US-China decoupling and rising nationalism around the globe may prevent Beijing from taking a leading role in the international economic response to the coronavirus crisis at next week’s G20 summit, analysts said.
Coordination among major powers, especially between the United States and China, has been fading since US President Donald Trump initiated his “American first” policy and the subsequent trade war with China two years ago, said Alex He Xingqiang, a research fellow at the Centre for International Governance Innovation (CIGI).
“The key for successful coordination under the G20 is whether the US and China could forsake accusations and their decoupling for now and cooperate to fight the crisis caused by the pandemic,” said He, who is also a former senior fellow and associate professor at the Institute of American Studies at the Chinese Academy of Social Sciences.
“[But] because of the decoupling … we do not see much coordination between the largest two economies in the world to fight for the global financial meltdown pushed by the Covid-19 pandemic. This explains China’s smaller contribution to global economic governance facing the coronavirus pandemic.”
The Group of 20 (G20), which comprises the world’s top 20 developed and emerging economies, is set to hold an emergency virtual meeting next week, where China will participate in international efforts to combat the fallout from the pandemic.
During the global financial crisis crisis in 2008, China was a key player in international efforts to avert the threat of global depression, helping Asian countries escape the global economic downturn relatively unscathed.
Before attending the G20 summit in Washington in November of that year, China enacted a 4 trillion yuan (US$569 billion) stimulus package, joining the US’ call for coordinated large-scale fiscal stimulus designed to save the world. It also committed US$50 billion to bolster the International Monetary Fund’s crisis-fighting capacity.
But China’s measures this time round, including lowering of banks’ reserve requirement ratios and the provision of liquidity to the market, have been a lot more restrained.
China has not cut its benchmark deposit rates, refraining from joining the US Federal Reserve’s measures to coordinate interest rate cuts with other central banks. The US central bank’s expansion of US dollar swap lines with nine more central banks this week does not include the People’s Bank of China.
While the first phase of the US-China trade deal was signed early this year, the political atmosphere between Washington and Beijing seems to be getting frostier – with tensions stoked most recently by Trump’s use of terms “foreign virus” or “China virus” for Covid-19. The US-China tech war is just getting started, while Beijing is expelling American journalists working in the mainland.
Nevertheless, analysts said that China could still contribute to global economic governance if it can resume production in its factories and get the economy back on track without causing a second round of domestic coronavirus infections. So far, the resilience of its financial markets and currency is also providing an anchor for the rest of the region.
China’s economy was under pressure even before the coronavirus shock, but it is now facing a bigger threat than during the 2008 global financial crisis.
Demand for China’s exports has been collapsing just as local supply comes back on line. China’s industrial production, fixed-asset investment and retail sales collapsed in the first two months of the year due to Covid-19.
Tianlei Huang, research analyst at the Peterson Institute for International Economics, said that China is likely to position itself as a defender of multilateralism and call for greater openness and international cooperation on drug and vaccine development to fight the pandemic.
China could also announce more tariff reductions and the elimination of non-tariff barriers for medical supplies, Huang said. For the developing world and the countries involved with the Belt and Road Initiative, China may offer donations of medical supplies, interest-free loans, concessional loans and even grants to support these countries’ battle against the virus. It may also offer to share its medical expertise, lessons and experience from its own battle against the outbreak.
In a phone call with the UN secretary general Antonio Guterres last week, President Xi Jinping said China was ready to share its experiences, carry out joint research and development for drugs and vaccines, and offer as much help as it could to other affected countries.
It would be hard to believe that China will forgo this opportunity and not talk about its success in virus containment and the China model
China has been donating coronavirus testing kits to Cambodia, sent planeloads of ventilators, masks and doctors to Italy and France, pledged to help the Philippines, Spain and other countries, and deployed doctors to Iran and Iraq.
“It would be hard to believe that China will forgo this opportunity and not talk about its success in virus containment and the China model,” Huang said.
Cliff Tan, East Asian head of global markets research at MUFG Bank, said that more global coordination was needed to work out international travel restrictions that have been very “jarring”.
But Tan also conceded that China’s capacity to play a leading role to promote its agenda could be hindered as the world has become too politicised and fractious over the past several years, disrupting coordination among the US, Europe and China.
“These days we just have a lot of nationalistic leadership without anybody being able to take up the global mantle,” he said, adding that China may be taking a more cautious approach towards repeating the same massive stimulus experiment this time because of debt concerns.
CIGI’S He said while virus containment and rescue measures for the global economy are expected to be key topics at the upcoming G20 meeting, the World Health Organisation was still the key platform for political solutions to fight the pandemic.
Additional reporting by Stuart Lau
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