The global recession caused by covid-19 tends to accelerate the shifting of the dynamism of the world economy to Asia, where, with China at the forefront, better control of the pandemic is already beginning to result in a faster and more vigorous recovery than in other regions .
In addition to China, Vietnam, Taiwan and South Korea are examples of countries that will have economic performance above the world average, according to the projections of the International Monetary Fund (IMF).
This movement points to the continuation of commercial tensions between China and the United States and to the maintenance of the high Chinese demand for raw materials produced by Brazil, such as soybeans, iron ore, cellulose and meat. The 4.9% growth of the Chinese Gross Domestic Product (GDP) in the third quarter, in comparison with the same period in 2019, reinforced this scenario. China’s recovery is marked by measures focused on credit and business support, while the pandemic, according to experts, seems contained.
As a result, the IMF expects a 1.9% increase in the country’s economy this year, compared to a 4.4% decline in global GDP. As the United States is expected to record a 4.3% retraction, China’s arrival at the post of the world’s largest economy, surpassing that of the United States, may occur in 2028, according to a study by the risk rating agency Austin Rating, done at the request of Broadcast / Estadão.
The agency extrapolated the Fund’s estimates until 2031.
According to the study, the US economy, which in 1990 was 15 times larger than the Chinese, today is equivalent to just 1.4 times China’s GDP. When considering the exchange rate by purchasing power parity (PPP), a calculation that takes into account price levels and purchasing power in currency conversion, the Chinese GDP has been above the American since 2017.
And everything indicates that the Chinese recovery is here to stay. According to Fabiana D? Atri, economist at Bradesco and economic director of the Brazil-China Business Council (CEBC), several data on the Chinese economy have been surprisingly positive in recent months.
In September, the highlight was the beginning of the recovery of consumption, a trajectory that seems to have been maintained this month – in Golden Week, a complete week of holidays that occurs every year in October in the country, around 600 million Chinese traveled, as official Xinhua news agency.
The fact that the recovery of Chinese consumption only started in September is noteworthy. In the West, including Brazil and the USA, consumption and retail sales pull the resumption. In China, however, industrial production, exports and investments in infrastructure and in the real estate market took the lead. For Fabiana, the option of the local government for not adopting cash transfers to mitigate the crisis follows the tradition of always concentrating stimulus measures on the supply side.
In addition to following tradition, this option tends to give greater sustainability to the resumption of the economy in China, recalls the economist at Bradesco. This is because investments in infrastructure tend to keep the wheel turning while the works are being carried out. The recovery of consumption will be driven by greater security for families in relation to the control of the pandemic and the labor market – in the West, the withdrawal of direct transfers may cause a “hiccup” in consumption.
According to the IMF projections and the analysis of economists, the recovery of several countries will continue by 2021. From 2022 onwards, Alex Agostini, chief economist at Austin Rating, predicts that China will resume the growth rate between 5% and 6% per year, while the USA should return to the annual growth level of around 2%.
With China approaching the post of the world’s largest economy, the climate of confrontation with the United States – which started with a trade war – tends to continue, as the American government sees the Chinese rise as a historic loss of protagonism, says Agostini.
Even without Trump, tension should continue
For Lia Vals, a researcher at Ibre / FGV, tensions tend to continue even if President Donald Trump loses the election in November.
“The United States, with the old hegemony, sees China as a rising power that will compete for space with them, especially in terms of technology, which is the big point.”
In the view of the former Brazilian ambassador to Beijing, Marcos Caramuru, member of the Advisory Council of the Brazilian Center for International Relations (Cebri), even with the greatest economic dynamism, for the time being the increase in China’s geopolitical influence is taking place at the regional level, in Asia.
The strength of Chinese industry, even in the crisis, to supply various countries with drugs, tests and protective equipment, ushered in a “covid-19 diplomacy”, but the outcome of the strategy in the West is doubtful. For Caramuru, the country’s international image is eroded, with “fake news” about the covid-19 and a certain Western “envy” of the Chinese recovery.
Whether you like China or not, the country is the largest trading partner in some 100 countries, said Caramuru. So, “rationally”, there is no way out but trying to negotiate a good relationship with the Chinese. For Brazil, it is important to stay out of this dispute, said Lia. “We are nothing in this fight. We have nothing to gain on either side.”
Country will be the world’s “locomotive”, says Eichengreen
The strong resumption of China’s economy, signaled in the country’s third quarter’s Gross Domestic Product (GDP) data, shows that putting the new coronavirus under control – and keeping it that way – is the best for economic growth, according to the economist American Barry Eichengreen, professor at the University of California at Berkeley.
“Pure and simple,” says Eichengreen, also an associate researcher at the National Office of Economic Research (NBER, in English), in an email interview.
For the economist, success in the post-covid economic recovery will depend, “first and foremost”, on the control of the pandemic. According to him, this is clear in the comparison of the United States with China.
“The United States applied massive fiscal and monetary stimulus, but it did poorly in controlling the pandemic, while China’s fiscal and monetary stimulus was more moderate, but its control of the pandemic was much higher,” says Eichengreen.
With that, China will clearly be the engine for the recovery of the global economy after the recession caused by the new coronavirus pandemic.
The crisis and the Chinese success to overcome it should accelerate the arrival of the Asian giant to the position of the largest economy in the world, surpassing the United States, but this movement was long before, according to Eichengreen. What drives this process is the faster growth of Chinese per capita income.
For Eichengreen, China’s performance will help the world economy as a whole. “As it recovers, it will suck more imports of raw materials from the rest of the world, including soy from Brazil. Faster Chinese growth certainly has a positive balance for the world economy”, says the professor.
Although it is an important supplier of raw materials, Brazil will not necessarily benefit more than other countries
“Faster Chinese growth is good for soybean exports from Brazil, but it is also good for machinery exports from Germany,” adds Eichengreen.
Regarding the effects of the US-China trade war, the economist says that “what is most important” now is to know who will win the American presidential election. “In the medium term, US investment banks are unanimous in the assessment that the American economy will grow faster with (Democratic Party candidate Joe) Biden than with (President Donald) Trump. And, for the world economy, having a second (American) locomotive is better than having only one (China) “, he replies.
“Add to that the fact that measures to contain covid-19 would work better with Biden, which will be good for growth later on. Also for the world economy, more predictable policies and less trade tension coming out of the White House with Biden would be another positive factor. “