Commentary: Can the world benefit from China’s economic resilience yet again?

SINGAPORE: China is widely reported to be the first and only G20 economy to recover from the COVID-19 pandemic with growth in 2020. 

This reverses the shrinkage of its economy by 6.8 per cent in the first quarter of the year due to the initial lockdown reaction to the viral outbreak - the first on record since 1992 when quarterly GDP statistics started to be officially collected and recorded.

Industrial production, car sales, domestic airline ticket sales, domestic tourism and retail consumption are all up in China, as students have returned to schools and offices re-opened for business operations - all of which appear to be visible signs of recovery.

RESILIENT DOMESTIC ECONOMY

Data from China’s National Statistics Bureau indicated retail sales figures increased 5 per cent year-on-year in November faster than the 4.3 per cent rise the month before. The International Monetary Fund (IMF) is forecasting China’s economic growth at 1.8 per cent in 2020, with official figures show a 4.9 per cent growth between July and September.

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Retail spending and factory production were also augmented by demand for work-from-home (WFH) electronic equipment, masks and medical supplies production and exports. There was even a mini-boost from the “Golden Week” holiday consumption, helped by Chinese restrictions on overseas travel as well as incoming restrictions in other countries.

Millions of Chinese tourists were spending on domestic travel and internal tourism. Chinese duty-free sales also soared due to internal tourism during this period. The recovery appears to be expanding into diverse sectors and becoming less dependent on government assistance.

According to the Chinese Ministry of Culture and Tourism, 637 million trips were made within China during the Golden Week holiday with revenues of 466.6 billion yuan (US$69.6 billion) as the customs duty-free transactions data in Hainan - a top vacation spot - increased by almost 150 per cent from 2019.

China’s central bank governor Yi Gang used the word “resilience” to describe his country’s economic recovery while highlighting this growth’s contribution to the global economy, which the IMF projects will be shrinking by a magnitude that makes it the worst on record since the Great Depression of 1929 to 1933. 

In October, IMF projected a 4.4 per cent shrinkage in the global economy.

STILL, EXPORTS REMAIN IMPORTANT

China was early in proclaiming control over COVID-19 in March. Since then, the Chinese state was fast to implement economic stimulus in the form of tax cuts and lower interest rates to re-capitalise local governments and lower lending rates for businesses.

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China did not follow the United States, European Union (EU) and Japan in coming up with massive stimulus packages of US$1 trillion or more out of worries that such measures would add on to already-high Chinese debt.

China’s sterling economic results appear to have given rise to voices both within and outside of China that its tough COVID-19-mitigation measures - lockdowns, travel restrictions, massive testing and quarantining in large-scale facilities, among others - have worked.

Lingering challenges in Chinese economic recovery remain as unemployment, uneven recovery and growth across different regions, household and corporate debt as well as political-economic disagreements with some major trading partners.

The bounce-back to growth rates at 4.9 per cent is also slightly lower than the expectations of 5.2 per cent by some economists.

In addition, export-led growth appears to remain important for China with the growth rate for exports coming in strongly from September onwards as exports increased by 9.9 per cent for the month compared to September 2019.

DUAL CIRCULATION ECONOMY

A Plan B is also in place. 

Managing global tensions, anti-globalisation forces, unfavourable geopolitics and slower overseas demand, the Chinese government has also instituted a “dual circulation economy” - to lower dependence on external markets for economic growth while boosting local consumption and accelerating technological innovations. It is still early to tell the full impact of such initiatives.

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As the dual circulation mechanism was being set up, China’s industrial output continued to expand in November for the eighth straight month. Official surveys indicated Chinese factories’ activity level increased at the fastest rate in more than three years in November while growth in the services sector reached a multi-year record.

Chinese manufacturing grew in November at the fastest rate in 10 years. China’s Caixin Market Manufacturing Purchasing Managers’ Index (PMI) increased from 53.6 in October to 54.9 in November.

Consumer demand is facilitating Chinese manufacturers’ recovery to almost the same levels as its pre-pandemic economy, helped by an increase in global demand. 

If ever China needed a reminder, this was a sign to show that China needed the international community for sustainable recovery since industrial exports remain crucial for China’s economic growth.

China’s e-commerce tech giants have also contributed to this optimistic streak of growth in November by holding the yearly online Singles’ Day sale events, pushing up Chinese consumption and demand for smaller consumer items manufacturing firms which rushed to meet those orders. 

For instance, Alibaba and JD.com alone saw US$115 billion of sales over the period, approximately twice the level of last year. Partly because of this annual sales event, retail sales rose 5 per cent on-year.

ENGINE OF GROWTH FOR THE WORLD?

China’s recovery is expected to be sustained by global and domestic demand, credit availability through lower lending rates to businesses as well as stimulus policies in the form of tax cuts and lower interest rates that can carry growth over into 2021.

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By Dec 21, the one-year loan prime rate (LPR) was maintained at 3.85 per cent while the five-year LPR remained at 4.65 per cent, static for eight sustained months after reductions earlier in the year.

Consumer confidence also appears to be enhanced by the absence of large numbers of COVID-19 coronavirus infections.

The conclusion of all these developments is China will likely be an engine of growth in the world economy as it wriggles out of the global pandemic.  This was also the case a decade ago during the 2008 to 2009 global economic recession.

Then, while many countries struggled to come out of the slump, 98 per cent of China’s workers regained employment by 2010 whereas its economy grew by 11.9 per cent in the first quarter of that year due to a US$586 billion stimulus package. China’s growth then contributed to the global economy coming out of the recession.

It looks like, history may repeat itself this time as the Chinese economy remains the main bright spot in an otherwise gloomy global economic outlook.

This is especially so since the US, the world’s biggest economy, is currently coping with the winter wave of the coronavirus. 

In October, the IMF projected the US economy to contract by 4.3 per cent for the year while important European economic pillars like France and Germany are projected to face contractions of 9.8 per cent and 6 per cent respectively for 2020.

The world’s third-largest economy Japan also saw its economy pick-up from July to September witnessing growth in exports, household spending, and government initiatives to augment demand. Just like China, global demand was also a factor in Japan’s factory output stabilisation in November.

WORKING TOGETHER AND NOT AGAINST EACH OTHER

For China and the world to pull themselves out of this recession, the world’s leading economies must try to mitigate their geopolitical rivalries, as was the case during the 2008 global financial crisis.  

China may have the opportunity to work with the incoming Biden administration to change this and work closer with the international community.

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For instance, the President Donald Trump-era Sino-US trade deals signed in January can be a platform to work with China to increase acquisitions of US products and services by US$200 billion or more over the period of 2020 to 2021. 

These deals are also platforms to work with China to greatly increase Chinese purchases of US farm and manufactured products.

However, unlike the global financial crisis, China is more integrated now into economic architectures, especially those with Asian countries.

For instance, Japan and China are now both members of the Regional Comprehensive Economic Partnership (RCEP) while the three major countries of Northeast Asia - China, Japan and Korea - are looking to build closer economic ties among themselves, including a trilateral free trade agreement.

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These closer economic and trade links are important if Asian countries are to benefit from China’s recovery as it is also the largest export market for most of them.

It is because of China’s position as a node in the global and regional economy that its recovery will help drive the world to come out of this slump sooner, if the world’s leading economies can once again work together in accordance with their national interests. .

Dr Lim Tai Wei is Associate Professor and Regional Advisor at the Singapore University of Social Sciences and Adjunct Senior Research Fellow at the East Asian Institute at the National University of Singapore.