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| DATE | 2020-08-24 |
| FROM | Ruben Safir
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| SUBJECT | Subject: [Hangout - NYLXS] stimulating the Chinese economy with US money
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https://www.wsj.com/articles/chinas-economy-is-bouncing-backand-gaining-ground-on-the-u-s-11598280917?mod=lead_feature_below_a_pos1
Chinas Economy Is Bouncing BackAnd Gaining Ground on the U.S.
Jonathan Cheng
16-20 minutes
BEIJINGAs the rest of the world struggles to contain the coronavirus,
Chinas recovery is gaining momentum, positioning it to further close its
gap with the U.S. economy.
Across China, restaurants and gyms are busy again. Subway cars and
airport departure lounges are packed. Children are preparing to return
to classrooms with few of the restrictions U.S. officials say will be
hallmarks of post-coronavirus life. In some schools, children are being
asked to bring masksbut they dont have to wear them.
Shoppers and bus commuters were out this weekend in Xiamen, China.
Photo: Zhu Lanqing for The Wall Street Journal (2)
With the coronavirus smothered for now, thanks to draconian control
measures, J.P. Morgan recently boosted its 2020 China growth forecast to
2.5% from 1.3% in April. Economists at the World Bank and elsewhere have
also upgraded their forecasts for China, the only major economy expected
to grow this year.
That bounceback, while far from Chinas heady expansions of past years,
should nonetheless help the worlds No. 2 economy move faster in catching
up with the U.S., which could shrink by as much as 8.0% in 2020.
It is also buttressing Beijings belief that Chinas state-led model,
which helped the country navigate the 2008-09 financial crisis with
minimal pain, is better than the U.S.s market system, emboldening
Chinese leaders at a time of rising geopolitical competition with the
U.S.
Chinas inflation-adjusted economic output will likely hit $11.9 trillion
this year, said Nicholas Lardy, an economist and China expert at the
Peterson Institute for International Economics in Washington. That is
roughly 70% of the U.S.s expected outputa seven-percentage-point
increase from last year, and the largest advance China has made on the
U.S. in a single year.
Homi Kharas, a senior global economics and development fellow at the
Brookings Institution, said the coronavirus puts Chinas economy on track
to reach parity with the U.S. in 2028 in absolute terms, using current
dollarstwo years faster than his pre-coronavirus estimate.
A reopened cinema this weekend in Chinas Guangdong province.
Photo: Tommy Chen for The Wall Street Journal
The pandemic will also help magnify Chinas economic power compared with
other developing countries such as Russia and Brazil, said Mr. Kharas, a
former World Bank chief Asia economist. India will now likely lose so
much ground that its economy will be less than one-fifth the size of
Chinas by the end of next year.
China will emerge even stronger as the largest economy in the developing
world, said Mr. Kharas. He added that China will likely come out of the
pandemic even more firmly entrenched as Japanthe worlds No. 3 economy,
which the International Monetary Fund expects to shrink by 5.8% this
yearfalls further behind.
Projected GDP for 2020, change from a year earlierSource: International
Monetary FundNote: Latest estimates made in June
World averageChinaSouth
KoreaIndiaAustraliaJapanIranRussiaNetherlandGermanyU.S.CanadaBrazilU.K.MexicoFranceItalySpain-14%-12-10-8-6-4-202
Chinas recovery remains fragile and warning signs abound, from the
threat of double-dip recessions among its trading partners to
geopolitical concerns. Many experts remain dubious of Chinas economic
numbers. Others say its rebound, even if real, is unsustainable.
Daniel Rosen, founding partner of New York-based research firm Rhodium
Group, warns of mounting debt in China, uneven growth across the country
and festering problems in the banking system. Much of the activity in
recent months has been producing things that people arent buying, he
said, temporarily goosing economic numbers but creating an inventory
glut that will weigh on growth later this year.
