Former World Bank's country director for China discusses possible US renege on China debt

Source:Global Times Published: 2020/4/10 18:23:40

Photo taken on March 3, 2020 shows US dollar banknotes in Washington D.C., the United States.(Xinhua/Liu Jie)

Editor's Note:

As the coronavirus pandemic rips through countries, major economies experienced a significant recession for the first quarter - estimated from negative 3 to negative 10 percent. In an exclusive interview with Global Times (GT), reporter Bai Yunyi talked with Yukon Huang (Huang), a senior fellow at the Carnegie Endowment for International Peace (CEIP) and former World Bank's country director for China. Huang shared his thoughts on how COVID-19 could affect China-US relations and the global political and economic landscape.

GT: Against the backdrop of the pandemic, many analysts believe a global recession seems inevitable, and the only question left is the scale of the recession. What is your opinion?

Huang: Since we do not understand fully how the virus and the pandemic will evolve, particularly in the west, we now don't have a firm idea about growth prospects globally. But we already know that practically every major economy is going to have a significant recession for the first quarter - estimated from minus 3 percent to minus 10 percent. 

For the second quarter, the recession in the US and the Europe is going to continue, and it's unlikely to stabilize until the third or fourth quarter. So, the US and the Europe will have a recession this year with a significant decrease at three to five percent, maybe even more.

For China, though its factories are slowly returning to full capacity, the demand is not there and the west is basically closed.

Although China will be better off than the US and Europe, it will also experience a continued slowdown, and will be lucky to have a positive growth rate at even zero to one percent. Instead of trying to maintain a growth target, China could try to preserve its productive capacity and be well equipped to move forward when things return to normal. 

GT: Reports have suggested that foreign businesses are moving their supply chains out of China during the pandemic or plan to move out. Do you think China's role in the global supply chain will be weakened by the pandemic?

Huang: I don't think the pandemic by itself will have a major impact upon the supply chain, and the major factor affecting the supply chain was the US-China trade war - the tariffs, the trade restrictions - have made it difficult for manufactures that use China as the base for producing goods for the global market, including the US market.

But what the pandemic has raised is the issue of inventory stocks, and particularly countries did not have adequate stocks of ventilator, masks, and surgical equipment. It is a very difficult issue. 

The pandemic will cause countries to think carefully about how to maintain stock of critical supplies for the future, how to ensure distribution, who will be the producers and whether a global agreement on distribution could be reached. If a lot of key supplies are made in only a few countries, it'll create problems.

So, the inventory stock management - the particular aspect of the production supply chain- is a separate concern with regard to the pandemic.

For companies like Apple, or consumer products and even textiles producers, though they have been thinking for years or have tried to move to Vietnam or Mexico, the movement from China has not been significant, and the primary reason is that those countries do not have a big enough labor market, a good infrastructure, communications, logistics, and others.

GT: How the pandemic will impact on China-US trade war? Since some US politicians have said the Chinese government should forgive US debt due to the pandemic, is there a possibility the US could refuse to pay its debt to China?

Huang: The pandemic is going to make the trade war worse. Although leaders from both countries have tried to calm the waters down and tried to promote collaboration, the pandemic will for sure become a major issue as the US is entering into a political election cycle this year, and the White House could try to blame everything on China which will exacerbate tension.

Speaking of statements on how China should forgive US debt, commentators or congressman make outrageous statements, including even White House spokespersons. For starters, people should ignore them.

The US will need to borrow a lot because it's running a huge fiscal deficit, and it cannot renege on its debt obligations as it would jeopardize its credit and the US dollar, the global currency, would collapse. This kind of comment is irresponsible and nonsensical, and no one would ever take it seriously.

GT: How will the pandemic affect the political and economic map of the world?

Huang: The pandemic has not caused the shift in the international political and economic order or the power balance. It's reinforcing a trend that began 10 or 20 years ago. The West has seen rising concerns about globalization and worried that it cannot generate benefits to ordinary people. They were expressed the concerns in terms of demonstrations against free trade, multilateralism and even the UN system, and it is a phenomenon everywhere. Now the pandemic comes along and reinforces the view of globalization not serving the interests of the people, as well as there's no global governance structure capable of dealing with the pandemic crisis. 

This problem has been rising, and it reflects the decline or unwillingness of the US to exercise its traditional leadership role.  The Trump administration is moving away from the international order, which has created a vacuum and led the world to a very uncertain period of time.

Right now, the world is asking whether China can exercise leadership in this situation, and frankly it's hard for any country to fill that vacuum and the pandemic is a test for the global system.


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