The sudden rapid spread of the new coronavirus in early 2020 had a huge impact on life for all mankind, and the global economy has suffered a sharp recession, which may even surpass the Great Depression that occurred in the 1930s. The current judgment on the control of the novel coronavirus epidemic is still highly uncertain, and the pressure on the global economy will continue. Judging from the historical experience of human development, the heavy price paid by human beings in previous crises is the cost paid to "get to the next level" after the crisis, and the so-called opportunity to be seen in crisis. This article attempts to explore the impact of the new coronavirus on the world's first and second largest economies and its accompanying impact on economic globalization and its meaning. Under the new situation, the Chinese government can consider policy options to grasp the new opportunities brought by the new coronavirus.
China: Respond together, the results are beginning to emerge
Faced with the raid of the new coronavirus (on January 12, 2020, the World Health Organization officially named Covid-19), the Chinese government immediately took decisive measures and began to cut off the rapid transmission of the virus from Hubei to other parts of the country from the lockdown of Wuhan on January 23. China has devoted its whole country to effectively prevent the spread of virus infection and ensure the physical health and life safety of the people. At the same time, the World Health Organization also listed this epidemic as an international public health emergency.
Measures such as city lockdown, extended holidays, and reduced travel adopted across the country will inevitably have a huge impact on both economic demand and supply. The main driving force of China's economic demand side comes from consumption, and the main driving force of the supply side comes from the service industry. It is reflected in the consumption-related industries of physical entertainment venues such as food and beverage, transportation, tourism, accommodation and catering, and cinemas. To enhance the weak economy during the epidemic, China strengthened the original tone of the Central Economic Work Conference, which concluded on December 12, 2019, to implement a "more positive" fiscal policy and a "more flexible" monetary policy.
China's GDP fell by 6.8% year-on-year in the first quarter of 2020, which is the biggest economic recession China has experienced since the reform and opening up. From the supply perspective, the primary industry has been affected relatively little (-3.2%), and the failure of the industrial chain to operate normally has caused the secondary industry to be affected the most (-9.6%, mainly reflected in February), followed by the tertiary industry (-5.2%). Among them, the financial industry and the information industry grew by 6% and 13.2% respectively, but the accommodation, catering and wholesale and retail industries fell by 35.2% and 17.8%. The counter-trend growth of the financial industry shows the strength of support for counter-cyclical policies, the enhancement of online online loans and mobile settlements, and the reduction of physical branches. From the perspective of consumption, automobiles (-30.5%), catering (-41.9%) and gold, silver and jewelry (-37.7%) were the biggest hit, but the consumption of food and beverages increased. The fields of medical and health products, new retail, online education, county cultural and entertainment, express delivery, takeaway services, etc. have shown a counter-trend growth.
html From May to the end of February, China basically stabilized the epidemic, and the anti-epidemic actions at the cost of suspending economic activities have achieved results. China's epidemic prevention and control has entered the second half, and the focus of work has begun to shift to resumption of work, production and prevent the recurrence of the epidemic. The impact of domestic supply testing has been partially alleviated. However, the recovery after the epidemic stabilizes will be slow and long, which will not only depend on the domestic situation, but also on the situation of the European and American terminal markets and the supply chain. As the outbreak of the epidemic in Europe and the United States, imports and exports have also been significantly affected. Data from the Ministry of Commerce shows that due to the impact of the epidemic and the Spring Festival factors, China's total foreign trade import and export value fell by 9.6% year-on-year from January to February 2020, of which exports fell by 15.9% and 3.5% in March. Exports resumed growth of 8.2% in April. In its April 2020 Global Economic Outlook report, the IMF predicted that China's economic GDP will grow by only 1.2% in 2020, but it has surpassed most countries in the world and will recover to an increase of 9.2% in 2021.With weak economic growth in China and the United States, the International Monetary Fund predicts that global GDP will decline by 3% in 2020 and will increase to 5.8% in 2021 with the recovery of China and the United States. On April 8, the World Trade Organization WTO predicted that global trade will fall by 13% in 2020 under optimistic circumstances and 32% in pessimistic circumstances. The decline in global trade in 2020 is much larger than the decline in global GDP reflects the advancement of deglobalization.
