CES 2020: China’s Place in the Global Economic Landscape

Deloitte chief of staff, technology, media & telecom industry Glen Dong introduced a discussion on the global economic landscape with a focus on China, which he dubbed “arguably the largest economy in the world.” He introduced Dr. Ira Kalish, Deloitte’s chief global economist, who put that into perspective with a 2020 economic outlook. “We’ve already seen a substantial deceleration of growth in the global economy,” he noted. “The Chinese economy has had some of its slowest growth in a decade.”

“China’s economy has been under stress as a consequence of the trade war as well as excess capacity and demographics,” said Kalish (below). “The government is using fiscal and credit stimulus and focuses on domestic demand and trade with the non-U.S. world.” Despite the stressors, “China still holds a lot of promise, with a favorable outlook for consumer spending.”

“There’s a rapidly growing middle class, with nearly half a billion online shoppers,” he said. “E-commerce is now 24 percent of retail sales and it’s a higher share for young adults.”

As China’s middle class grows, so does energy consumption, which will become one of that nation’s key issues going forward. Shifting demographics are also leading to a disappearing surplus in the nation. “Historically, China has been a surplus country and the U.S. has run deficits,” said Kalish. “That’s because China is a high-saving country. But now there is a smaller number of working-age people, and young people save less of their income than their parents did.”

As China runs deficits, it will have “a big impact on the U.S.” “There won’t be an abundance of capital coming from China,” Kalish explained. “We’ll have to accept a weaker dollar, and get rid of the deficit with stronger exports and fewer imports.”

China will “drive the consumer industry,” he noted. “If it borrows a lot from the rest of the world, it will have an incentive to internationalize its currency so it can borrow in its own currency,” he added. “Its relationship with the rest of the world will change.”

Kalish placed these changes in China within a more international context, particularly changing U.S. trade policy. “Over the past three years, the U.S. has turned inward,” he said. “We used to promote trade liberalization to quite the opposite,” he said. “So far tariffs haven’t had a big impact on U.S. consumers because it takes time to wind its way through the economy. But it has unleashed a high degree of uncertainty [on the world economy], and had a chilling effect on business investment. It’s the principal reason we’ve seen a slowdown in economic growth around the world.”

The Phase 1 trade agreement with China — by which the U.S. will forego further tariffs and China will increase its purchase of U.S. agricultural goods — may have an impact, but, warned Kalish, “the Chinese haven’t said they will sign it.” “It appears we’re moving away from uncertainty,” said Kalish. “But now that China is out of the way, the U.S. has signaled it’s turning its attention the EU, so it’s not clear that the trade war and the conflicts around it are over.”