Due to the 2008 financial crisis and now the coronavirus pandemic, the primacy of the American economy is being threatened by the rocketing economic expansion of China, Koon Yew Yin writes.
As soon as the coronavirus was first detected in Wuhan in January, the Chinese government immediately locked down the city and quickly took all the necessary action to stop the spread of the virus.
Until recently, Trump did not believe in wearing a face mask. He called it Kongflu and Chinese flu. Currently, the US has 6.5 million Covid-19 cases, 3.8 million recovered and 194,000 deaths. Studies show that recovered Covid-19 patients will continue to have ill health.
Unfortunately, the number of Covid-19 cases in the US will continue to spike for a long time. Many scientists have predicted it will not be under control for at least one or more years, despite a few vaccines already under phase three testing.
President Xi Jinping sees an opportunity to advance Chinese interests while the US is preoccupied with the fallout of Covid-19. China’s bid to become the world’s economic superpower has been a long time coming.
Following the economic stagnation and isolationism of Chairman Mao’s leadership fifty years ago, China has developed a sophisticated high-tech economy that is the envy of many in the Western world. A key part of this was a massive infrastructure drive: China owns more high-speed rail than the rest of the world put together and has the busiest, largest ports and container storage on the planet. Middle-class growth is also tangible, with home ownership on the rise.
Chinese economy recovers ahead of other countries
The economic ramifications of lockdown are clear even to the layperson. Fiscal packages and bailouts have been the most common ways Western countries have responded to the crisis.
China’s strict reaction to the pandemic, which has controlled the spread of the virus, lies in its ability to firmly curtail people’s freedoms and, as a result, the economy. Its centralised government has a capacity that extends beyond most western democracies, enabling it to act swiftly and enforce measures well. It has capitalised on both.
US recession inevitable
Since March, 33 million people have lost their jobs in America, dwarfing the unemployment fallout the coronavirus has caused in China, which contributes further to China’s advantage. This has compounded the economic gains it has made since the turn of the millennium.
These gains were achieved because of huge development in infrastructure and foreign investments, eg the Belt and Road Initiative (a global development strategy adopted by the Chinese government in 2013 involving infrastructure development and investments in nearly 70 countries and international organisations). It is also the largest economy in terms of purchase power parity since 2014, although it still lies behind the USA in gross domestic product (GDP), according to World Bank data.
What is happening to the Chinese economy as a result of the coronavirus is not the shrinking of the economy, nor decreased domestic and external demand. Factories and shops are opening ahead of other countries; as a result, China won’t get hit as hard as the United States.
But it is not just that US businesses will have to remain shut for longer. It is also which businesses. The US economy is far more reliant on the service industry – shopping malls, restaurants, hotels, etc – than China’s, and it is this industry that is more affected by social-distancing measures.
China is further advantaged by the size of its agricultural sector, which is 10 times larger than of the US’ and an area of the economy far less hit by social distancing. The pandemic, therefore, will affect the world’s largest economic power far more than its rising star.
Speculation or logical conclusion?
Due to the 2008 financial crisis and now the coronavirus pandemic, the primacy of the American economy is being threatened by the rocketing economic expansion of China.
As of May this year, the American economy has not spiked to the 24% rate of unemployment seen during the Great Depression of the 1930s, but the figure rose to around 14% (as reported by The Guardian) and is likely to increase. Less than half of all working-age Americans are estimated to earn a wage in May 2020, in an economy, according to the Business Insider, where consumption contributes to nearly 70% of GDP.
Compare this with the Chinese unemployment figure of just 5.9%, and it becomes clear that its recovery is several steps ahead. Chinese construction, oil refining and power plant activity have all begun to normalise.
On top of this, China was already on the way to recovering from the brief trade war with the US, which ended in a bilateral trade deal that leaves China in a good position, and could precipitate the US redirecting protectionist policies towards Europe.
It is for these reasons that China could very soon take the top spot as the world’s largest economy – not least because of this pandemic.