United States: There are shortcomings in governance, economy and social security
As of May 21, the number of confirmed cases of the new coronavirus in the United States has exceeded 1.59 million, the death toll exceeded 94,000, and the daily death toll reached one or two thousand, both far exceeding China. The differences in the epidemic between China and the United States come from the following two reasons:
First of all, led by Trump The US federal government lacks a national unified strategy in curbing the epidemic, and the messages conveyed to the outside world are inconsistent. The early news of fear of resistance against the virus will lead to a market expected economic recession and a sharp drop in stock prices, affecting the presidential re-election election at the end of the year. In contrast to China's elite professional governance, the political considerations of the White House are above the health care and health profession - gradually marginalizing the Centers for Disease Control, thus delaying the golden time of resistance to the new coronavirus by about 2 months; the first case of Covid-19 was found on January 20, 2020 by Washington State . Trump declared a national emergency on March 13, and states began to stipulate strict home isolation and social distancing epidemic prevention measures. As a result, the new coronavirus has spread rapidly in the United States. Resisting the common enemy of the new coronavirus, the federal government is absent, and state governments have set up unique quarantine policies for each state "according to local conditions" to compete for scarce but crucial medical resources in the market. At the same time, Trump has been constantly accusing China of being the source of the virus in a way that he is used to shirk responsibility and completely ignores evidence that Europe is the source of the virus in the United States. Former U.S. President Barack Obama pointed out in a speech on May 16 toward college graduates: The United States lacks leadership in this new coronavirus battle. He did not, nor did he need to specify the leader.
Secondly, the epidemic has reflected and expanded the structural problems of the large gap between the rich and the poor in the US economy. A society with a large gap between the rich and the poor, fragile confidence in the existing system is likely to lead to an anti-existing system, which is contrary to elite politics. The anti-globalization that has emerged in Western countries in recent years is partly a reflection of populist politics. The new coronavirus in the United States has the greatest impact on the population and ethnic groups with incomes in the lower middle class, with the largest number of unemployed and deaths; in February, 40% of unemployed people came from families with annual incomes below $40,000. They are low-tech "necessary workers", mostly blue-collar workers or waiters in the front line of the service industry or manufacturing industry. They cannot work remotely from home like white-collar workers, nor do they have enough remote working technology and equipment to avoid the virus. According to the Bureau of Labor Statistics estimates: more than 60% of the highest income 25% can work from home, while only no more than 10% of the bottom 25% can do it. Low-income people are also unable to enjoy appropriate medical insurance and services, and they are less immunized to the virus. Therefore, the new coronavirus naturally widens the gap between the rich and the poor in society.
Like China, the United States has adopted extremely loose economic stimulus policies. The Federal Reserve lowered the federal base interest rate to nearly zero, and purchased a large amount of government and corporate bonds. The federal government's new relief expenditure reached $2.9 trillion, with a deficit rate rising by 14%, slightly exceeding 100%. GDP fell 4.8% in the first quarter, slightly lower than China. However, the economy was affected by the new crown in the first quarter, and there may be growth in the first two months, so this data actually means that the economic downturn in March has reached double digits. GDP in the second quarter will more clearly reflect the damage power of the new crown epidemic; the Federal Reserve's New York branch is expected to drop by 31.1%, greatly surpassing the 2008 financial crisis, second only to the Great Depression in the 1930s. The unemployment rate data also showed similar performance, soaring from 4% to 14% in one month, surpassing 2008. The Federal Reserve's Boston branch estimates that the unemployment rate will rise to 20% in June, second only to the ultra-high unemployment rate of 25% during the Great Depression. Currently, 360,000 people receive unemployment benefits, and are still increasing. Faced with a dilemma of boosting a sharp recession economy and an unabated epidemic, Trump chose the former, encouraging the state government to selectively open up the economy. Experts predict that the death toll will increase by nearly 10,000, and may exceed more than 140,000 in June.
The recovery of the epidemic economy mainly depends on medical breakthroughs: once effective vaccines or treatments are created, the economy will recover quickly and even rebound violently. At present, the prospects for economic recovery are still highly uncertain. Federal Reserve Chairman Powell predicts that the economic recovery may take a year or two. The International Monetary Fund predicts that the US GDP will drop sharply by 5.9% in 2020 and will recover to 4.7% in 2021.
The trend of globalization after the epidemic and China's economic policy choices
Two years after the United States launched a global and Sino-US trade war, the new coronavirus once again had a reverse impact on economic globalization, and the impact may be even greater. At the same time, it also exposed the weaknesses of the system. Therefore, the crisis also brings opportunities to optimize the system. How to deal with "anti-globalization" in
? Will China’s important role in the global industrial chain be shaken? China resists the new coronavirus at the expense of economic growth, while protecting the health and life safety of the people, and also impacting the world economy and various economies that are dependent on China's industrial chain. When facing a sharp economic decline and a shortage of supply of epidemic prevention materials, these economies are in a state of panic and are more likely to feel the problem of too great risks derived from imported manufacturing from China in the past. As geopolitics may also worsen further, some countries will inevitably reduce their dependence on Chinese manufacturing.