Mr. Rosen, comparing China to a speed skater that appears poised to pass
the U.S. in the inside lane, said that despite the gains, China faces
deeper problems: The skates are cutting into Chinas feet, there is
bleeding and all they have eaten this year is sugar.
Quarterly GDP, estimatesSource: International Monetary FundNote: 1Q
2019=100 *Including G7, Euro area and other high-income countries
ChinaWorld
Advanced economies*20192021859095100105110115120
Even so, the recovery under way is enough to make daily life in China
feel significantly better than in much of the West.
Ren Jianmin, a 57-year-old Beijing ride-share driver, said his earnings
fell by two-thirds in February and March, when parts of China went into
lockdown. He relied on savings to support his family.
Things began turning in April. Mr. Ren said he is now logging 12 hours
of steady work each day. That is enough to earn 5,000 yuan ($725) each
month to supplement his wifes income as a nurse. His biggest complaint
is that Beijings notorious traffic jams have returned.
Fiscal measures in response to Covid-19, as a percentage of its
GDPSource: International Monetary FundNote: Data as of June 12
Additional spending and forgone revenueLoans, equity, and guarantees
GermanyItalyJapanU.K.FranceU.S.SpainSouth KoreaBrazilAustraliaSouth
AfricaTurkeyCanadaIndiaArgentinaChinaIndonesiaSaudi
ArabiaRussiaMexico0%51015202530354045
Mr. Ren credits the governments forceful response to the coronavirus for
the turnaround in public confidence, particularly compared with the rest
of the world. The ability of foreign countries to deal with the pandemic
is really not good, he said.
Even in Wuhan, the pandemics original epicenter, life is returning to
normal, with many residents no longer wearing masks in streets and
restaurants filling up again. Images of a DJ hosting a water-park rave
party with hundreds of people packed together earlier this month
garnered global attention.
A pool party in Wuhan on Aug. 15 was hailed in China as a sign of
victory over the new coronavirus.
Photo: str/Agence France-Presse/Getty Images
Wuhan hasnt registered any local coronavirus transmissions in three
months. Zhao Lijian, a spokesman for Chinas Foreign Ministry, said the
pool party reflects a strategic victory achieved by Wuhan and the
Chinese government in fighting the virus.
In the U.S., authorities have warned that a full recovery to pre-Covid
ways of life may not be possible, envisioning classrooms, restaurants,
concerts and plane flights altered by social-distancing requirements.
But Chinas control measureswhich include mass testing and widespread
surveillancehave made public gatherings and other activities relatively
worry-free, as the state inserts itself into citizens lives to an extent
that would make many Americans recoil.
Chinas economic gains are easily explained, said Mr. Lardy of the
Peterson Institute: They did a much more effective job of bringing the
coronavirus under control.
Chinas factories were among the worlds first to reopen in April, which
helped China grab market share in global trade.
Now, with Chinas daily tally of new local coronavirus infections in the
single digits, services and retail are climbing back to pre-Covid-19
levels. July retail sales were off just 1.1% from a year earlier.
Companies from Marriott International Inc. and LVMH Moët Hennessy Louis
Vuitton SE to Tesla Inc. and Starbucks Corp. reported strong
second-quarter growth in China, as the rest of the world pulled back.
Marriott said its occupancy levels in the region reached 60% in the
second quarter, not far off last years 70% rate.
The subway in Guangzhou and a station in the citys central business
district were busy with commuters on Monday evening.
Photo: Tommy Chen for The Wall Street Journal (2)
The recovery of travel in Greater China demonstrates the resiliency of
demand once there is a sense that the virus is better under control,
Marriott chief executive Arne Sorenson told investors this month.
In the southwestern city of Chengdu, Doris Chen said business at the
high-end hotel restaurant where she works has been even better than last
year, which she attributed to pent-up demand and increased domestic
tourism.
