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CURSE OF THE CORONA VIRUS: A CHAOTIC CHINESE ECONOMY

The coronavirus pandemic has seen more than 2,350,000 confirmed cases and more than 1,60,000 deaths worldwide. The outbreak spread from the Chinese city of Wuhan to more than 180 countries and territories since late January—affecting every continent except Antarctica. Efforts to prevent the pneumonia-like illness from spreading further have led to shuttered cities, widespread flight cancellations and shaken financial markets. The virus outbreak in mainland China and other Asian countries occurred mostly before March, while an exponential surge in new cases in Europe and the US. happened after. Up until march China had some other plans.

Early this year, the Chinese were busy engaging in a “trade war” with their arch-nemesis US. When the United States and China reached a temporary truce in their costly trade war,many wondered how Beijing could live up to its commitment to buy $200 billion more of American-made goods over the next two years. Surely, critics said, China will either renege on the deal, or it will switch to buying products from American farms and factories that it is currently purchasing from other countries.

The United States and China were already gearing up for the sale of tens of billions of dollars in American-made products to Chinese buyers in the coming months, according to people familiar with the thinking of officials in both countries. If carried through, that would strengthen President Trump’s election-year claims of achieving victory in his trade war with Beijing.

The two sides were also clear on what that meant for other countries. China could pull off those purchases only if it stopped buying a lot of farm products and merchandise from countries in Europe, Latin America and East Asia. Many of those countries are American allies, and some are not pleased at the prospect of losing China and its giant economy as a consumer of their exports.

Beijing had already begun ramping up its broad interagency process for managing trade to make sure that American companies receive the extra orders promised under the agreement.

 

The rapid fall of Chinese economy

What started as an amazing year for China with promises to rule the world soon became a nightmare even generations would dread. As the Corona virus became a global pandemic, China’s economy shrank for the first time in decades in the first quarter of the year, as the virus forced factories and businesses to close.

The last time when the Chinese stock market bubble popped in 2015, sending shares into an even deeper tailspin, the government stepped in with a rescue plan. Using a state-owned financing company and its sovereign wealth fund, China spent more than 1.2 trillion yuan ($170 billion) buying shares to shore up prices. In a similar situation, the first quarter’s market sell-off in China was the worst in many years and wiped nearly half a trillion dollars off the value of the country’s biggest companies. Now the Chinese government has to find ways to stem the panic before the coronavirus epidemic makes things even worse. Beijing already has a blueprint to work with. This time, the country may have to do the same.

The financial toll the coronavirus is having on the Chinese economy is a huge concern to other countries. China is an economic powerhouse as a major consumer and producer of goods and services. Its economy had ground to a halt during the first three months of the year as it introduced large-scale shutdowns and quarantines to prevent the virus spread in late January.
The disease’s transformation into a global epidemic — with case numbers climbing rapidly in countries as far afield as South Korea, Iran, Italy and the US — means China’s economy might recover only to discover that many of its largest trading partners remain ill, damping demand for its exports.

More ominously for China’s cash-strapped local governments, which in 2018 raised almost 40 per cent of their total revenues from land sales, house sales across China’s 30 largest cities fell more than 80 per cent in the first three weeks of February compared with the same period last year, according to official data. This has hit developers, which have tried but largely failed to entice buyers with online deals and steep discounts. Land sales are now running at less than a quarter of average levels, according to China Merchants Bank. All of these unprecedented pressures, and Beijing’s responses to them, are shaping up to be the ultimate stress test of the Chinese party-state that Mr Xi now dominates. “How long will it take to restart the economy? It can’t just go from zero to full speed.”

After the first-ever virtual spring meeting of the IMF and the World Bank concluded, IMF Managing Director Kristalina Georgieva said the global outlook was dire. “We expect global economic activity to decline on a scale we have not seen since the Great Depression. This year 170 countries will see income per capita go down — only months ago we were projecting 160 economies to register positive per capita income growth,” she wrote.The IMF managing director said policy advice will need to adapt to evolving realities to help lay the foundations for a strong recovery.

China’s loses global trust

While the US may not be pleasing its allies by halting exports of protective equipment, China is not going to find it easy to step into the US’ global leadership role. The breach of trust that China exhibited in concealing the onset of the pandemic will have far-reaching implications on its aspirations for global leadership. China’s closest allies and partners demonstrated their lack of faith in Beijing’s ability to handle the virus early on by closing their borders and repatriating citizens.

As the pandemic wore on, the narrative over the virus became focused on the decision of President Donald Trump and some of his officials to label the virus the “Chinese virus” or “Wuhan virus”. While Washington and Beijing pointed fingers, China’s partners became critical of the regime’s handling of the coronavirus crisis. Britain, who only months earlier had angered the US by allowing Huawei to bid for the rights to build its 5G infrastructure, is now reportedly eyeing a “reckoning” with China. Boris Johnson, who as prime minister was ultimately responsible for the 5G decision, now lays in hospital with the coronavirus.

How can Britain, or any country, trust China to provide critical components for its 5G infrastructure when it could not trust Beijing to provide accurate information about a public health crisis?

How can the US continue to allow the nation’s pharmaceutical and medical equipment to be produced in China when its media mouthpiece publicly threatens to “sink [the United States] into a hell of a novel coronavirus epidemic” by withholding these essential products when they are most direly needed?

How can Beijing expect to step into a global leadership role when it compromised its own people’s health and safety by silencing whistle-blowers and detaining dissidents?

Given the energy that China appears to be putting into promoting and pushing its medical diplomacy, it is surprisingly hard to uncover much evidence of a positive reception. It certainly does not seem that China is winning many new friends with its medical diplomacy. Some fear that in some ways Beijing’s displays of medical diplomacy will permanently reshape the international order. Yet, the reality is that the most damaging impact to the international order comes from the absence of leadership in Washington.

Viewpoint

A vacuum continues to exist, and is only being made larger by the fumbling response from US President Donald Trump and his administration. China has undoubtedly used its medical aid politically, but ultimately this is not going to shape the new world order.

Xi may try to control his people’s response to his ineptitude through propaganda and censorship, but the rest of the world will not as easily forget. He will need a new approach – and better advisers – to help rebuild the trust that has been lost. As for the global reaction to the pandemic, now fears are growing that the downturn could be far more punishing and long lasting than initially feared — potentially enduring into next year, and even beyond — as governments intensify restrictions on business to halt the spread of the pandemic, and as fear of the virus reconfigures the very concept of public space, impeding consumer-led economic growth.

21 Apr 20/Tuesday                                                                                          Written By: Saima Ibrahim

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