Anthony Rowley

Special to Arab News 

The coronavirus epidemic has earned China much criticism over its initial handling of the outbreak. But it has also highlighted the extreme importance of the world's second largest economy - not only to Asia but also to the rest of the world - in maintaining global growth momentum.

China's contribution to global economic growth is much greater than is generally realized and those who seem to revel in finding fault with China (over the coronavirus for example) would do well to bear this in mind. Where goes China, there go we all nowadays.

What matters is not so much the fact that China has become the second largest economy in the world in terms of GDP (after the US and ahead of Japan) as that continuing high growth has boosted China's contribution to global growth at a time when other leading economies are lagging badly

As IMF chief Asia economist Changyong Rhee has noted, Asia contributed 70 percent of global growth in 2019, among which China alone accounted for 41 percent, India 13 percent, ASEAN around 10 percent and others the rest. This puts the US and Europe (at around 10 percent each) in the shade.

Rhee estimates that coronavirus will shave Asian growth by half a percentage point to 4.3 per cent in 2020. Meanwhile, S&P's chief Asia economist Shaun Roache says that growth will drop by a percentage point or so in Hong Kong and Singapore and by 0.5 per cent in Australia, Korea, Taiwan, and Thailand.

Despite China's continuing role as a growth dynamo for the region many commentators continue to heap criticism on Chinese government policies while at the same time looking to Beijing for fresh economic stimulus in order to bolster slowing rates in the US, Japan, Europe and elsewhere.

Such stimulus will likely be forthcoming but, as the IMF's Rhee pointed out in Tokyo, this time China will probably focus more on measures to boost the country's domestic social safety net, including stressed health services, rather than on import-boosting measures.

Everyone will suffer if China' growth rate slows for longer than the first quarter of this year, as analyses by Moody's and others has suggested. It is in the interests of the world to offer China all the help (medical, logistical and otherwise) it can rather than criticism from the sidelines.

Containment of the virus will vie with the need to get economies moving again, including international linkages. If ever there was a need for multilateral agencies like the World Bank and others to coordinate relief efforts it is now. but there is precious little evidence of that as yet.

China's investment in infrastructure and manufacture has fallen quite sharply since 2017 and if that extends to projects included under the Belt and Road Initiative (BRI) this will further erode China's contribution to global growth. 

Coronavirus is scary but the (understandable) tendency toward over-reaction or even panic which characterizes human behavior in times of stress has been transposed into a kind of malicious glee in predicting China's economic collapse as a consequence of the outbreak.

In all likelihood, China will win the battle against coronavirus, either as a result of the dramatic "lock-down" of cities or because the virus will mutate and become less virulent. China will snap back into full production probably sooner that appears likely in the prevailing gloom just now.

At that point, other threats to the global economy will re-emerge from the shadows to where they have retreated in the glare of publicity created by the coronavirus. Not even masks or blindfolds will offer protection against these numerous threats.

First and foremost is the disruption caused by Trump trade wars, not only to global trade itself but also to manufacturing output and investment (not to mention business confidence). All slowed markedly in 2019 (as IMF data show) even before the coronavirus delivered a further blow.

The "virus" of protectionism afflicting Donald Trump's America has meanwhile spread to certain other leading economies. There is no cure for this malaise until the world's immune system can fight it off and restore healthy attuitudes toward openness in trade and commerce.

Much has been written about disruptions to supply chains caused by natural or man-made disasters but "trade diversion" gets less attention. If China is forced to buy more from the US under the Phase 1 trade deal, it will buy less from Europe and elsewhere.

As IMF managing director Kristalina Georgieva told the G20 meeting in Riyad, "bilateral managed trade arrangements have the potential to distort trade and investment while harming global growth. Our estimates suggest that  managed trade provisions cost the global economy [near] $100 billion." 

On top of all this there is the addiction to credit-fueled personal consumption which has propped up most major economies where interest rates are at historic lows. There is also the mountain of corporate debt (China included) where rollovers due this year could create a severe debt crunch.

And, as the IMF's Rhee observed, the "low for longer" interest rate regime which now sems to be a given for many of the world's leading economies "can bring financial stability concerns" - not least for banks, a threat that looks especially serious for legions of smaller Japanese banks.

Japan's economy has entered territory where the risk of a technical recession (two consecutive quarters of contracting GDP) is very real. Japanese media have been full of alarm stories about China and coronavirus but Japan's growth slump is largely home grown after an untimely tax hike.  

The bottom line is that once the coronavirus scare begins to abate and commentators begin to look beyond the doomsday scenarios proliferating now they will find plenty there to lose sleep over. And it will not be easy then to blame China for the underlying malaise in the global economy.

One country that has been treading delicately of late over criticizing China's handling of the coronavirus epidemic is Japan. This may appear odd given the mutual tensions that have long existed between the two countries but there are sound political reasons for restraint now.

Both Tokyo and Beijing are anxious to minimize the threat to their economies posed by the erratic behavior of the US Trump administration in trade and other areas. For reasons of "dollars and cents" Japan and China want to boost or at least maintain good trade and investment relations

Anthony Rowley is a veteran Tokyo based journalist specializes in East Asian affairs