The coronavirus has underscored just how important China has become to the world economy. It's much more important than it was during the SARS crisis. Jeffrey Frankel writes:
It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than Sars. Not only has Covid-19 already caused more deaths than its predecessor; its economic consequences are likely to be compounded by unfavourable conditions – beginning with China’s increased economic vulnerability.
China’s economy has grown significantly more slowly in the last decade than it did previously. Of course, after decades of double-digit growth, that was to be expected and China has managed to avoid a hard landing. But Chinese banks hold large amounts of non-performing loans – a source of major risks.
As the Covid-19 outbreak disrupts economic activity – owing partly to the unprecedented quarantining of huge subsets of the population – there is reason to expect a sharp slowdown this year, with growth falling significantly below last year’s official rate of 6.1%. During the recent meeting of G20 finance ministers, the IMF downgraded its growth forecast for China to 5.6% for 2020 – its lowest level since 1990.
This could hinder global growth considerably because the world economy is more dependent on China than ever. In 2003, China constituted only 4% of global GDP; today, that figure stands at 17% (at current exchange rates).
Moreover, because China is a global supply-chain hub, disruptions there undermine output elsewhere. Commodity exporters – including Australia, and most of Africa, Latin America and the Middle East – are likely to be affected the most, as China tends to be their largest customer. But all of China’s major trading partners are vulnerable.
But, more than China's now central place in the global economic system, the coronavirus has also made clear just how interconnected we now are -- not just economically but in all ways.
We are, more than ever, our brothers' keepers.