China will remain saboteur number one of global recovery in 2021 even though the new decade brings optimism and new vaccines
A cautious and forced optimism pervades the start of 2021. As Lenin aptly said: “There are decades when nothing happens, and then there are weeks when decades happen.” The year 2020 was one such when the velocity in medical science and tech adaptation crammed a decade’s evolution into a single year.
That the vaccine would be the panacea for the economic woes of 2020 is not certitude, given the emergence of the mutating COVID-II strain. A second cycle of virulence could further burden healthcare systems, severely reversing the economic recovery. Confronted with multiple challenges, recovery even in the developed world is not anticipated before 2021 end despite their Governments’ sustained stimuli on all three fronts: fiscal, monetary and credit. This is because the COVID-induced hysteresis will keep the growth rates suppressed much after the crisis recedes, as it did during the 2008 financial meltdown.
Set against the grim spectre of job and income losses and the inequality exacerbated by the crisis, there have been only two gainers during the lockdown of 2020: China as a country, and the American big tech oligarchs as a business class. Today, Apple, Amazon, Google, Facebook, Microsoft, Netflix and Twitter’s combined market capitalisation is $8 trillion, which is more than double the size of India’s national GDP. This is attributed to big tech’s stakes in the online world of contactless social media and e-commerce which helped them increase their net worth by a whopping 30 per cent, to touch $4 trillion.
And China’s export-led economy rebounded the fastest due to being able to fill the void in global supply-chain disruptions as the country remained on a manufacturing overdrive while the rest of the world was in lockdown mode.
Broadly, the predictive global contours of change in 2022 will be seen in the spiralling of sovereign debt to GDP ratios; a partial revival of globalisation and a return to multilateralism with the advent of Joe Biden; a high rise in manufacturing productivity levels, yet conversely, a shrinkage in job creation due to digitisation and AI-led automation; and permanent changes in consumer behaviour.
Another dominant concern at the start of the year is with the surreal valuations of global stock markets due to surplus liquidity infused by the Central bank’s quantitative easing. This will likely fuel the next asset bubble and lead to a repeat of the 2008 phenomenon once stimulus measures are withdrawn toward the end of the year.
There are other anticipated trends that are likely to play out in the economy with the consumer and with corporates in 2021. For one, there are fears that the very country that unleashed the virus could sabotage global recovery by covertly unleashing another virulent strain so that the offender nation retains its economic heft.
And, sadly, the optimism is further watered down due to the lack of a unified action plan amongst like-minded coalition partners or allies to rein in an expansionist China. A multilateral and punitive response is needed to hold China accountable for subverting a rules-based economic international order and calls for an international backlash for its abuses on maritime and territorial incursions as also for the grotesque human rights abuses on Uighurs, or for the Chinese Communist Party’s crackdown on democracy in Hong Kong and Tibet.
China’s treatment of business magnate Jack Ma being browbeaten to “embrace supervision” (the Chinese synonym for detention) should have sent shock waves to the global investor community. But, to the contrary, the West is hesitant to decouple from China. While the Biden Administration will persist with Trumpian-era tariffs and technology restrictions on China, the attraction of the Chinese market for the US and the EU investors is too strong to cut the cords of economic activity on grounds of geopolitical aberrations alone. The EU, which is the largest trading bloc, has recently approved a comprehensive investment agreement while American fund houses continue to solicit Chinese savers retirement funds.
When the strongest democracies are in descent and disarray, it has the propensity to embolden rogue dictators. More so after the theatre of the absurd that played out at Capitol Hill with Trump’s “Be there, be wild” melee that pushed lawmakers to invoke the 25th Amendment to remove a sitting President from office. A weakened US then portends ominous signals in being able to contain an aggressive China, which does not augur well for free market economies.
And if the Capitol Hill was under siege, a similar kind of anarchy is being played out on the borders of the Capital of the largest democracy in the world, with the non-negotiable stance of the farmers’ protest nearing two months. Anarchist trends in democracies are now a symptom of a deeper underlying malaise, with a thin line demarcating excessive freedom of expression or the right to dissent from chaos, vandalism and lawlessness.
Dominant India-centric themes expected to play out
Coming to India, while the economists predict a strong rebound, it is important not to confuse rebound with growth in “absolute” terms. The World Bank estimates the growth in India to recover to 5.5 per cent in FY22, so the recovery from a lower base naturally quantifies as a higher rise. Herein, the speed of the vaccines’ rollout and their efficacy will of course increase economic activity due to increased mobility, which will drive recovery in the non-farm sectors with the exclusion of the contact-intensive services sectors.
According to a McKinsey report, “Indian businesses have the potential to create economic value of about $635 billion by 2030 if they can tap into the shifting preferences of Indians aspiring to a higher standard of living”. The areas identified for quantum leaps are in businesses that provide higher-quality urban environments, cleaner air and water and more convenience-based services in the new ideas-based economy which can potentially create millions of productive jobs.
Another dominant trend is one of growing indignation against the “privately owned, unelected, unaccountable American tech companies, who can unilaterally exclude anyone on Earth out of the internet”. The other countries must unite to regulate these monopolistic internet giants who evade taxes in host countries, have a predatory, buy-out strategy towards startups which pose a threat to them in order to curb competition and have now self-appropriated the right to restrict freedom of expression at will.
Lastly, mainstreaming Environment, Social and Governance (ESG) will be one of the enduring hallmark business trends of post-pandemic prioritisation. The ESG verticals can vary from supporting sustainable natural materials, water conservation and CO2 reductions or espousing social causes such as human rights and poverty alleviation. We have to recognise that zoonotic diseases will continue to rise till the time we do not shift to sustainable production and consumption patterns.
Peering through the fog of uncertainty, it is impossible to conjure what the post-vaccine world will look like. But, for sure, what we will encounter on the other side of the tunnel will in no way resemble the pre-COVID world order.
(The writer is an author, columnist and Chairperson, NCFIL, at Niti Aayog. The views expressed are personal).
