US-China decoupling: a global depression is surely a bigger threat than China

China helped prop up the global economy with stimulus following the last financial crisis. Although it is the only major economy expected to grow this year, the geopolitical climate means Beijing is unlikely to help the world’s recovery as much this time

Reading Time:3 minutes

A construction site near Shanghai’s Lujiazui financial district. China’s infrastructure spending after the crisis of 2008 helped global growth, but it is unlikely to apply such measures this time. Photo: Reuters

Published: 2:30am, 21 Sep 2020Updated: 2:43am, 21 Sep 2020

The United States and the rest of the world (not least Asia) are about to receive a rude reminder that neither China-bashing nor “decoupling” from the world’s second-largest economy is a particularly good idea. It can be tantamount to biting the hand that feeds.

One thing that emerges clearly from a slew of recent reports on the health (or ill health) of the global economy is that China is not going to be contributing to worldwide recovery on anything like the scale it did following the global financial crisis of 2008 to 2009.

Surveys by the Organisation for Economic Cooperation and Development, Asian Development Bank (ADB) and Institute of International Finance (IIF) have shown that global GDP will slump far more deeply in 2020 than it did after the global financial crisis of 2009. Growth should return next year but the global economy will still not recover to 2019 levels.

Alone among the G20’s advanced and emerging economies, China should grow by nearly 2 per cent this year, as noted by OECD chief economist Laurence Boone, while elsewhere – from Britain to Mexico and beyond – horror stories abound of 10 per cent or greater projected contractions.

This might suggest that China is poised to emerge again, as it did a decade or so ago, as a dynamo to drive the rest of the global economy through huge infrastructure and other investments. This time, however, China is unlikely to act as saviour of the world, or at least the global economy.

China’s huge infrastructure stimulus in 2009 boosted commodity prices and thus global growth, and the likely absence of such stimulus now is a key factor in the reduced outlook for emerging markets, especially those in Southeast Asia and Latin America.

Select Voice

Choose your listening speed

Get through articles 2x faster

1.25x

250 WPM

Slow

Average

Fast

00:0000:00

1.25x