Business first began to recover in May as coronavirus measures were
lifted, she said. Before that, authorities only allowed half the number
of patrons, and the restaurants private rooms were closed because of
social-distancing regulations. That is no longer a concern, with the
restaurant allowed to operate at full capacity.
Before the coronavirus, Deutsche Bank estimated Chinas economy would
grow by roughly 26% between 2019 and 2023, versus 8.5% for the U.S. over
the same period.
China and the Coronavirus
Now, taking into account the impact of the pandemic, the bank expects
Chinas economic expansion to moderate slightly to 24% between 2019 and
2023, while the U.S. over that stretch will have grown by 3.9%less than
half the original projection.
Chinas growth was originally projected to outperform the eurozones by
5.1 percentage points this year, Deutsche Bank said. Now, China is
projected to beat the eurozone by twice that margin.
An effective and widely available vaccine could help Western economies
get back to their previous growth trajectories faster than expected,
said Michael Spencer, Deutsche Banks head of Asia-Pacific research.
Until then, though, Chinas economic gains versus the U.S. could fuel
more concerns about Beijings emerging clout, he said.
China still faces headwinds. It counts on exports for roughly one-fifth
of its economic output, making it reliant on customers in the U.S. and
Europe overcoming the virus. It must also prevent its own resurgence in
Covid-19 cases.
Chinas per capita gross domestic product of $10,800 a year is far lower
than in the West. China came into the coronavirus ranked 71st by this
metric, according to the IMF, below Mexico and Thailand.
In the export-oriented southern province of Guangdong, Jason Zhi, a
sales manager at a television assembler, said raw materials are becoming
more expensive as household appliance demand rebounds, and the yuan is
strengthening, which could make Chinese products less competitive
overseas.
How China Became the First Major Economy to Grow After Coronavirus
0:00 / 2:47
2:32
How China Became the First Major Economy to Grow After Coronavirus
How China Became the First Major Economy to Grow After Coronavirus
The Chinese economy expanded 3.2% from a year earlier in the second
quarter, and could be the only major global economy to grow in 2020.
WSJ's Jonathan Cheng explains the country's strategy to front-load the
economic pain in the early stages of the pandemic. Photo: Alex
Plavevski/Shutterstock (Originally published July 16, 2020)
Mr. Zhi said that while export orders for his 80-employee company,
Guangzhou Fuguo Electronics Co., began topping last years sales in June,
it is still struggling to turn a profit after months of lost sales. It
will be harder for us in the second half of the year, he said.
Others are more optimistic.
Liu Kaiyan, who runs a 30-room guesthouse near a rafting site in the
southwestern province of Guizhou, began seeing business improve in
August as families chose destinations where there have been no new
coronavirus cases for months.
Reservations have only returned by 50% compared with last year, she
said, and that was after slashing rates to attract customers. Still, she
didnt lay off any of her three employees, with the prospect of better
times ahead.
Beachgoers in Xiamen, China, this weekend.
Photo: Zhu Lanqing for The Wall Street Journal (2)
Losses are unrecoverable, but luckily we are all safe as the coronavirus
is put under control, said Ms. Liu, who hopes more tourists will come
before summer ends.
In Beijing, where gyms closed for several months, a yoga studio operated
by Wang Juanli was packed on a recent August day.
She said the business struggled to pay rent and salaries during
lockdown, while two nearby gyms went out of business.
Her yoga studio was allowed to resume one-on-one personal training in
April. A fresh wave of coronavirus cases in Beijing in June proved
temporary, after authorities brought it under control.
New regulations require that she clean and disinfect her classroom
before and after every class, and she has to reduce slots for members,
given social-distancing orders. Ms. Wang had offered discounts to bring
in new customers. Still, she thinks she is on a firmer footing.
After the pandemic, people have a higher health awareness and realize
the importance of keeping fit, she said.
Jon Hilsenrath, Grace Zhu and Bingyan Wang contributed to this article
Write to Jonathan Cheng at jonathan.cheng-at-wsj.com
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