(Yicai Global) April 21 -- China is still the world’s most reliable source of growth and stability amid a sharply worsening global economic situation, according to John Ross, a senior fellow at the Chongyang Institute for Financial Studies, Renmin University of China, and a former director of economic policy for the mayor of London.

“Even a cursory factual examination shows that China's economy is by far the most powerful global centre of stability and growth,” Ross said in an article published by Global Times on April 17.

This week the International Monetary Fund cut its growth forecasts for 143 countries, as the pandemic and other factors batter economies. At 8.5 percent, the highest in 40 years, US inflation is forcing the Federal Reserve to raise interest rates, slowing the economy, Ross pointed out. In some other advanced economies, inflation is running even higher: in Spain and the Netherlands it is at 10 percent.

In contrast, China has inflation under control. The consumer price index rose 1.5 percent in March from a year earlier. And in the two years since Covid-19 began, the country’s gross domestic product has expanded by 10.5 percent, compared with 2.1 percent in the United States. 

Still, Ross noted that China does face slowing growth and rising inflationary pressures. So it is the right move for the country to introduce a moderate stimulus package, he said, including measures such as the recently announced cut in the reserve requirement ratio, or the amount of cash that banks must hold in reserve.

US Media Exaggeration

The US media have claimed that due to recent Covid-19 flareups and the Russia-Ukraine conflict, China is facing serious economic problems. That is an exaggeration and is not in line with the facts, Ross said.

Shanghai's Covid-19 outbreak is significant, but China is suffering zero daily deaths whereas the US, a country with less than a quarter of China's population, continues to see hundreds of deaths each day. Since the outbreak of the pandemic, the Chinese mainland has suffered 4,638 deaths compared to almost 1 million in the US.

In economic terms, China is far outperforming the US, Ross said, adding that the United States may actually be contributing to instability in the world economy.

US Treasury Secretary Janet Yellen claimed that the surge in US inflation was due to the effects of the Ukraine conflict. But the largest part of the US inflationary wave came before that. US inflation climbed to 7.5 percent in January from 2.5 percent two years earlier.

The main reason for this inflationary wave is the stimulus packages launched by the US in response to the pandemic. The US introduced budgetary stimulus of USD900 billion in December 2020, and USD1.9 trillion in March 2021, adding up to USD2.8 trillion in total. US government borrowing peaked at 27 percent of GDP and the US money supply increased by 27 percent year on year, both the highest in US peacetime history.

Inevitable US Inflation

These packages focused on consumption, on the economy's demand side. From 2019 to 2021, 98 percent of the increase in US GDP was in consumption and only 2 percent in net investment. With such a huge demand increase, and almost no increase in supply and investment, it was inevitable that a huge inflationary wave would follow. 

At the beginning of 2022, China embarked on a moderate stimulus that focused on investment as well as consumption. Retail sales rose from 1.7 percent year on year in December to 6.7 percent in January and February, while fixed-asset investment rose from 4.8 percent to 12.2 percent, and industrial production jumped from 4.3 to 7.5 percent. Unlike the US, China's more balanced development led to no significant rise in inflation. 

As a result, China has room to ease monetary policy if needed, amid gathering negative international trends. The US, on the other hand, is trapped by high inflation so monetary tightening is unavoidable. In short, Ross said, not only has China outperformed all other major economies in the recent period, but it is also in the best position to continue doing so.

Editor: Tom Litting