Months after the COVID-19 outbreak started, hope has begun to emerge from China. The speed and scale of China’s efforts to address the pandemic and its economic effects have been breath-taking, and its recovery is being keenly observed. However, concerns remain. The slow pace of China’s economic recovery could jeopardise its broader socioeconomic objectives such as reducing unemployment. Deteriorating US-China tensions also loom heavy on the horizon. The Singapore Institute of International Affairs (SIIA) held a webinar on 3 June 2020 with Professor Bert Hofman, Director of the East Asia Institute at the National University of Singapore, and Dr. Victor Gao, Vice President of the Centre for China and Globalisation, to discuss China’s recovery from COVID-19 and its implications for the region.
The session was moderated by Associate Professor Simon Tay, Chairman of the SIIA. A recording of the session is available as a premium resource for our corporate partners, and a summary of the points discussed can be found below.
“The High Speed Train is Only Operating at Half-Speed”
Despite a first quarter decline of 6.8 per cent in its gross domestic product (GDP), China could still grow at a rate of about 2-to-3 per cent in 2020. Services and trade are not doing well due to contractions in both domestic and international demand. Fiscal and monetary policies by Beijing, though not as substantial as those in 2008, would likely be able to modestly boost GDP. While this figure is still much lower than previous years, China’s economic prospects are still better than many other countries, and its overall economic objective for 2020 has changed from pursuing growth to ensuring stability.
Unemployment and Socioeconomic Objectives
A key goal for China will be to keep unemployment below 6 per cent, especially since eight million university graduates are expected to enter the workforce by July. However, there are questions as to whether the expected growth rate of 2-to-3 per cent would be sufficient for these purposes. Millions of workers, including migrants, were unemployed due to closures in the service industry, and prospects for a quick recovery there are slim. Reforms to social safety nets would be needed in the short term to ensure that these migrant workers are protected and prevent social unrest.
Regional Impact of US-China Tensions
US-China tensions heated up as Washington sought to divert blame from its own mishandling of the COVID-19 outbreak. Political challenges on both sides continue to prevent quick solutions to these tensions, particularly with the upcoming US Presidential election. Yet, as trade has shrunk as a proportion of China’s GDP, external factors such as US-China tensions would be difficult to overcome, but are not expected to deal a deathblow to its economy. Instead, conflict between the two economic powers would have greater implications for ASEAN economies. The US government has begun placing restrictions on the supply of high-tech components such as microchips to Chinese companies, and any extension of these policies would have significant ramifications for ASEAN governments and their economic policies.
