Insight - China’s recovery expected to benefit the region

Should Joe Biden win the US presidential elections, how will that affect US ties with China, where not so long ago, the two superpowers were locked in a fierce trade war? (File pic Joe Biden (centre) campaigning.)

ALL eyes are on China, which is staging an economic recovery amid control of the virus, to be the engine of world growth again.

Close on the heels of this burning question is another concern.

Should Joe Biden win the US presidential elections, how will that affect US ties with China, where not so long ago, the two superpowers were locked in a fierce trade war?

Another trade war, in the midst of a pandemic, can disrupt all the ongoing recovery efforts.

By the sheer size of its economy, it is possible that China can act as a growth locomotive.

Together with economic recovery, although uneven, in other major developed countries, it is expected to lead the global recovery in this new cycle.

In terms of purchasing power parity (PPP), China’s economy now stands at US$24.2 trillion compared with US$20.8 trillion for the United States, according to the International Monetary Fund, in its World Economic Output 2020.

China’s third quarter GDP came in at 4.9% year-on-year (y-o-y), below the forecast for 5.5%.

On an annualised basis, the growth came in at only 2.7% quarter-on-quarter (q-on-q), compared to 11.9% q-on-q annualised in the last quarter.

But the latest September numbers seem to indicate a pick-up again; retail sales were higher by 3.3% from 0.5% in August although for the first nine months, it had declined by 7.2%.

China’s industrial production growth in September has rebounded to 6.9%, charting a growth of 1.2% for the first nine months.

Imports grew 13.2% yoy in September, from a decline of 2.1% in August.

But another spending splurge by China, like in the aftermath of the 2007 financial crisis where it spent US$586bil to revive its economy, seems unlikely.

In 2019, the Chinese had reduced their budget deficit to 2.8% of their GDP, and they appear to be aiming to keep their debt to GDP ratio at below 50%.

Among the advanced economies, US economic growth is expected to rise to 34.6%, at an annualised rate, in the third quarter after a sharp contraction of 31.4% in the second quarter, according to The Conference Board.But growth momentum could be slowing as the leading US economic index rose only 0.7% in September, after rising 1.4% in August and 2% in July.

German GDP is expected to fall by 5.4% in 2020, and grow by 4.7% in 2021, said the Joint Economic Forecast published on behalf of the German Economic Ministry.

At risk is a cut or downgrade warnings by S&P Global on some top economies, as their finances weaken and debts mount, on immense support of health, economic and financial systems.

The increase in consumption and retail sales indicates that China is fast transforming from an export-oriented into a consumption-based economy; this will help emerging markets in terms of diversifying trade and reducing risks, says Areca Capital CEO Danny Wong.

With the future resumption in tourism, as “green bubbles” are formed, China’s recovery is expected to benefit the region.

While China’s imports are largely from Asian countries, its economic recovery is still dependent on their fiscal positions.

A significant pick-up in global trade may still be protracted, says Fortress Capital CEO Thomas Yong.

On the future growth of China’s economy, trends in, among others, investments and credit growth, will be tracked.

Fixed asset investment in China grew by 0.8% y-o-y in September, from a 0.3% drop in August; it was the first month in 2020 that cumulative investment had exceeded the level last year.

China’s domestic credit rose 13.3% y-o-y in September, compared with 13% y-o-y in August.

However, investment momentum in the fourth quarter may soften, while credit growth too may decelerate, said Oxford Economics head of Asia economics, Louis Kuijs, was quoted as saying by South China Morning Post.

The services sector which had grown the fastest in the last few years, rose only 0.4% in the first three quarters.

Mobility of persons, linked to their confidence to travel and spend, is also being tracked.

China’s major trading partners are still struggling to contain virus developments, which will dampen consumer spending and business confidence, said Socio Economic Research Centre executive director Lee Heng Guie, cautioning that stricter precautionary measures could be enforced.Should Biden win, he is generally expected to be less confrontational but in the “need to be more assertive with China has now taken hold politically in the United States; it will not be easy for a new president to roll back on previous policies, ’’ says Hong Leong Bank managing director, global markets, Hor Kwok Wai.

While we brace for uncertainty, things are changing on a month-to-month basis, and everyone is keeping a close watch on China’s progress in rebuilding its economy.

Yap Leng Kuen is a former StarBiz editor. The views expressed here are her own.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 1
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

U , China , economy , trade war , Joe Biden , Trump ,


Next In Business News

FGV appoints independent consultant to review director's remuneration
Malaysia palm oil millers halt production as CPO prices plummet
Credit Suisse found guilty in cocaine cash laundering case
S&P revises Malaysia's sovereign credit ratings’ outlook to stable, projects GDP to grow 6.1% in 2022
Sapura Energy returns to the black with RM91.9mil net profit in 1Q
Ringgit depreciates against US dollar
DNeX to explore business synergy with Saudi Arabia-based Abilitii
Pertama Digital exploring with banks to provide digital banking products
Mynews posts net loss of RM10.22mil in 2Q22
Southern Cable targeting higher exports in FY22

Others Also Read