structurally.
The pandemic has hampered the movement of people and goods, the once booming aviation industry has been devastated, and the global industrial chain and
regional production network may have to be reconstituted. As the economies of various countries perform differently, changes in the economic strength may also accelerate changes in the global economic landscape.
So from an objective point of view, the Chinese economy’s return to track is crucial to the growth of the international community. When the pandemic fades out, market confidence will gradually return and people will look for new investment opportunities. The Chinese market will boost global investment expectations then as it was the first to recover and continue to launch new opening-up measures and it will have both a higher rate of return and lower risks.
Increasing investment in the Chinese market will help promote a more optimal allocation of resources around the world and rectify the mismatch caused by the pandemic.
China’s economic resumption is benefiting four types of countries. For countries exporting resources, resumption of the Chinese economy has enhanced the global demand for commodities and prompted the recovery of commodity prices. In the first nine months of 2020, China’s iron ore, oil and rubber imports increased respectively by 10 percent,12 percent, and 14 percent year on year.
China imports a large amount of technology and services, which will help technologyand service-exporting countries. Hi-tech companies with negative growth will return to profitability. Otherwise, many enterprises might be unable to maintain investment in research and development due to declining profits.
The third type is capital exporters since China will provide investment opportunities for global capital with a higher return rate.
Countries hit hard by the pandemic will see their demands for medical supplies met. China is a major producer of such supplies. With COVID-19 under control at home, its domestic demand for them has decreased. This along with production recovery means a decrease in the prices of personal protection equipment and other medical supplies.
China is also playing its part in global public health cooperation to fight against the pandemic, which is significant for promoting world economic growth.
The Chinese Government’s most important principle in COVID-19 prevention and control has been to put people first. Only when people’s safety is ensured can economic growth be resumed.
If economic growth is prioritized over people’s safety, it will benefit only some people and groups. The Chinese principle holds good for the global community with a shared future as well.