The pandemic has rekindled the Trump administration's attitude of reducing its dependence on China and its efforts to return the production of drugs and medical supplies, but this move is unlikely to create more jobs other than destroying global supply chains. Because companies have to make up for the increased labor costs, they will accelerate automation. The "decoupling" advocated by Trump may enable an increasing proportion of manufacturing to be completed in automated factories.
In the long run, the so-called "de-Sinicization" has limited effect. Under the guidance of the principle of long-term comparative interests, China has produced a manufacturing industry with high efficiency and a very complete system. The role of "Made in China" in the chain of the world economy is not easily replaced. Almost all categories of manufacturing industries around the world have their own industrial clusters, leading enterprises and core enterprises in China. In 2019, China's manufacturing industry added value accounted for nearly 30% of the world. Therefore, China's resumption of work and production can continue to lead and support global industrial layout.
China-US relations are the most delicate and sensitive relationship in global politics. The United States has formed and started to implement the strategy of comprehensively curbing China from politics, military, economic and technological perspectives. This strategy will not change due to who is on the stage in the short term. The trade war is only a small part of the implementation of the strategy. For Sino-US relations, we must face reality, put aside our fantasies, do our best to make the worst plans. Being prepared for the restructuring of the industrial chain structure will surely bring new opportunities and challenges to Chinese companies.
This epidemic highlights the advantages of China's system over the United States, and is also reflected in the significant increase in China's GDP in the United States. In its April 2020 Global Economic Outlook report, the International Monetary Fund significantly revised its global economic growth forecast for 2020 and 2021 in its report. According to the revised forecast estimate, China's GDP share in the United States increased from 68.4% before the correction in 2020 to 70.9%, and from 71.5% before the correction in 2021 to 74.3%.
not only did China perform better in the first phase of the global epidemic, but also performed better in the four Asian dragons who are close to sharing Chinese culture. It reflects the unique social nature of Chinese culture that works together; it advocates the concept of self-adjustment and others, self-durance, and hunger, regardless of your family, which is a lesson taught to mankind by the new coronavirus. Former Harvard University president and Treasury Secretary Sanmers published this judgment in the Financial Times on May 14: "If the 21st century is an Asian century, just as the 20th century is an American century, then the epidemic is likely to be remembered because of its turning point." China can follow the trend and further promote the integration of the Asian economy based on the RCEP of the "Regional Comprehensive Economic Partnership Agreement". At the same time, assist developing countries along the "Belt and Road" and promote the concept of building a global community of life.
From the experience of the United States, the epidemic has expanded social inequality and deepened the society's distrust of the existing system. At the same time, as high-income jobs are difficult to replace by automation, the acceleration of automation and digital technologies may exacerbate social differentiation. The setting of the Chinese government's economic goals should not only focus on GDP growth, but also on GDP distribution to make up for the shortcomings in income distribution policies. Promote the "new infrastructure" to reduce urban and rural income gaps and poverty alleviation, so that when external shocks inevitably occur in the future, including under the influence of climate change, society can establish a risk sharing and social assistance mechanism to better protect the most vulnerable groups.
We must accelerate the reform of the medical and health system and institutional institutions, and increase the construction of public infrastructure in hospitals to improve China's long-term tight medical resources. Improve the ability to respond to public health incidents and the full coverage of public medical insurance. Fiscal, monetary policy and financial supervision should be based on relief and make targeted efforts. Help enterprises reduce their burdens, especially help small and medium-sized enterprises overcome difficulties, stabilize employment, and ensure people's livelihood. When the economy recovers, we must carefully deal with the high leverage and bad debt problems caused by the extremely expanded financial and fiscal policies that accompany it, so as to avoid the economic crisis caused by an epidemic turning into a financial crisis.
policy focus needs to shift from stabilizing growth in the short term to promoting reform, adjusting structure, expanding opening up, abolishing restrictions on access to foreign investment and private enterprises, unswervingly safeguard the decisive role of the market in resource allocation, focus on the healthy development of the medium and long term economy, and at the same time promote rural land market reform and accelerate reforms in new urbanization construction.
The author is the former chief economist of the World Bank
