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What’s next for the world’s largest economies?

13 sierpnia 2020, 05:01
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What’s next for the world’s largest economies?

China’s recovery to date has been uneven, unfortunately reinforcing existing structural imbalances, and highlighting the probability that the Chinese economy may plateau below pre-COVID levels for an extended period of time. To get more latest china economy news, you can visit shine news official website.

The higher value-added engines of China’s growth have all shown signs of weakness. Private companies, which make up the backbone of small- and medium-sized enterprises and urban employment, have found it harder to access the financial resources being marshaled by the government as a response to the pandemic.

The service sector, which has increasingly served as the source of economic growth and jobs, has borne the brunt of people’s reduced mobility, with hotels and catering hit the hardest. Finally, consumption is also suffering, reflected most recently in a 16 percent drop in May imports year-on-year.

Beijing has responded with its “six priorities”: employment, basic livelihood, company support, food and energy security, stable supply chains, and the more effective operation of government.

On the bright side, China’s government has the ability to increase its response well above the $500 billion to date. According to the IMF, China’s COVID-19 related support policies, including spending, loans and guarantees, amount to a mere 2.5 percent of GDP. This compares to 11 percent for the US, over 20 percent for Japan, and 34 percent for Germany.

ASH: Even though some of the macro indicators might seem to suggest that China is undergoing a fairly robust recovery, you seem more skeptical. Why is that?CUNNINGHAM: Most analysis of China’s economic recovery is biased by the nature of China’s own economic reporting and state priorities. Many tend to focus on the supply side of the equation: industrial output, fixed asset investment, capital expenditures, etc. These aspects of the economy will undoubtedly recover more quickly, as they benefit from the traditional policy responses of easing credit and cutting interest rates — levers that the government can control. Yet consumption drives nearly 60 percent of Chinese GDP, and getting people to spend more, and reinvigorating the demand side of consumption, is trickier.

The Chinese leadership has long sought to strengthen such social policy, but significant work has yet to be done. This is part of the reason why Chinese Premier Li Keqiang focused on supporting consumption in his work report at the opening session of the National People’s Congress on May 22.

Similarly, the Chinese central government conspicuously decided to forgo a target range for economic growth, highlighting the depth of their concern and the degree of uncertainty related to a sustained recovery in the short to medium term.


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