China Economy

China's economic recovery is tied to how others fare in global recession, Australia's ex-prime minister says

Key Points
  • China's economic recovery from the coronavirus outbreak is going to be tied to how other countries fare in the global recession, former Australia Prime Minister Kevin Rudd said on Friday. 
  • His remarks to CNBC came just over an hour before China said its economy shrank by 6.8% in the first quarter. 
  • The synchronous nature of the global recession is affecting external demands for Chinese goods, he said. 
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Global external demand shock has hit China's economy 'big time': Kevin Rudd

China's economic recovery from the coronavirus pandemic will partly depend on how other countries fare in the global recession and the impact on the demand for Chinese goods, former Australia Prime Minister Kevin Rudd said on Friday.

The synchronous nature of the global recession is affecting external demands for Chinese goods, he told CNBC's "Squawk Box," a little over an hour before China reported its economy shrank by 6.8% in the first quarter

"So, the compounding effect of other countries and economies in the world suppressing their own imports from China, for the simple reason that they themselves are experiencing demand-side crises as well," is affecting the Chinese economy, according to Rudd, who's currently the president at think tank, Asia Society Policy Institute. 

The virus was first reported in the Hubei province late last year and its spread in mainland China appears to have slowed in recent weeks, with new daily reported cases comparatively lower than other parts of the world. Recently, Beijing lifted an 11-week lockdown of Wuhan, the city at the epicenter of the country's outbreak. 

The return-to-work rate in China has crept higher as more companies resumed production, but the landscape remains drastically altered.

However, that metric is different from returning to previous production levels, Rudd pointed out.

Frankly, until consumers begin behaving more normally in China, there's always going to be a constraint on their ability to economically return to where they were before.
Kevin Rudd
former prime minister of Australia

"There are a whole bunch of areas of production, not least of which are, in the services sector, where consumers have been reluctant to return to demand. So, overall supply coming out of the economy has been impacted," he said.

Chinese exports for March fell but the decline appeared to be less steep than what economists had predicted. 

The International Monetary Fund recently described the current global environment as the worst economic downturn since the Great Depression

Rudd said that China's policy response to the virus' economic impact has been comparatively muted. Measures taken by Beijing include relaxing regulations, taxation holidays or postponing of obligations as well as direct payments to consumers in the form of coupons, according to him.

"I think the Chinese right now are examining carefully their toolbox about what they do next because, frankly, until consumers begin behaving more normally in China, there's always going to be a constraint on their ability to economically return to where they were before," he added. 

Risk of a second wave

Governments around the world are racing to contain the coronavirus outbreak which has infected more than 2.15 million people and killed more than 144,000 worldwide. The worry among policymakers and health experts is that there might be a second wave of infection when social distancing measures, mass quarantine, and lockdowns are eased.

Yet, prolonging those measures would have an adverse impact on economic activity that will hurt growth, employment, the supply of essential goods and the quality of life. In fact, there's already concern growing in China and other parts of the world about long-term food security and the impact on food prices, the former prime minister said. 

Passengers wear protective masks while riding a subway train on April 13, 2020 in Shanghai, China.
Yves Dean | Getty Images

"This is the truly wicked problem of contemporary public policy and public politics," Rudd said. "Getting this calibration right, in terms of a gradual return to work, is frankly a highly complex piece of public policy and piece of public economic policy as well."

In the United States, President Donald Trump unveiled broad new federal guidelines that lay out conditions for parts of the country to start relaxing some of the strict social distancing measures. 

"The worst thing that can happen in America is for that to happen prematurely and for there to be a genuine second wave effect in terms of the virus breaking out of the box again," Rudd said.