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Yu Miaojie: Rise in global status


China's GDP grew 3.2 percent year-on-year in the second quarter of this year, an outstanding performance given that the economy contracted by 6.8 percent in the first quarter due to the novel coronavirus pandemic. In contrast, the US economy contracted at an annual rate of 32.9 percent in the second quarter, the worst slump since 1947 and more than what the International Monetary Fund had predicted in June. Developed economies at large reported an average decrease of 8 percent.

If developed countries, especially G7 countries, see their GDP decline by 10 percent this year, the gap between their economic growth and China's would be wider than previously forecast. In recent years, the Chinese economy grew at 6 percent a year on average, and developed economies at 1 to 2 percent-a difference of about 4 percentage points. The difference now is more than 10 percentage points.

With its production and other economic activities returning to almost normal and considering the sheer size of its economy, China will play a key role in lifting the global economy out of recession, which means the long-term positive momentum of the Chinese economy will not change because of the pandemic. Instead, in the post-pandemic era, its status in the global economy will further rise. China's economy will overcome the difficulties amid the global downturn and its comparative advantages will increase after the pandemic is contained.

First, the Chinese economy seems to have bottomed out in the second quarter. At least that is what various indicators show. The economic targets set in this year's Government Work Report are well on track to be achieved-for instance, the first half of the year saw the creation of 5.64 million new urban jobs, achieving 62.7 percent of the annual target.

In the agriculture sector, summer grain output increased by nearly 1 percent compared with 2019. Industrial production, too, has rebounded, and the purchasing managers' index has been above 50 percent-which indicates expansion-for four months in a row. Also, the high-tech, manufacturing, transportation, integrated circuit and industrial robot sectors among others have registered growth.

In terms of foreign trade, major economies are expected to see their foreign trade volume slump by about 11 percent this year, according to IMF estimates-while China's trade volume dipped by only 3 percent in the first half. And since China has a significant trade surplus, even if its foreign trade continues to slip in the second half, it can still have a whole-year surplus.

Second, the pandemic has created bigger opportunities than challenges for China. In the first half, China's economy contracted by 1.6 percent year-on-year-compared with the 32.9 percent contraction of the US economy, which means China could replace the US as the world's largest economy earlier than previously thought-we estimate the Chinese economy would catch up with the US economy by 2026, or earlier.

The US GDP was about $21 trillion in 2019 compared with China's more than $14 trillion-meaning the Chinese economy was about 65 percent the size of the US economy. If the US economy does not rebound and instead slumps by 20-30 percent by the end of this year while the Chinese economy expands by 2 percent, China's GDP will approach the US' as early as this year or next.

Third, the pandemic has had a great impact on global trade, but the fundamental trend of globalization remains unchanged. Due to the impact of the pandemic and the trade protectionism practiced by the US, globalization has changed from a system featuring global cooperation and negotiations to one dominated by regional cooperation, but the two core characteristics of globalization-multilateral trade and regional production-have not changed.

With the virus still raging in many parts of the world, global economic growth has been revised down, especially because the US economy is expected to decline by 15 percent this year. Given that the US accounts for about one-fourth of world's total GDP, global growth will probably fall by 10 to 15 percent this year. With the world economy, especially developed economies, yet to bottom out and the pandemic continuing to spread and claim more lives, we cannot be optimistic about global economic growth.

Globally, quantitative easing might be a solution to the crisis. But given the current situation of the US economy, a quantitative easing policy is not enough to reverse its downward trend. A better response would be a proactive fiscal policy. However, the prerequisite for a proactive fiscal policy is a competent government and enough room for deficit expansion.

So, in the second half of the year, China should optimize its economic structure, rather than expanding its size with ample liquidity, and the key to optimizing the economic structure lies in ensuring the liquidity trickles down to the neediest micro, small and medium-sized enterprises.

China should also give full play to the role of export and investment in driving economic growth. As the US and the European Union may not be able to meet the consumption demand due to the anti-pandemic measures, they are likely to import more goods and services from China, driving up the country's exports and contributing to its economic growth in the second half of the year.

For some years, the Chinese economy has been relying on three pillars-consumption, investments and exports-for growth, with consumption having played the leading role. The pandemic has changed the situation. Now exports are expected to contribute more to economic growth, and domestic economic circulation and international economic circulation could develop in tandem.

In the short term, the international economic circulation may play a bigger role, but from a long-term perspective, we have to rely on the huge domestic market, which is China's advantage. As for investment, fiscal policy should focus mainly on new-type infrastructure, new-type urbanization as well as major infrastructure projects in fields such as transportation and water conservation.


From: China Daily 2020-08-12