Economic havoc wreaked by coronavirus has likely throttled US-China trade deal, experts say
- Need to address economic damage will put more pressure on Beijing to reform China’s economy, say Rhodium Group’s Daniel Rosen and ex-Australian PM Kevin Rudd
- China’s high debt levels and likely GDP contraction will make it nearly impossible for Beijing to fulfil its buying commitments
Covid-19 has likely rendered a historic “phase-one” US-China trade deal signed in January stillborn, and the need to address the economic devastation that the pandemic has caused will ratchet up the pressure on Beijing to reform its domestic economy, two experts on the bilateral relationship said on Tuesday.
China’s high debt levels going into the pandemic and the likelihood that its GDP will contract as the private sector struggles to regain momentum after many businesses were closed to contain the coronavirus has sapped consumption to a degree that will make it nearly impossible for Beijing to fulfil its buying commitments, according to Rhodium Group founder Daniel Rosen and former Australian prime minister Kevin Rudd.
“The toolbox that was used to get out of the soup in [the global financial crisis of] 2008-2009, the extraordinary stimulus that China was applauded and acclaimed for, is simply not an option today” because easy credit given to support the country’s state-owned enterprises in recent years is too high, Rosen said.
Citing Chinese government data, Rosen showed a graph of the country’s interest payments as a percentage of GDP at over 14 per cent at the end of 2019, up from about 9 per cent in 2008. He added that Chinese companies are struggling under a burden of about US$2 trillion worth of debt service obligations.
The Chinese government “will be very reluctant to engineer a stimulus strategy at the same order of magnitude than they did last time, even though the objective economic need this time is considerably larger,” Rudd said.