ccording to the latest data from the National Bureau of Statistics on April 17, the Chinese mainland economy shrank by 6.8 percent in the first quarter of 2020, its first contraction since 1992, as production and spending were frozen by the country’s coronavirus lockdown. Among all sectors, manufacturing suffered the most, down by 9.6 percent.
But as most lockdown measures gradually lift across China, the mainland economy is expected to bounce back later this year, putting it in a more favorable position compared to other major countries still battling the coronavirus.
The US, which now has the world’s most infections with more than 1.2 million cases, witnessed a 4.8 percent drop in its economy in the first quarter. As the pandemic rages, the US Congressional Budget Office estimated that the US economy could shrink by as much as 40 percent in the second quarter.
Besides economic damages, the pandemic has stirred political hostilities around the world, especially between the US and China as the Trump administration repeatedly blamed China for the coronavirus outbreak. This has triggered a heated debate about what the world will be like in the post-pandemic world, with many expecting decoupling between the US and China and a reversal of globalization.
NewsChina spoke with Zheng Yongnian, a professor and director of the East Asian Institute at National University of Singapore, and the author of Mega Trends - Next Steps of China, for his insights over the pandemic’s impact of both China and the global geopolitical and economic landscape.
NewsChina: China recently began lifting lockdowns and resuming industrial production. Do you think the Chinese government should do more to rescue the economy?
Zheng Yongnian: The pandemic’s impact is disproportionately greater on the working class and small businesses. The government’s countermeasures should focus on them. So far, the Chinese government has refrained from directly offering cash handouts to help them cope with the crisis. Instead, local governments have resorted to offering retail discount coupons. The rationale is that retail coupons would boost consumption, while cash handouts may end up in saving accounts. But I think direct cash support is still important. Even if some funds end up in people’s saving accounts, it would help boost society’s overall confidence and ease economic anxiety.
In addition, the government should strengthen its support of small businesses, which are the backbone of China’s middle class. Besidestax reductions, the government should consider a variety of policy tools including tax exemptions, fee waivers and favorable loans.
NC: What are your insights into the economic measures taken by Western countries in dealing with the pandemic’s impact?
ZYN: Generally speaking, many Western countries have resorted to printing money and quantitative easing. While this can solve short-term problems, it doesn’t address the fundamental problems behind the crisis. Injecting vast amounts of money into their economies will cause long-term issues such as inflation. As the pandemic looks set to continue for months, if not years, all affected countries should prepare for a prolonged period of economic difficulty. Even if the pandemic is effectively contained, it would take quite some time for economic activities to recover. I think many countries will witness some major crises in the next couple of years.
NC: Do you think the pandemic will cause a reverse in globalization?
ZYN: What we are talking about is the globalization following the 1980s, which I believe has come to a dead end. Globalization may regress to pre-1980s levels and become more limited. This type of limited globalization is founded on economic sovereignty, and will have two major differences.
Many countries will localize industries relevant to national security, particularly in the health sector. For example, the US relies on China for about 80 percent of its medical equipment and 97 percent of antibiotics. In the pandemic’s aftermath, the production of essential medical equipment such as masks, personal protection equipment and ventilators will be among the first to localize. Also, countries will work to diversify their supply chain to avoid putting all their eggs in one basket.
We don’t have to be too concerned about the transformation of globalization. This transformation is a rational response to the pandemic, and limited globalization is actually in the interests of all countries, including China.
NC: Does that mean an undermining of China’s role in the global supply chain?
ZYN: In the short term, the pandemic will severely damage China’s economy. But the robustness of China’s economy stems from the fact that China almost has a comprehensive manufacturing sector, which will help mitigate the damage. If Western firms in a certain industry left China in the pandemic’s aftermath and disrupted the supply chain, Chinese firms would easily replace them. This would become a driving force for Chinese companies to invest more in technological research. In the long term, we could see more Chinese companies transfer from their roles as outsourcing providers for parts and assembly partners to producers of final products.
I don’t think the pandemic will put an end to globalization in a more general sense, nor will it cripple economic ties between China and the West. With labor and land costs rising in recent years, China may be less attractive in terms of production costs. But what attracts Western companies most is not just the low production costs, but China’s vast consumer market.
NC: In the past weeks, many US politicians blamed China for the coronavirus outbreaks in their country, which Chinese diplomats rebutted. How do you perceive the apparent rising political animosity between China and the US?
ZYN: Indeed, since the Covid-19 outbreak, there has been rising anti-China sentiment in many Western countries. When the pandemic is effectively contained and there is a drop in demand for medical supplies from China, China-bashing could intensify. But I think China should respond to these sentiments with actions, not words.
With great resolution, China has contained the spread of the coronavirus, and is now gradually reopening its economy. China is now providing medical equipment to over 100 countries, which is a remarkable achievement.
But in response to criticism from the West, the Chinese government should not adopt a tit-for-tat approach. If China puts its focus on responding to every accusation from the West, it may be counterproductive, as all of its efforts could be discredited amid rising political animosity.
China should stay confident and keep calm. Given the humanitarian crises caused by Covid-19, it’s time for China to play its role as a major responsible country. By doing so, China should minimize its political considerations of supporting other countries and focus on humanitarian need. That is the best way to forge ahead.
NC: Some experts project that as the US withdraws from global leadership, China will gain more influence in the post-pandemic world. Do you agree with this observation?
ZTN: Despite all its achievements, China still lacks the power of discourse for the West to accept and appreciate China’s efforts. China needs to have a value system acceptable to the West.
While many people talk about the so-called decline of American leadership, what they mean is the decline of US soft power. As the US withdraws from the role of a global leader during the pandemic, it is perceived that the US has reduced its international response. This does not mean the decline of US hard power. History shows that the hard power of the US, including its economic and military power, increases after major international crises.
As the West continues to take a guarded stance toward China, the country should not be complacent. On the contrary, it should be prepared for a more difficult relationship with the US in the post-pandemic world.