Is the virus Chinese? The deal sure is

PANDEMIC

China will be the only economy in the world to record growth this year according to OECD estimates - Beijing’s secret? Government stimulus to exports rather than private consumption as done by the West

Is the virus Chinese? The deal sure is
CdT arcive

Is the virus Chinese? The deal sure is

CdT arcive

The latest OECD ‘Economic Outlook’, published a couple of weeks ago, reserves a surprise that few would have bet on in February, in the dark days of the contagion in Wuhan. The long column with the change in real GDP this year compared to 2019 is populated by an endless sequence of minus signs, with one and only exception: China. According to the estimates of the organization based in Paris, the gross domestic product this year is destined to fall in the United States (-3.8%), to fall in the Eurozone (-7.9%), to sink into the Great Britain (-11.1%), India (-10.2%), Italy (-10.5%) and in general all over the world (-4.5%), but not in the former Celestial Empire, which in the year of the coronavirus it will succeed in the miracle of seeing GDP grow by 1.8%.

Containment of the virus

In short, China, a global outbreak of the coronavirus, finds itself leading the recovery of the global economy. Although Beijing’s official data on infections must be taken with a grain of salt, in the ranking of the most affected countries curated by Johns Hopkins University, China is now only in 42nd position with just over 90,000 cases, less than in Kuwait or Qatar. while the United States stands out in the lead with over seven million positives. Net of propaganda and censorship, it appears that Beijing has been far more effective than the rest of the world in containing a pandemic that has developed right in the heart of the former Celestial Empire.

The driving force of exports

But it is from an economic point of view, rather than a health one, that China continues to amaze. In the first quarter of this year, Beijing had recorded a drop in GDP of 6.8% compared to the same period of 2019, storing numbers in the red for the first time in over forty years. But already between April and June the Chinese GDP started to run again (+ 3.2% compared to a year earlier), beating all forecasts. How was this possible? Thanks to a new and surprising export boom, despite the global recession and a heavy contraction in global trade (-18.5% in volumes in the second quarter). As economist Marcello Minenna notes, the volume of Chinese trade has been growing for over five consecutive months, with an increase of 10.4% in exports but also 1.4% in imports.

The Dragon’s strategy was particularly brilliant because it overturned the Western logic of supporting demand, focusing instead on supply. The Chinese miracle during the coronavirus, which is based as mentioned on exports, has been strongly supported by the Government: Beijing has allocated 116.6 billion dollars (out of the 880 billion total fiscal stimulus) to tax deductions and exemptions on export.

‘We have supported families and consumption - explains Alessandro Fugnoli, strategist of Kairos - both with cheques sent home directly from the Treasury (in America) and by inducing medium and large companies to keep their jobs and guarantee salaries to employees even when ‘activity remained blocked, on pain of lack of access to public aid (in Europe)’. China has not offered any support to families and their consumer demand, continues the analyst, concentrating aid on businesses as long as they resume production and relaunching traditional counter-cyclical policies based on infrastructure and construction.

The result is that the West has found itself with more money than products, while Beijing has managed to have more products than money. ‘China has therefore also produced for us, exporting - continues Fugnoli - and we have also consumed for her, importing. The Chinese current account balance is back in surplus and this, together with other factors, has led to a substantial strengthening of the renminbi’. This is why Beijing will archive 2020 with a positive GDP (gross domestic product also includes exports) while the world will close according to the latest OECD estimates at -4.5%.

Riding the Western deficits

Beijing’s knowing was truly amazing. It has launched economic stimulus programs much lower in value than those in the US, but with its export-focused strategy it has managed to ‘ride’ the fiscal expansion of the Western economies, financed in debt and devoted to supporting consumption. In other words, ‘the fiscal deficits of the United States and Europe are supplying fuel to Beijing’s economic recovery - explains Minenna - allowing that recovery of competitiveness and dominant position that had been eroded by the multi-year trade war with Trump’. Cherry on the cake? The growth of the Dragon was partly driven by the export of its own sanitary material and electro-medical equipment, industrial sectors in which China has maintained an overwhelming production superiority despite the lockdown.

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