Bouncing Back
In an interview with a senior fellow at Yale University and former Chairman of Morgan Stanley Asia, shared his observations on the Chinese economy under the impact of the coronavirus disease 2019 (COVID-19) epidemic. An edited excerpt follows:
Beijing Review: same time, with the world far more dependent on China today than it was back then, shortterm disruptions in the Chinese economy are bound to have a more serious impact on global growth. When China sneezes, today’s world is far more at risk of catching a bad cold than it was in 2003.
What kind of measures do you think the government could take to facilitate an economic rebound?
take hold, comparable to those that occurred in the aftermath of SARS in 2003. By staying focused on public health imperatives and bringing COVID-19 under control as soon as possible, the Chinese economy should be well positioned for a solid rebound in the second half of 2020.
What impact do you think this outbreak will have on the global economy? How would a Chinese rebound help the world economy?
With China accounting for about 20 percent of the global GDP, a 2-percentage-point shortfall in annualized Chinese GDP growth— a distinct possibility in the first half of 2020— could knock approximately 0.5 percentage point off annualized world GDP growth during the first and second quarters of 2020. That could be problematic for a global economy that has already slowed into the danger zone; indeed, world GDP grew by just 2.9 percent in 2019, according to the IMF’S January 20 update, only 0.4 percentage point above the widely accepted 2.5-percent global recession threshold.
With European industrial output beginning to weaken late last year and with the Japanese economy contracting much more sharply than expected in the final period of 2019 due largely to the second installment of a consumption tax hike, the global economy was not exactly on firm footing before the sharp disruption to the Chinese economy. All this means that COVID-19, together with its collateral impacts on neighboring countries through supply chain and finished goods trade linkages, could heighten financial market fears of global recession during the first half of 2020.
What is your perspective on the long-term prospects of the Chinese economy? Do you think this public health emergency will lead to the “middle-income trap” for the country?
China faces many challenges in its daunting aspirations to push ahead on its twin centenary development goals. The integrity of its public health system is necessary but not sufficient for China to stay the course. It underscores the safety net constraint that has long encouraged fear-driven precautionary saving by Chinese households, thereby inhibiting more vigorous growth in discretionary personal consumption.
The “middle-income trap” is less about disease control and public health and more about the critical shift from imported to indigenous innovation. This, of course, has become a major area of dispute in the trade conflict with the United States, which strikes at the heart of many of China’s most important pillars of technological prowess: intellectual property rights, technology transfer, cyber security and access by China’s leading technology companies such as Huawei and ZTE to critical U.s.-made components such as semiconductor chips.
The conflict with the United States has been an obvious and important wakeup call for China’s aims to build a self-sustaining culture of indigenous innovation. There are many encouraging signs of extraordinary progress in achieving this objective over the past several years, especially in key applications industries such as e-commerce, fintech, life sciences and, of course, artificial intelligence. The outbreak of COVID-19 is a grim reminder that technological prowess is not an end in and of itself. If China seizes the opportunity to convert newfound prowess in indigenous innovation into a higher-quality growth experience, complete with a state-of-the-art public health system, it will be much better positioned to avoid the long-feared setbacks of the so-called “middle-income trap.”