China's contribution to global growth "infinite" amid global recession: veteran China watcher

Aerial photo taken on April 11, 2020 shows a logistic station of the Erenhot Port in north China's Inner Mongolia Autonomous Region. The port has handled 379 China-Europe freight trains in the first quarter of this year. (Xinhua/Lian Zhen)

"I'm almost now to the point where I would say the pandemic is reinforcing the advantage of being in China, because they got the epidemic under control very quickly," says Nicholas Lardy.

WASHINGTON, July 17 (Xinhua) -- China is "leading the way" as it is the first major economy to show any sign of recovery, said a veteran China watcher, noting that China's contribution to global growth is "infinite" amid a COVID-19-induced global recession.

With positive growth this year, followed by a more robust recovery next year, the Chinese economy at the end of 2021 could be 10 percent bigger than it was in 2019, Nicholas Lardy, a senior fellow at Washington D.C.-based think tank the Peterson Institute for International Economics (PIIE), told Xinhua in a phone interview on Thursday.

Meanwhile, the output of the United States, the European Union, Japan, Canada, and Britain is going to be smaller in 2021 than it was in 2019, he noted.

"This year, when global growth shrinks and China's expands, on a conventional calculation, China's contribution to global growth is infinite because it's positive and global growth is negative," Lardy said.

"So I think it's going to play a very positive role," he said. "I don't think this has been significantly understood, but I think it should be."

The renowned expert said he thinks China is going to grow by 2 percent to 3 percent this year, a more optimistic projection than that of the International Monetary Fund (IMF) and the World Bank, which both forecasted a growth rate of roughly 1.0 percent for China.

Official photo of Nicholas Lardy, senior fellow at the Washington, D.C.-based think tank Peterson Institute for International Economics (PIIE). (Photo credit: PIIE)

Despite supply chain shift spurred by the pandemic, Lardy cited a recent survey by the American Chamber of Commerce as saying that 83 percent of American companies operating China indicated that they have no plans to leave.

A few of them may cut back, and some of them may adopt the "China plus one" strategy, which refers to the practice of coupling their investments with a second facility, generally in another Asian economy, Lardy said, while noting that the pandemic is not prompting massive supply chain shift from China.

Commenting on the Japanese government's 2 billion dollar program to encourage Japanese companies to move out of China, the veteran China watcher said "2 billion is nothing."

American companies have made huge investments in China. They're not just going to abandon their capital goods, their factories, their market share, their investments they've made in building up their brands, Lardy said.

"This idea that you're going to change the behavior of companies by offering such a small amount of money, I think is ludicrous," he said, adding that "it's symbolism."

Noting that COVID-19 is now everywhere, and it's a "more complex calculation" than people might have thought back in February and March, Lardy said "if you want to go out of China, where are you going to go?"

Aerial photo taken on May 23, 2020 shows a panoramic view of an orange plantation in Huanjiang Maonan Autonomous County, south China's Guangxi Zhuang Autonomous Region. (Xinhua/Zhou Hua)

"I'm almost now to the point where I would say the pandemic is reinforcing the advantage of being in China, because they got the epidemic under control very quickly," Lardy said.

Noting that China's 3.2 percent year-on-year economic growth in the second quarter of this year is in line with his expectation, Lardy said China's industrial sector has been recovering "most rapidly," while the service sector has also seen expansion, with the country "doing stunningly well" on the trade side.

The economist said he thinks China's economic recovery will continue in the second half of the year, since the country has COVID-19 under control and a lot of pent-up demand will emerge.

He highlighted that China has managed to "put the brakes" on small outbreaks in Wuhan and more recently in Beijing with massive testing, quarantining and contact tracing measures.

"I think they have the resources and the commitment to avoid a negative effect of the coronavirus in the second half," Lardy said. "My view is that the virus is not likely to be a significant factor going forward."