While the world’s second-largest economy, China, has suffered its first contraction on record due to the Covid-19 pandemic, some experts argue the country has been preparing for a possible crisis for a long time.
RT talked to economists to find out if Beijing may have foreseen the economic crash and about the Chinese government’s response to it.
“Nobody, including Beijing, could have foreseen the depth and gravity of this pandemic, specifically the cryptic transmission parameters by which the Covid-19 virus spreads. It is truly a once-in-100-year pandemic event,” said Sourabh Gupta, senior fellow at the Institute for China-America Studies.
According to him, China was better prepared because “it is in a much healthier fiscal position compared to most advanced economies and many emerging economies too.”
Gupta explained that the central government’s debt level as a percentage of GDP is fairly modest, which means there is ample space on the government’s balance sheet to ramp up policy support. Also, consumers’ debt levels relative to income is modest, so they are not overleveraged either and can open up their wallets.
He was echoed by Andrew Leung, international and independent China strategist, who said “China is always very long-term strategy-minded” and is better prepared for any crisis thanks to its state capitalism.
“The state can direct massive funds and mobilize businesses and people more effectively than the West. The same capability was demonstrated during the Asian financial crisis of 1997-98 and the world financial crisis of 2008-09,” said Leung.
According to Temur Umarov, an expert on China and Central Asia at Carnegie Moscow Center, every country is in a different economic situation, so their response to the coronavirus pandemic also differs. While numerous economic stimulus packages were announced by some countries, China has focused on recovery of domestic consumption, as well as on help for small- and medium-sized businesses, he said.
All the analysts agreed that neither China nor other countries could have foreseen the magnitude of the current crisis.
“There is a tsunami of negative views about China as a result of the spreading coronavirus crisis. America’s bad-mouthing has also helped. But China remains by far the second-largest economy, bigger than the rest of the BRIC countries combined,” said Leung.
He noted that many more countries have China as their largest trading partner than the United States.
“Despite US decoupling, the complexity of modern production processes makes it virtually impossible to delink everything from China, ranging from materials like rare earths to components and parts, even logistics as most of the world’s largest container ports are in China.” The country is also rapidly upgrading its cutting-edge technologies including 5G and AI, the strategist said.
There is no need to look for some targeted actions by the Chinese government to prepare the country’s economy for the next crisis, said Sergey Lukonin from the Institute of World Economy and International Relations. The economist, who specializes in Chinese studies, pointed to the fact that China’s economy has become more stable over the past decade. “They now understand where to move further,” particularly during this crisis when everything is linked with the internet and digital services.
According to Gupta, the Chinese economy will be in the growth column later this year and will even end the year, overall, with positive growth. “There will be no V-shaped recovery and certainly growth will be nowhere near the pre-Covid-19 six-percent target. It will be more like the one to two percent range,” he said, adding: “But even by this low standard, China will be the fastest growing economy among the major economies this year, and East Asia/Asia-Pacific, the fastest growing economic region of the world.”
For more stories on economy & finance visit RT’s business section