The Pacific Council recently hosted a teleconference with Dr. David Dollar of the Brookings Institution and Dr. Victor Shih of UC San Diego, and moderated by Dr. Sara Hsu of China Rising Capital Forecast. They discussed the economic impacts of COVID-19 on China.
Here are key takeaways from the call:
- Coronavirus has clearly had a dramatic effect on China’s economy, both speakers agreed. As the virus spreads to Europe and the United States, we’re seeing the same impacts on their economies as well. “We’re not used to seeing economic numbers like this,” Dollar said. He warned that although China seems to have the virus under control, he stressed that the data is still early.
- Shih pointed out that China has been under a much tighter lockdown than other areas hit hard by the coronavirus. “Here in Seattle, people are still grocery shopping, which most urbanites in China have not been able to do,” he said.
- Dollar said that while China is not as export dependent as they used to be, exports are still a major section of the economy. Those export clients are the United States and Europe, and since those regions have also been hit hard by COVID-19, “more and more analysts are saying any positive GDP growth for China in 2020 is increasingly unlikely.” Shih added that the economic downturn in China might extend into the third and fourth quarters of 2020. COVID-19 gives China a good excuse to not hit their economic growth targets, Dollar added.
- “It would be a shame if the hostile rhetoric between the United States and China regarding the virus spills over into the overall relationship,” Dollar said. “It's a tricky time for U.S.-China relations. We’re finding out that this coronavirus pandemic is having much more of an impact on the U.S.-China economic relationship than the trade war. I worry about how the relationships are deteriorating.”
- “China is being too conservative in its monetary policy,” Dollar said. “Inflation and interest rates are high, which discourages more aggressive monetary policy. They’re also worried about the currency depreciating. They’re walking a tightrope.”
- Shih pointed out that in 2008-09, China expanded credit tremendously. “We’re not seeing that kind of credit expansion so far, not even close to it,” he said. “They correctly decided that right now is not the right time to expand China’s debt. They’re standing on the sidelines for now. I don’t foresee an increase of imports on the horizon.”
- Dollar said he worries that the economic impacts of the COVID-19 pandemic will inspire new rounds of trade protectionism in China and the United States. “Protectionism has a way of becoming permanent,” he said. “We’re all better off with a free trade regime. Will we come out of this with less international trade and globalization?”
- Regarding Hong Kong, Shih said we’re not seeing large scale protests there right now because of COVID-19. “But once the number of new cases goes down, we’ll start to see those protests come back because the situation there has not been resolved,” he said.
Listen to the full conversation below:
The views and opinions expressed here are those of the speakers and do not necessarily reflect the official policy or position of the Pacific Council.