There's a hidden cost to coronavirus, and China is about to pay dearly
Like many catastrophes in the history of mankind, the novel coronavirus will do much to reshape global geopolitics. But while some form of overhaul is inevitable, the key question is whether China will emerge stronger or weaker in its great power struggle with the United States.
Thus far China is, predictably, doing better than any other major economy. This should not be surprising as Beijing has outperformed its rivals in controlling the virus. While its record 6.8 per cent contraction in the first quarter was worse than the European Union's 3.5 per cent and America's 4.8 per cent, China is expecting a quick turnaround in the second quarter. Neither the EU nor the US can expect the same as this was the period the two regions overtook China as the epicentres of the pandemic.
The global economy is projected by the International Monetary Fundto contract 3 per cent this year, in what would be the worst recession since the Great Depression of the 1930s. Of the world's three largest economies, the EU is forecast to shrink by 7.5 per cent and the US by 5.9 per cent, while China is forecast to grow by 1.2 per cent. Most other major advanced economies are facing steep declines: 9.1 per cent for Italy, 6.5 per cent for Britain, and 5.2 per cent for Japan.
China's GDP last year was US$14 trillion, two-thirds the size of America's US$21 trillion. But the coronavirus outbreak will narrow the gap. Last year, China's annual growth figure was 3.8 percentage points above the US', while this year the difference is expected to be 7.1 points. Last year, real GDP growth in the US was 2.3 per cent, while China's was 6.1 per cent. If these trends continue, the two economies will reach parity within the next decade, much earlier than previously forecast.
But this is a big "if". The post-coronavirus world will pose uncertainties and challenges to Beijing on a scale unknown to the communist nation since it embraced global capitalism in the 1970s. The pandemic, coupled with the escalation in its rivalry with the US, coincides with a decade-long slowing of the Chinese economy. The downturn has accelerated since Donald Trump launched his tariff war with China in 2018.
China's growth of 6.1 per cent last year was its lowest since 1990 and, given the tariff and technology wars with the US, the figure would be lower this year even if the coronavirus had not happened. Despite the partial trade deal reached in January, the US maintains punitive tariffs on nearly two-thirds of Chinese exports, leaving the average US tariff on Chinese goods at 19.3 per cent, up from about 3 per cent before the trade war started.
Covid-19 itself will not fundamentally reverse the fortunes of the Chinese economy but post-Covid geopolitics will. Beijing will find itself in a very different world, one dominated by an agenda of economic decoupling, disputes over the origin of the virus and compensation claims by the US and other countries.
The outbreak strengthens the determination of both the Trump administration and the US Congress to decouple its economy and sever technological links with China. The latest evidence of this is Trump ordering telecommunication servers to strip all Chinese-made equipment from their networks.
As the US does not want to do business with China, its staunch allies, like Britain, Germany, France, Japan, Canada, Australia and New Zealand, have all followed suit. The US, EU and Japan are all planning to lure their companies out of China.
The virus has also triggered security concerns among developed economies and Western free democracies over their economic links with China. China's disruption of production at the early stage of the outbreak has exposed risks in the global supply chain. It has also exposed the West's overreliance on Chinese medical supplies and other strategic goods.
Given the depth of integration, the decoupling process is likely to prove costly and painful. However, geopolitics always prevails over economics in any major decision that has strategic implications. The problem for China is that its meteoric economic rise is based on its integration with the global economy and its acceptance of the international order.
Men wait at an employment agency in Shanghai, China. Photo: AFP alt=Men wait at an employment agency in Shanghai, China. Photo: AFP
However, China's stagnation in market reform over the past decade has exacerbated its trade disputes with the West. For instance, Beijing's move to embrace a party-led state-capitalism system in recent years is at the very heart of Trump's trade war and Western demands for China to change. If the decoupling gains momentum in the post-coronavirus era, the Chinese story of spectacular growth will come to an end.
The pandemic is likely to magnify existing geopolitical dynamics. Beijing has been using its two main achievements " its efficiency in containing the virus and its offers of medical aid to other nations " to enhance its soft power and give it a boost in its rivalry with the US for global influence. However, Beijing's "face-mask diplomacy" and its "Wolf Warrior" propaganda campaign, in which its diplomats have battled US narratives on Twitter in a spirit some have likened to the 2015 patriotic action film, have backfired.
China's already-fragile relationship with the US and its allies has nosedived amid the outbreak. A US-led global campaign to hold Beijing accountable for its handling of the pandemic has been met with sympathy not only by country leaders, but also by the mainstream media and in public opinion polls.
For instance, a recent EU report that accused Beijing of engaging in a disinformation campaign about the coronavirus and a report by the Five Eyes intelligence-sharing network of Australia, New Zealand, Britain, Canada and the US both concluded China should be held accountable for the spread. In the US, surveys of public opinion suggest most people agree.
Beijing will also face a US-led global campaign for damages. Though such a campaign appears destined to fail on a legal basis, the action will nevertheless be detrimental to China's international reputation and its influence on the world stage.
In an effort to force China to pay compensation, Trump has threatened further trade sanctions. Meanwhile, the Germans are asking Beijing to pay about US$160 billion, Nigeria wants US$200 billion and The Henry Jackson Society, a British think tank, has proposed that the Group of Seven seek nearly US$4 trillion.
Given the swift deterioration of its relations with the nations of the developed West, which are its most important business partners, China can expect a less favourable, if not downright hostile, environment in the post-coronavirus world.
This article originally appeared on the South China Morning Post (SCMP).
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