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  • As China starts to recover from the coronavirus

  • and the rest of the world feels the full impact

  • of the pandemic, Beijing is turning its attention

  • to the outside world, sending out masks, ventilators,

  • and doctors to alleviate the humanitarian crisis.

  • But there's another big question about China's role.

  • Can it help rescue the world's economy,

  • just as it did after the great financial crisis of 2008?

  • Back then Beijing launched a $590bn stimulus package

  • that got the Chinese economy firing again.

  • The demand that generated alongside US

  • and European stimulus efforts eventually

  • helped restore global economic growth.

  • Can China repeat that feat again?

  • That largely depends on two big things.

  • The first is how quickly its own economy can bounce back

  • from the huge virus-induced slump in the first quarter

  • of the year, and the second is the extent

  • to which China can act as a locomotive

  • for the rest of the world.

  • The FT has developed an index to track

  • the speed at which China's economic cylinders are starting

  • to fire again.

  • So far, it's showing a measured recovery.

  • You can see that economic activity,

  • which is shown by the red line, is lagging behind the grey

  • line, which shows GDP growth last year.

  • If we break out the constituents of that line,

  • you can see that some parts of the economy

  • are stirring back to life.

  • The amount of real estate sold, coal used in power stations,

  • and traffic on the streets are all showing an upward trend,

  • demonstrating that the economy is in recovery mode.

  • But other readings, such as cinema tickets sold,

  • container freight shipped, and the levels of pollution

  • in the air, remain bombed out.

  • Most economists are predicting that this recovery

  • will gain strength.

  • And China will experience a sharp snapback in growth

  • in the second quarter of this year.

  • Such a bounce would help generate demand

  • for the rest of the world too.

  • After all, China has accounted for around one third

  • of global growth in recent years.

  • The locomotive effect would intensify

  • if China also launches a stimulus package

  • like it did in 2009.

  • But most economists think that China

  • is neither able nor willing to launch a big bazooka again.

  • This is because the debts it has run up,

  • partly as a result of the 2009 stimulus,

  • preclude another credit-fueled bonanza.

  • Back in 2009 China's debt levels to GDP were modest.

  • Now they are excessive, with Chinese bank loans

  • equivalent to almost half of global GDP.

  • According to Rhodium, a consultancy, most Chinese bank

  • lending is used merely to cover interest payments

  • on existing debts.

  • This leaves very little spare for new investments.

  • All this presents Beijing with an unpalatable choice.

  • It could carry on with the policy of reducing indebtedness

  • but in doing so suffer the consequences

  • of an economic slowdown, or it could loose off another credit

  • bazooka to stimulate the economy but thereby risk burying itself

  • under a mountain of debt.

As China starts to recover from the coronavirus

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Coronavirus: will China rescue the world economy? | FT

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    林宜悉 posted on 2020/03/27
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