The rise of China has been one of the dominant themes on the global stage over the past decade. It has forced the economic centre of gravity to shift further east – and led to some considerable friction with the established economic superpowers of the 20th century.
China has seen a decade of strong economic growth and has been the main source of momentum in the world economy on several occasions over the past decade. However, even in Beijing, the limitations of its debt-financed, export-oriented growth model have been noted in recent years, with growth reaching a 30-year low of 6.1% in 2019, according to official estimates. In the second half of the last decade, China has initiated a process of weaning the economy off its high debt levels and rebalancing the country towards a stronger, more dynamic domestic market. However, the escalating trade war with the US as well as the coronavirus crisis have pushed back reform plans. Tensions between the US and China came to a head under the Trump administration and resulted in a tit-for-tat escalation of tariffs on a range of goods. The conflict has since moved on from manufacturing goods and commodities into the tech world. Chinese companies such as Huawei are accused of being under the influence of the Communist Party and several European states and the US have called for limitations on Chinese foreign direct investments in their countries due to security concerns. The continued rise of China, which is asserting itself with increasing confidence on the global scale, will be one of the key economic trends to watch in the coming years.
India’s economic potential is the result of its vast population, favourable age demographics and its position as a key player in South Asia. Despite these very favourable preconditions, India saw a disappointing 2019 in terms of growth, caused by weak domestic demand, slow credit growth and setbacks in the financial system. Problems with data quality mean that growth in the 2010s has probably been overstated and obfuscated deeper, more structural problems with the economy. These are based in a balance-sheet problem, with high primary deficits and weak banks, which limit the effectiveness of monetary policy.
On top of these issues came the coronavirus pandemic, which has led to one of the steepest drops in economic output globally in decades. In India, GDP fell by an annual rate of 23.0% in Q2 2020. India will struggle to bounce back quickly from the crisis, in part due to the large size of its informal sector. With millions of households cut off from government help, aggregate demand in the economy took a considerable hit amid the height of the pandemic, leading to many business closures and hardship. India’s vast resources mean it has great potential to prosper in the medium-term but enacting structural reforms and overcoming the pandemic are sizeable challenges for the coming years
The ASEAN region has been a bright spot in terms of global growth over the past years. Countries such as Vietnam and the Philippines have made great progress in reducing the number of people living in extreme poverty, although success in reducing relative poverty and income inequality has been more muted. In terms of the response to the coronavirus pandemic, ASEAN countries have experienced lower case numbers and fatality rates than other regions. Despite this positive backdrop, the pandemic has led to a fall in growth rates leading to the first recession in the area since the Asian financial crisis of 1997. Prospects for the recovery largely depend on whether ASEAN economies can continue the process of reopening or whether a second wave of cases will require new lockdown measures. Beyond Covid, the region should return to its potential growth rate of around 5% p.a.
1Includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam