Risk versus opportunity

Threat perceptions after pandemic will create a binary potentiality for cooperation or division

One of the many questions about the global impact of COVID-19 is whether it will fundamentally change the direction of global politics and economy, or act more as a catalyst or accelerator for trends which were already underway.

One way to begin answering that question is to look at some of the trends in the global economy which already appeared to be significant in shaping the future at the end of 2019. From a macro perspective, three in particular are worth discussing: shifts in the distribution of economic power and influence; transformations in the drivers of growth; and perceptions of risk.

For some decades now, we have been living through a period of the redistribution of relative economic power and influence, from West to East and from North to South. This has been driven by the rise of China and the rapid development of other emerging economies in an era of globalization.

While there was some talk early in the outbreak of COVID-19 that China's economy may suffer the most, it now looks as if responses to the virus could have a greater impact on many other economies. The International Monetary Fund's April 2020 World Economic Outlook projects that China－and some other emerging economies－will remain the strongest motors of growth over the coming years. It forecasts a 1-percent contraction in emerging markets and developing economies in 2020, followed by 6.6 percent growth in 2021, with advanced economies contracting 6.1 percent and then growing 4.5 percent. World output will contract 3 percent and then grow 5.8 percent. Of the major economies, it expects only China and India to grow both years, China by 1.2 percent and 9.2 percent. On current assumptions, emerging markets and developing economies will probably see a smaller contraction in 2020 and larger growth in 2021. Among them, China may perform best in both years.

In other words, the pre-COVID trends in redistribution of economic growth are likely to be maintained, perhaps even accelerated by the novel coronavirus crisis.

The detailed picture, of course, is more complicated. Inequalities within societies are likely to grow. The knock-on impact of economic disruption is difficult to assess. Supply chains will certainly change, with consequences for all major economies. Jobs have already been lost in many areas.

But there could also be new growth opportunities. The disruption from COVID-19 could shift existing trends as much as accelerate them. This year has seen a growth in demand for and use of many technologies, especially for work. Healthcare and digital healthcare solutions will be the focus of new investment and innovation.

In many of these areas, the United States remains strong, and Western companies are likely to play important roles. But it is also clear that investment and businesses in China are focused sharply on these sectors. They have already developed a strong track record for innovation in many areas, as well as for fierce competition and market disruption. Engaging with Chinese companies in these areas will offer opportunities to players from other economies.

COVID-19 has certainly challenged perceptions of risk across societies and created a major sense of vulnerability. This will take a long time to pass.
Risk profiles have changed, but not in clear or consistent ways, at least not yet.

COVID-19 should increase the focus on non-traditional security threats, risks that come not from states but from non-state actors and forces. Climate change and pandemics ought to be at the top of this list.

Some people have drawn this conclusion. But at the same time, in many places it is states which have been placed at the top of the "risk register" as a result of COVID-19. In the West, China has come in for criticism for what it allegedly did not do.

This presents a major challenge not just for international politics, but for the global economy. It is likely to lead to additional barriers to the ability of Chinese companies to invest in economies in the West. It could also make it more difficult for companies from those markets to tap into the growth in China's economy or cooperate with Chinese companies in third markets.

In other words, a misperception of risk would end up creating a lose-lose economic dynamic between China and many advanced economies in the wake of the pandemic.

Understanding the trends in the global economy and the opportunities and risks that we face is an important first step in maximizing the chances of a better outcome. But governments also need to take concrete steps to open up economies further, where possible, and to keep them open despite the difficult politics. This too will help manage the risks that will come from the current disruption and uncertainty.

Whether COVID-19 will shift the direction of the global economy, or simply accelerate existing trends will depend partly on these responses. It looks likely that economic growth will continue to shift toward emerging economies. Meanwhile the most innovative businesses will be more widely distributed. Keeping doors open to economic cooperation will help us all take advantage of the opportunities and manage the risks.

The author is a senior consulting fellow on the Asia-Pacific Programme at Chatham House and a lecturer at the Centre for China Studies at the Chinese University of Hong Kong. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.