Pamela Heaven
How the pandemic is turning the Middle Kingdom into the world's economic superpower
Is China eating other countries’ lunch?, asks an economist this week.
Certainly starting to look like it.
While other nations continue to struggle in the global pandemic, China’s success in curbing the virus and its investment-driven stimulus has made it the best performing economy in the world.
And in some ways, the pandemic has actually escalated that rapid rise, argues TD senior economist Sohaib Shahid. Here’s what he found:
Recovery
Before last year China’s economy was slowing down, but the pandemic changed that, said Shahid. Because the virus was contained early, not only has the Chinese consumer made a big comeback, exports have as well. The nation is the only major economy expected to register growth in 2020, with an 1.8% rise forecast. China’s share of global output in 2021 is expected to rise to about 19%, 1.7 percentage points higher than before the pandemic and above estimates of where it would be if COVID hadn’t happened. By 2025, that share is expected to top 20%, while the U.S.’ output is expected to shrink to 14.8%.
Investment
China’s stock market has outpaced the world, even the United States, which has seen a blistering, albeit turbulent, run. China’s CSI 300 has gained 32% since the beginning of last year, compared to the S&P 500’s 17% gain. Institutional investors are also piling in, reducing the market’s volatility and making it even more attractive to foreign investors, said Shahid.
While global foreign direct investment dropped 49% (Canada down 32% and U.S. 61%) in the first half of 2020, China’s only declined 4%.
And earlier this month, the renminbi rallied to its highest level in more than two years, recovering the losses brought on by the U.S., China trade war.
Trade — ‘Is China eating others’ lunch?’
China created a splash this week when data showed its trade surplus soared to a record high in December, as other countries, which are producing less in COVID lockdowns, rely more on Chinese goods. Demand is said to be so strong that it’s creating bottlenecks at ports and manufacturers are complaining about a shortage of shipping containers.
The latest data shows that China’s share of global trade has jumped to 16%, three percentage points more than it would have been without the pandemic, said Shahid. Early last year the rise was due mainly to exports of medical supplies needed to fight the virus, but since then exports have been increasing across a wide range of products.
China’s trade is now well above pre-pandemic levels and has grown on average 7% year-over-year over the past six months, said Shahid. Meanwhile, exports from the U.S. and EU remain below pre-pandemic levels.
“China’s trade surplus for the first 11 months of last year was $460 billion, up by a fifth. This shows the extent to which the pandemic has forced countries to increasingly rely on Chinese goods,” he said.
“It would be difficult for other countries to unseat China even after the pandemic is over, now that it has captured others’ market share.”
Shahid says China’s success containing the virus and its recovery while others struggle will give the nation greater influence on the world stage. However, this also puts it on a collision course with its rivals.
“China – under Xi Jinping – was becoming increasingly assertive in recent years anyway, but the pandemic has exacerbated that. China’s strong recovery will only increase its dominance going forward,” he said.
“Expect greater conflict between China and its rivals – especially the U.S. – in the coming years. After all, China and the U.S. are the perfect example of being stuck in a Thucydides Trap – a conflict between an existing power being challenged by an upcoming power.”
Financial Post