Why China cannot pin its hopes on global demand to boost economic recovery

Name: Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital
Uploaded: 2020-06-22T22:30:13.000Z
Duration: 1 min 58 s
Description: Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital

The US-China trade war, Donald Trump’s ‘America first’ policies and marginalisation of major institutions have hurt the world’s ability to deal with the Covid-19 fallout

China needs to forget about export-led recovery and go for growth at home through more deficit spending, bigger deficits and more government debt issuance

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A worker surveys the construction site of an elevated highway on the outskirts of Shanghai on June 12. China's economy continued to recover in May, with accelerating industrial output growth leading the way while consumption remained in contraction. Photo: Bloomberg

David Brown

Published: 6:30am, 23 Jun 2020Updated: 6:34am, 23 Jun 2020

China’s road to recovery is not going to be as straightforward as many suppose. Estimates suggest second-quarter growth data, due out on July 14, could see the economy bounce back anywhere between 5 per cent and 15 per cent, following the 6.8 per cent fall in the first quarter, on the strength of a rebound in domestic demand.

The question is whether any rebound is sustainable. There’s still a big black hole in global demand which underlines why China’s exports are struggling and will continue to do so for a long while.

Beijing will need to shore up the domestic economy with more fiscal and monetary reinforcement as it braces against the global downturn, rising protectionism, continuing pandemic risks, the emerging market debt crisis, November’s US elections and an impending hard Brexit shock. China is not out of the woods by a long stretch, and a major policy push will be needed to nurse the economy back to full strength.

The US elections could pose a major hurdle for global economic confidence, especially if US President Donald Trump decides on “getting tough with China” as the rallying cry for his 2020 re-election campaign. The longer the US-China trade war drags on, the greater the risks for all involved.

Meanwhile, the new waves of coronavirus infections in Beijing and New Zealand, for example, are a vivid reminder of just how fragile things are. The road to recovery from the pandemic will be long, arduous and uncertain.

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Salmon import ban and partial lockdown for Beijing after new Covid-19 cases in Chinese capital

Until there is an infallible coronavirus cure, the world will worry, economic confidence will falter and recovery hopes will fade. The risks of a deeper recession and deflation will remain.