The reason China hasn't tried revving its growth engine in response to the pandemic (as it has during past crises) is that its tanks are empty. The world's second largest economy has been running on fumes: Most new bank lending, which props up growth these days, goes to pay off old debt.
Moreover, the Chinese economy is increasingly reliant on consumer spending, and although traffic snarls in Beijing show that large businesses are getting back to work, shops and cinemas and restaurants are still largely empty. The demand is missing, both at home and abroad.
Meanwhile, Japan is paying its companies to bring home their factories from China and American politicians are having similar thoughts. Multinationals are rethinking their global supply chains: The U.S.-China trade war showed how the benefit of being in China can be outweighed by the political risk. Researchers at the consulting firm Kearney say corporate executives in the West are increasingly focused on resilience—the ability to foresee and adapt to unforeseen systemic shocks. That will mean diversifying production away from China to other parts of Asia, near-shoring to adjacent countries with lower costs, or simply bringing industries such as auto parts manufacturing home after investing in technologies such as 3D printing.
A forklift sits parked next to boxes of products and pallets stacked at the Jiangsu Siborui Import and Export Co. warehouse in Anaheim, California, on Feb. 10. The Chinese company buys aluminum alloy wheels for cars from domestic producers and exports them to the U.S., but those producers were idled by the coronavirus.
Photographer: Kyle Grillot/Bloomberg
Certainly, nobody could have predicted that the world would lose its primary growth engine so suddenly, just as Europe and the U.S. face their biggest economic crisis since the Great Depression.
"We are all embarking on the unthinkable," says Emmanuel Macron, the French president. Macron said he worries that the European Union may collapse if rich countries like Germany and the Netherlands don't come to the rescue of coronavirus-smashed members such as Italy and Spain. He also frets that populists and autocrats might manipulate the crisis to hijack democracy.
The U.S. faces a similar moment of reckoning, writes Kevin Rudd, the former Australian Prime Minister and an adviser to the New Economy Forum. After what he calls President Donald Trump's "lunatic" decision to defund the World Health Organization in the midst of a pandemic, he thinks U.S. global leadership hangs in the balance. (Though, as with many other Trump boasts, the Republican may not have the legal authority to touch WHO funding.)
The next U.S. election, Rudd concludes, could be a "last chance saloon" for the troubled suerpower to change course.
At the Bloomberg New Economy, we've always recognized that the center of gravity of the global economy is shifting east. Notwithstanding China's dimmed economic prospects in the near-term, the coronavirus appears to be accelerating that broader trend. By and large, Asian economies have responded far better to the pathgen's threat than those in Europe and America. South Korea, Taiwan and Singapore have been standouts. Public trust in government in those nations is high; societies have held together. China, too, has outperformed after early cover-ups.
Former Australian Prime Minister Kevin Rudd, who called Trump's threat to cut funding to the World Health Organization "lunatic," said the combination of the pandemic and a Trump re-election may spell the end of American global leadership.
Photographer: Doug Mills/The New York Times
None of those things can be said for America under Trump.
"We may look back on this pandemic as the tipping point when the Asian Century truly began," write McKinsey partners Oliver Tonby and Jonathan Woetzel.
Still, returning to Macron, his use of the word "unthinkable" connotes both unprecedented threat as well as historic promise. Perhaps, he muses, the West will manage to reinvent capitalism, and this catastrophe will galvanize governments to tackle environmental disasters and social inequalities. Democratic systems, after all, are supposed to have at least one clear advantage over authoritarian regimes: the ability to self-correct.
They now have a choice to make. An Asian Century is not ordained. But it's looking increasingly likely.
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