Opinion | The world should be wary of smoking the China pipe again4 min read . Updated: 24 Mar 2020, 12:11 PM IST
It’s good that there’s little evidence this crisis will spring the People’s Republic to global dominance
Eduardo Bolsonaro, a federal lawmaker and son of Brazil’s president, said that Covid-19 was China’s fault and that freedom for people was the solution. Predictably, Chinese officialdom was outraged. The Chinese embassy in Brasilia charged that he had caught a mental virus. In the US, President Donald Trump was questioned for calling it a Chinese virus. He stood his ground. China had expelled journalists from top American newspapers. The Wall Street Journal had carried an article early in February with a title that said China was the sick man of the world.
Separately, China is sending shipments of medical supplies to Italy and Spain (China Ramps Up Coronavirus Help To Europe, Financial Times, 19 March 2020). Newspaper articles repeatedly intone that Chinese students studying in the West find China a safer haven from the virus. Gideon Rachman wrote (How Beijing Reframed The Coronavirus Response Narrative, 16 March 2020) in the Financial Times that “the financial meltdown of 2008 triggered a loss of western self-confidence and a shift in political and economic power towards China. The coronavirus crisis of 2020 could force a much bigger shift in the same direction." Really?
Yes, the president of the US is wrong in calling it a Chinese virus, because he should be calling it a Chinese export. On 19 March, Nikkei Asia Review carried an article which stated that three days of inaction by China have given us a global corona virus pandemic. Even after locking down Wuhan on 23 January and suspending group travel within China, it did not issue any order prohibiting locals from travelling overseas. Notably, it did not stop individuals from moving to other places as they saw fit. Chinese travellers fanned out to Japan, South Korea, Italy, Spain, France, the UK, Australia, North and South America. Shadi Hamid, a senior fellow at the Brookings Institution, does not mince words in assigning China the blame for this, and noted pointedly that after the crisis (whenever that happens), the world’s relationship with the People’s Republic cannot and should not go back to normal (China Is Avoiding Blame By Trolling The World, The Atlantic, 19 March 2020).
Now that readers have been adequately reminded of where the virus started and why it spread, let us examine the prospect of a shift in political and economic power towards China. Such predictions were made in the aftermath of the crisis of 2008. More than anyone else, China took them seriously. In 2008, the country had panicked and exulted simultaneously. As demand collapsed in its trading partner-countries, China assembled a massive stimulus package. That was panic. It did so under the belief that it could get away with such vast state spending and the debt accumulation it entailed. The People’s Bank of China issued discussion papers on the need to develop a new global monetary regime that was less reliant on the US dollar. These were illustrative of its exultation. None of these have since materialized.
China’s currency may be one of the few that make up the International Monetary Fund’s (IMF’s) Special Drawing Rights. But, the currency has hardly inspired confidence in non-residents. Its value against the US dollar has not plummeted only because of severe capital controls that still remain in place. So much for making the yuan a convertible currency. As for its debt-induced economic recovery, it has resulted in the IMF publishing its own estimates of China’s fiscal deficit and public debt every year in its Article IV assessment of China’s economy. Its potential growth rate lies somewhere between 4% and 5%, while China prints an official growth rate of 6% or more.
Then, in 2015, the country launched its famous Silk Road or One Belt, One Road (OBOR) initiative. Commentators were in awe again. Some called it China’s Marshall Plan. India exercised admirable judgement and refused to join the bandwagon. Five years later, OBOR has fizzled out. Countries that signed up to be part of it now realize that doing so only gained them the status of perpetual debtor nations. So, OBOR is unlikely to be China’s gateway to global superpower status.
Let us assume that China’s economy has recovered and that its production lines are working at full capacity again. But, its economic model has not changed much. It continues to rely on exports and an old economy. Fathom Consulting, an independent research firm based in the UK, estimates that the share of high-technology exports in China’s overall exports are only 15% as opposed to the official and World Bank (oh, well) estimate of 30%, and that its urban unemployment rate is close to 15% rather than the official estimate of 3%.
Regardless of the theories floating around on social media platforms about why only select Western nations are affected by the virus, the truth is that China will also go down if the West goes down. The US still has many levers it could pull to ensure that happens. It is too premature to celebrate or dread the end of the West and the beginning of the rise of the East. This would be simply wrong.
V. Anantha Nageswaran is a member of the Economic Advisory Council to the Prime Minister.These are the author’s personal views