COVID-19 won't impair underlying strength of Chinese economy: US expert
People's Daily app
1582273786000

While the Chinese economy has slowed to a virtual standstill in early 2020 due to the impacts of COVID-19, this devastating disease should not impair the underlying strength of the Chinese economy, Stephen Roach, senior fellow at Yale University's Jackson Institute of Global Affairs, said in an interview with Beijing Review recently.

微信图片_20200221161735.jpg

Stephen Roach (File photo)

Behind the optimism in the Chinese economy, Roach, former chairman of Morgan Stanley Asia and chief economist at Morgan Stanley, believes that the strength reflects four key economic transitions: from investment- and export-led growth to consumer-driven growth; from manufacturing to services; from surplus saving to saving absorption and using that drawdown of domestic saving to fund China's social safety net and boost discretionary household consumption; and from imported to indigenous innovation.

"As long as the government continues to focus its reform strategy on these key transitions, once the virus runs its course, which remains my strong expectation for the second half of 2020, these transitions, in conjunction with recent stimulus actions by the People's Bank of China (PBOC), will play a decisive role in providing a strong post-virus impetus to the Chinese economy," he added. 

As Roach was in China during the SARS outbreak back in 2003, comparing this year's virus fight with 17 years ago, he said the Chinese economy today is far bigger, better balanced and more globally important. "Notwithstanding the serious short-term disruptions associated with COVID-19, today's rebalanced Chinese economy is far more resilient than it was back in the SARS days of 2003, "he added.

He also believes China would potentially project much bigger implications on global economy than before. "At the same time, with the world far more dependent on China today than it was back then, short-term disruptions in the Chinese economy are bound to have a more serious impact on global growth. When China sneezes, today's world is far more at risk of catching a bad cold than it was in 2003," said Roach.

As the fight against the COVID-19 enters a critical point, Roach reiterated that "The highest government policy must be virus containment, addressing modern China's most serious public health emergency. The economy comes second, and fortunately for China it is strong enough to endure even this serious shock."

Underneath the quarantines and travel restrictions to curb the spread of the virus, he underlined the importance of the PBOC to stabilize financial markets. "Stimulus should add fuel to any post-virus rebound in the economy," he added.

Roach said once the virus is contained, the natural forces of recovery should take hold, comparable to those that occurred in the aftermath of SARS in 2003. "By staying focused on public health imperatives and bringing COVID-19 under control as soon as possible, the Chinese economy should be well positioned for a solid rebound in the second half of 2020," he noted.

Roach predicted that the epidemic "could be problematic for a global economy. His estimate is that the disease "could knock approximately 0.5 percentage point off annualized world GDP growth during the first and second quarters of 2020".

As many fear the public health emergency will lead to the "middle-income trap" for China, Roach believes the trap is "less about disease control and public health and more about the critical shift from imported to indigenous innovation".

He said the epidemic is a grim reminder that technological prowess is not an end in and of itself. "If China seizes the opportunity to convert newfound prowess in indigenous innovation into a higher-quality growth experience, complete with a state-of-the art public health system, it will be much better positioned to avoid the long-feared setbacks of the so-called ‘middle-income trap’," Roach added.

(Compiled by Han Xiaomeng)