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What Challenges Could China Face in a Post COVID-19 World?

By Mohit Oberoi, CFA - Published 3 months ago - Last Updated 3 months ago 0 Comment
What Challenges Could China Face in a Post COVID-19 World?
  • The Chinese economy has been gradually slowing down over the last several years. The country has been trying to shift to a consumption-driven economy from an investment-driven and export-reliant economy.
  • Over the last two years, the US-China trade war hit the Chinese economy. The COVID-19 pandemic might leave another structural impact on China.

China

There is palpable anger against China across the world. This time even the so-called liberal polity has expressed its anguish against China for allegedly hiding the pandemic under the covers for too long. The anger is not without a reason. Reports that Chinese enterprises are buying beaten-down stocks in other countries does not help to bolster the country’s image. Nor does report of its activities in the South China Sea even as the world is battling the pandemic that spread out of its wet markets.

Post COVID-19 world

The US-China trade war left a scar on the two countries' ties. In a post COVID-19 world, watch out for more structural bitterness in US-China ties. This would hold true even if Joe Biden wins this year’s presidential election. More and more companies globally would have to rethink their overreliance on China. The pandemic, and before that the US-China trade war, exposed the risks of over-reliance on one country. Also, given the expected increase in US-China rivalry, global companies might want to diversify their supply lines to what we may call “safer jurisdictions.” The term is widely used in the mining industry where buyers give a premium for mines that operate in safer jurisdictions as compared to those that operate in less business-friendly environments.

China’s slowdown

The export sector has been a mainstay of China’s economy. The country cannot go back to the previous investment-driven model given the already high leverage in its economy. It's no coincidence that over the last two years, China hasn’t resorted to large scale stimulus to boost the sagging economy as it apparently acknowledges the risks of adding more debt to its system.

If companies move their operations from China, it would hit China in the short run. However, don’t expect an overnight exodus of companies from China. The country has an enviable manufacturing ecosystem that is hard to replicate for many other countries. However, the pandemic would add a sense of urgency to companies that were contemplating moving out of China.

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