We got a glimpse today at the impact of the virus on the economy, with China’s GDP growth number for Q1 being reported as minus 6.8%. What a surprise that the number includes an 8. We will see how much skepticism this number generates in the next few days, but the stats released do at least reflect one trend that all can agree on – March was better than February. Nomura, which had estimated a negative 9% for Q1 GDP growth, predicted negative 0.5% for the whole year, citing sagging exports and domestic demand and the risk of a resurgence in infections. As to the rest of the world, we sense an economic corner has been turned, and while it’s going to be a hard road back, it looks like a recession and not a depression. The GDP growth economic hit on the US and Europe could well be bigger than that on China, but there are other factors at work here, including the shifting of supply chains away from China dependency, the de-investment that Japan has announced, and an overall vibe that is hard to pin down but will also have an impact.
Googling the word China with a range of other keywords this week pulls up quite a few issues that are not necessarily out of the playbook of Those in Command. Africa, the French Senate, Britain’s spy organization MI6, the University of Queensland, Spanish and Mexican tests and the Sweet Milk Alliance are just some of them. Then there is the elephant in the room, which is likely to get fatter and feistier in the weeks ahead as the virus fades around the world and people turn to the question of: What happened here?
There’s been a lot of talk about how the US could sink and China rise in the grand global balance as a result of this crisis, but it’s not an argument we find convincing. The US dollar is irreplaceable as the global currency, and even with the awful leadership provided by Trump, the economic impact is probably going to be even more horrendous on the rest of the world, and the US could benefit in a last-man-standing sort of way, strongest in a weakened field, typhoon shelter of last resort. China, meanwhile, faces various difficulties in terms of stepping up its global role, including probably the economic problems of BRI-related countries, which are surely going to get hit hard. Where will they look for relief and how much can be provided?
It looks like the National People’s Congress session, which should have been held in Beijing in March, will take place in May, This impacts on, amongst other things, travel between Hong Kong and the mainland, which today is possible but subject in both directions to 14-day quarantines. Reported infection numbers in Hong Kong and reported number in the mainland are now both low, and a large number of people – delegates, business people and media – should be moving to and from Hong Kong for the event. Could this be the moment chosen to ease the “closed country” policy? Hong Kong after all is a part of China.
The other big news this week was the endorsements for Biden by Bernie, Obama and Warren. If he creates a team approach, which both brings in the progressives and doesn’t make Middle America feel threatened, then he could stand a solid chance of beating Trump, whose flailing becomes ever-more dangerous. Removing funding from WHO during a pandemic – unbelievable. It’s going to be the dirtiest campaign of all time, and China-related issues will clearly play a prominent role in it. A Biden victory could push down Wall Street, but it would also instantly push up the equity value of the US worldwide, and remove the moral vacuum created by Trump that has provided so much room for maneuver for other players.
Have a pleasant but well-masked weekend.