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Playing Catch-up in the Global Recession

Dec 24-2020   



The year 2020 is seeing the pandemic dragging the world economy into the biggest recession in nearly a century. Due to its structural advantages and resilience, the Chinese economy is expected to emerge as the only major economy to post positive growth.

 

The deep recession of the world economy has provided a backdrop against which the Chinese economy is quickening its steps to catch up with the developed ones. The progress of pandemic fighting and the extensive availability of vaccines might bring about a widespread recovery of the world economy next year, but China’s catch-up can be expected to maintain its bouncy pace, writes Prof. Lu Feng of the NSD in a prologue for his new book, Future Growth Trends .

 

Measured in USD based on the exchange rate, China’s GDP stood at 67% of its American counterpart in 2019; the figure is on way to hit 71% this year. In other words, the catch-up is manifested by a 4% narrowing in the gap, higher than the 2.3% average from 2012 to 2019.

 

Two variables are instrumental. One is that China has done an outstanding job in pandemic control thanks to its unique social mobilization capability and powerful goal-oriented execution, which has created favorable conditions for the stable recovery of economic and social order. The other factor has to do with a feature of China’s economic development stage: the macro-economy reacts acutely to stimulus policies, such as the Six Stabilizations policy and the Six Guarantees policy. As the macro-economy quickly recovers, investments in high-tech industries and public well-being projects grow fairly fast, pointing to the continual upgrading of the national economy.

 

The IMF estimates that the Chinese and US economy will grow by 8.1% and 3.5% respectively in 2021. But in comparable nominal GDP, China will grow 5.62% faster than the US, thanks to an implied RMB appreciation of around 1%. The IMF long-term figures show that China will narrow its gap with the US by 4.56% annually from 2020-2025, double that of the 2012-2019 period.

 

Turning to the EU. In 2023, China’s GDP will reach USD19.513 trillion and for the first time overtake the economic volume of the EU, estimated at USD18.839 trillion, according to the IMF.

 

Uncertainties will cause deviations to such predictions. As far as China is concerned, further reforms shall generate 4-6% annual growth in the next five to ten years. Besides, the steady productivity gain in China’s trade sector has resulted in the Balassa-Samuelson effect, with foreign investors showing more willingness to hold assets in China. And the government’s measures to internationalize the RMB might push the currency back into a long-term appreciation track. In short, China’s catch-up might outpace the IMF’s estimates.

 

But it will not be a smooth sail, as more uncertainties are introduced into the China policy of the developed countries. China needs to combine its might and wisdom to deal with the challenges in a determined and level-headed way.

Playing Catch-up in the Global Recession

Dec 24-2020   



The year 2020 is seeing the pandemic dragging the world economy into the biggest recession in nearly a century. Due to its structural advantages and resilience, the Chinese economy is expected to emerge as the only major economy to post positive growth.

 

The deep recession of the world economy has provided a backdrop against which the Chinese economy is quickening its steps to catch up with the developed ones. The progress of pandemic fighting and the extensive availability of vaccines might bring about a widespread recovery of the world economy next year, but China’s catch-up can be expected to maintain its bouncy pace, writes Prof. Lu Feng of the NSD in a prologue for his new book, Future Growth Trends .

 

Measured in USD based on the exchange rate, China’s GDP stood at 67% of its American counterpart in 2019; the figure is on way to hit 71% this year. In other words, the catch-up is manifested by a 4% narrowing in the gap, higher than the 2.3% average from 2012 to 2019.

 

Two variables are instrumental. One is that China has done an outstanding job in pandemic control thanks to its unique social mobilization capability and powerful goal-oriented execution, which has created favorable conditions for the stable recovery of economic and social order. The other factor has to do with a feature of China’s economic development stage: the macro-economy reacts acutely to stimulus policies, such as the Six Stabilizations policy and the Six Guarantees policy. As the macro-economy quickly recovers, investments in high-tech industries and public well-being projects grow fairly fast, pointing to the continual upgrading of the national economy.

 

The IMF estimates that the Chinese and US economy will grow by 8.1% and 3.5% respectively in 2021. But in comparable nominal GDP, China will grow 5.62% faster than the US, thanks to an implied RMB appreciation of around 1%. The IMF long-term figures show that China will narrow its gap with the US by 4.56% annually from 2020-2025, double that of the 2012-2019 period.

 

Turning to the EU. In 2023, China’s GDP will reach USD19.513 trillion and for the first time overtake the economic volume of the EU, estimated at USD18.839 trillion, according to the IMF.

 

Uncertainties will cause deviations to such predictions. As far as China is concerned, further reforms shall generate 4-6% annual growth in the next five to ten years. Besides, the steady productivity gain in China’s trade sector has resulted in the Balassa-Samuelson effect, with foreign investors showing more willingness to hold assets in China. And the government’s measures to internationalize the RMB might push the currency back into a long-term appreciation track. In short, China’s catch-up might outpace the IMF’s estimates.

 

But it will not be a smooth sail, as more uncertainties are introduced into the China policy of the developed countries. China needs to combine its might and wisdom to deal with the challenges in a determined and level-headed way.