China should guard against protectionism

The International Monetary Fund expects global economic growth to contract by 3 percent in 2020, the most serious recession since the 1930s Great Depression, because of the quarantine and social distancing measures implemented by countries following the novel coronavirus’ global outbreak.

The IMF believes the pandemic is a global crisis no country is immune from and said the consequences of the public health crisis are difficult to gauge given the uncertainty about its duration and severity. If the outbreak does not subside by the year’s second half, the IMF said it could further affect global supply chains and push global GDP down more sharply.

Most economic crises in history had started locally before having a ripple effect on the global economy. Jointly building a firewall could be one way for the fiscal and monetary authorities of all countries to deal with the crisis transmitted by the financial system.

However, the epidemic prevention and control measures adopted globally this time have themselves disrupted supply and demand in markets, hitting the financial system. Furthermore, the uncertainty surrounding the outbreak’s duration has dimmed the prospects of a global economic recovery, bringing sustained stresses to the financial system.

However, there is no need to be excessively pessimistic. The IMF can use the negative forecast to urge all countries to actively work out plans to promote economic recovery and global multilateral cooperation to deal with the crisis.

Global supply chains have been affected, but the supply systems have not been disrupted on a large scale yet. Many countries have delayed debt repayment and some countries have provided cash subsidies for lowand middle-income people to help them meet their basic living expenses. So, once the outbreak eases, production and consumption will restart, undercutting the possibility of a new economic depression.

Nevertheless, we should not ignore the long-term effects of some stimulus measures adopted by developed countries following the epidemic outbreak, such as their higher debt level and their zero interest rates, on the development of the global economy. Also, due to their weaker capability to fend off the impact of the pandemic, the more serious consequences caused to emerging economies may escalate into political and social crises, which will bring a new challenge to the global economy.

China should first guard against a raised macro leverage ratio and a structural rise in asset and commodity prices, and, as the world’s largest exporting country, should pay enough attention to the possibility of rising protectionism in the process of economic recovery in all countries. It should also further promote its ongoing economic structural transformation, expand domestic demand and accelerate innovation.