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Finance & Economy

How the coronavirus pandemic will push developing countries to delink their economies from China


Vendor selling durian in Bangkok

Vendor selling durian in Bangkok

For nearly 60 years, export-led development strategies have propelled economic growth throughout the Asia-Pacific. The famous “four tigers” – South Korea, Hong Kong, Taiwan and Singapore – rapidly sped up industrialisation by exporting goods in which they had a comparative advantage, moving quickly up the economic development ladder. Vietnam, Malaysia, Indonesia and others later did the same.

Now, however, with the coronavirus crisis throwing the global economy into disarray, leaving China unable to purchase as much of the developing world’s goods, these exporting countries are left to fend for themselves. China’s inability to support its developing world partners may prompt them to shift away from export reliance and towards more resilient structures altogether – at the least, away from reliance on the Chinese Communist Party.

In theory, export-led growth works like this: a country’s economy becomes more efficient by shifting the manufacture of goods to sectors in which it has a comparative advantage; trade liberalisation opens the economy to foreign direct investment and technology transfer; and the expansion of exports – produced mainly by low-income workers – creates job opportunities for unskilled people who comprise a substantial segment of developing countries’ workforces.

In reality, though, export-led development has had mixed success, with Latin America and Africa’s experiments falling short of expectations. And yet, many developing countries – including Turkmenistan, Republic of Congo, Angola, Thailand, Iran, and the Democratic Republic of Congo – and Hong Kong, a special administrative region of China, continue to rely heavily on export-led development, specifically exporting to mainland China, whose own economy remains export-focused.

Now, however, with the coronavirus crisis throwing the global economy into disarray, leaving China unable to purchase as much of the developing world’s goods, these exporting countries are left to fend for themselves. China’s inability to support its developing world partners may prompt them to shift away from export reliance and towards more resilient structures altogether – at the least, away from reliance on the Chinese Communist Party.

This is not the first time an economic crisis has wrought havoc on exporting economies. The 1997-98 catastrophe tamed Asia’s tigers, weakening their currencies and making their goods even cheaper. The 2008 financial crash and accompanying recession created an overarching condition of global demand shortage that devastated economies like China’s, whose export sector declined steeply after experiencing a boom.

The coronavirus crisis has brought further destruction, wiping off US$50 billion in exports in February alone. China’s exports, which account for some US$2.6 trillion of the country’s total economic output – nearly 20 per cent of its GDP – dropped over 6 per cent in March from a year earlier, following a 17.2 per cent decline in the January-February period. This is thanks to declining American and European demand: in March, shipments to the US and European Union, China’s top export partners, fell by more than 20 per cent compared with last year.

The outlook remains bleak. Analysts think China’s exports will fall by another 20 per cent year on year in the second quarter. Chinese officials are preparing for further setbacks, citing the many exporters who are seeing their existing overseas orders cancelled and new orders dry up.

The crisis has also shrunk China’s already-struggling economy (officially by 6.8 per cent, but almost surely by more) for the first time in decades, forcing Chinese consumers to buy fewer goods, including those from abroad. This is a major problem for a panoply of countries in Southeast Asia, Latin America, South Asia, Central Asia and Africa from which China buys goods en masse and in which the Communist Party seeks to exert influence.

China purchases over 80 per cent of Turkmenistan’s exports, over 75 per cent of Mongolia’s, over 60 per cent of Angola’s, around 40 per cent of those from Myanmar, Gabon, Democratic Republic of Congo and Republic of Congo, and more than 30 per cent of those from Iran and Oman.

But China is now unable to support its developing world beneficiaries. Turkmenistan’s exports to China, which are almost entirely of petroleum, dropped 17 per cent in January-February: PetroChina, an arm of the state-owned China National Petroleum Corporation, enacted a force majeure notice to drastically slash gas imports from the country. Mongolia’s exports to China have also dropped significantly due to Covid-19, according to the Asian Development Bank.

Sonangol, Angola’s state-owned petroleum and natural gas company, has been forced to resell – at discount – at least one shipment that was already en route to China. Angola’s oil sales, two-thirds of which go to China, account for 90 per cent of Angola’s export earnings and more than two-thirds of its government revenue.

Myanmar, meanwhile, is losing US$16 million a day in border trade with China due to the pandemic. Commerce secretary Khin Maung Lwin said that because there were now no buyers on the Chinese side, the country is looking to increase trade with Singapore and Laos.

Naypyidaw’s willingness to look abroad amid China’s diminished appetite forecasts a coming realignment within the developing world.

Indeed, the economic damage caused by the coronavirus crisis – which originated in China and for which developing countries’ politicians, particularly those in Africa, are beginning to blame the Communist Party – is a blow to Beijing’s global ambitions.

China has in recent years poured vast sums of money into projects in Asia and Africa under its Belt and Road Initiative, Beijing’s Marshall Plan-like economic and marketing campaign, in hopes of creating a global economic sphere of influence to rival the US’ “Washington Consensus”.

But the virus, beyond limiting exports to China, has stopped the flow of Chinese capital, labourers, and construction materials to project sites abroad. The Belt and Road Initiative has now unsurprisingly stalled. A prolonged economic decline could drum up further anti-Chinese sentiment within and weaken the economic state of Beijing’s client states, forcing them to look for new export markets, thus undermining the Communist Party’s global ambitions.

Indeed, as the coronavirus-caused economic slowdown drags on, the Communist Party could see the deterioration of its campaign for global leadership in the developing world.

Charles Dunst is an associate at LSE IDEAS, the London School of Economics’ foreign policy think tank.

Source: South China Morning Post – How the coronavirus pandemic will push developing countries to delink their economies from China

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