{"id":170873,"date":"2020-05-20T13:10:33","date_gmt":"2020-05-20T17:10:33","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=170873"},"modified":"2020-05-20T12:42:11","modified_gmt":"2020-05-20T16:42:11","slug":"chinas-two-sessions-herald-rebound-of-economy","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2020\/05\/chinas-two-sessions-herald-rebound-of-economy\/","title":{"rendered":"China\u2019s \u2018Two Sessions\u2019 herald rebound of economy"},"content":{"rendered":"
May 20, 2020<\/div>
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By Dan Steinbock
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– As the coronavirus fallout is spreading in Western economies, China\u2019s rebound has begun. Global recovery requires global cooperation, however.
\n<\/b><\/strong><\/p>\n

Today, international interest in the annual Two Sessions of China\u2019s top legislative and political advisory bodies – National People\u2019s Congress, and Chinese People\u2019s Political Consultative Conference \u2013 which starts on Thursday, is exceptionally high.<\/p>\n

Due to the global pandemic, the Sessions take place under strong anti-epidemic measures, including social distancing, and will be significantly shorter and rely more on videoconferences. Such measures are in line with the science-based health policies, which the central government adopted in late January.<\/p>\n

Apart from their sociopolitical significance, the Two Sessions herald the rebounding of the Chinese economy, even amid the global pandemic.<\/p>\n

From virus containment <\/b><\/strong>to economic rebound<\/b><\/strong><\/p>

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In China, big business has operated with near full capacity since mid-April. Factories and energy plants are humming. Stores are reopening.<\/p>\n

Of course, there\u2019s no immediate return to the pre-virus world. Yet China\u2019s new normal differs dramatically from that in the US and Euro area, thanks to proactive governance and science-based policies to contain the virus outbreak.<\/p>\n

In China, the rebound of the economy began in March-April. In the US and Europe, it could ensue more broadly only after the 2nd<\/sup>\u00a0quarter. But even those hopes could be undermined by premature exits from the lockdown, new virus waves and residual clusters.<\/p>\n

In the 1st quarter, China\u2019s growth shrank 6.8 percent. However, the rebound could raise the 2nd<\/sup>\u00a0quarter data close to 4 percent, while the 3rd and 4th quarter could prove close to 5 and 6 percent, respectively. That would leave the 2020 result at 2 percent, as the IMF has predicted.<\/p>\n

Assuming peaceful international conditions, faster rebound could improve the outcome, however. Despite the dire international horizon, China\u2019s economy has potential for an upside surprise.<\/p>\n

More fiscal expansion and <\/b><\/strong>faster response to crises<\/b><\/strong><\/p>\n

This year marks the last one of the 13th<\/sup>\u00a0five-year (2016-20) period. But, even if China could see a V-shaped recovery, can the country deliver its promises of improving living standard, eradicating abject poverty and environmental sustainability?<\/p>\n

Here’s the short answer: It\u2019s a precarious balancing act. More fiscal expansion is needed to support the economy, while improved reporting systems are likely to be implemented to prevent future public-health emergencies.<\/p>\n

Long-term objectives \u2013 doubling living standards, eradicating poverty and reducing pollutants \u2013 will prevail but they can be effectively executed only after the pandemic is fully contained worldwide. Ironically, the past months\u2019 economic slump has translated to a dramatic, though temporary fall in emissions.<\/p>\n

The greatest challenge in the coming months will be to overcome the current misalignment between supply and demand. During the 2nd<\/sup>\u00a0quarter, the supply-side performance has rapidly improved as economic capacity is almost back to normal and industrial production is up. Last month, even the export sector\u2019s performance was strong. The government\u2019s strong back-to-work push is paying off.<\/p>\n

Demand-side story harder, <\/b><\/strong>likely more challenging for West<\/b><\/strong><\/p>\n

The demand-side will take more time. In the months of strict quarantine measures, e-commerce sales took off dramatically as people resorted to online shopping. Retail and shopping malls, clothing and cosmetics and other consumption-led sectors will take longer to normalize.<\/p>\n

In the West, the demand-side story will prove even more challenging,\u00a0due to greater virus impact and longer delays in the return to full<\/i><\/em>\u00a0employment.<\/p>\n

As long as a vaccine against the virus and effective therapies are not available, uncertainty will constrain private investment. But in China, that has been offset by government-led infrastructure investment, which is likely to remain a key growth driver until full stabilization.<\/p>\n

Fiscal policies are likely to be strengthened, with expected measures such as raising the fiscal deficit rate to 5 percent of GDP and issuing more than $420 billion (3 trillion yuan) in special treasury bonds to boost fiscal funding.<\/p>\n

In turn, fiscal accommodation is likely to be supported with easing of monetary and credit policy. In the past four months, newly increased social financing and loans have seen new highs. The demand for financing is recovering as production has resumed. That\u2019s vital for improved employment during these challenging times.<\/p>\n

International landscape <\/b><\/strong>key to longer-term future<\/b><\/strong><\/p>\n

In China, the worst economic damage may be behind; in the US and Euro area it\u2019s still ahead. Despite the challenging 1st<\/sup>\u00a0quarter, this damage is unlikely to penalize China\u2019s strong long-term economic fundamentals. In the West, the fallout of the outbreak is likely to prove more protracted.<\/p>\n

In the 1st<\/sup>\u00a0quarter, US GDP growth fell to -4.8 percent; but the 2nd<\/sup>\u00a0quarter, it could plunge close to a whopping -40 percent, according to recent US reports. In the Euro area, growth fell to -3.8 percent in the 1st<\/sup>\u00a0quarter but that\u2019s only a prelude to the expected double-digit plunge in the 2nd<\/sup>\u00a0quarter.<\/p>\n

Since such economic outcomes can be attributed to the mishandling of COVID-19 risks, they are likely to result in political tsunamis in the West in the coming months.<\/p>\n

In light of the global economic outlook, the key question is whether the coronavirus lessons will foster international cooperation, which is the only way out, or result in global conflicts scenarios, which would further weaken external demand.<\/p>\n

Responsive and responsible governments would delay and prolong the current trade-truce schedules. Yet, the Trump administration is neither. The White House\u2019s misguided trade war and COVID-19 mishandling has already caused US debt to soar record-fast to $25.3 trillion.<\/p>\n

As US federal debt to GDP ratio is now close to 120 percent \u2013 at par with that of Italy amid its debt crisis in 2011-12 \u2013 such leverage, which the White House and the Fed will have to further increase, could prove costly to global economy.<\/p>\n

About the Author:<\/strong><\/em><\/p>\n

Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and <\/i><\/em>the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see <\/i><\/em>https:\/\/www.differencegroup.net<\/i><\/u><\/em><\/a>\u00a0<\/i><\/u><\/em><\/p>\n

A version of the commentary was published by China Daily on May 20, 2020<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Dan Steinbock – As the coronavirus fallout is spreading in Western economies, China\u2019s rebound has begun. Global recovery requires global cooperation, however. Today, international interest in the annual Two Sessions of China\u2019s top legislative and political advisory bodies – National People\u2019s Congress, and Chinese People\u2019s Political Consultative Conference \u2013 which starts on Thursday, is […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-170873","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/170873","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=170873"}],"version-history":[{"count":1,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/170873\/revisions"}],"predecessor-version":[{"id":170874,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/170873\/revisions\/170874"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=170873"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=170873"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=170873"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}