Stabilizing the economic impact of COVID-19
Daryl Guppy

Editor's note: Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for Chinese mainland media for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council. The article reflects the author's opinion, and not necessarily the views of CGTN.

A mixed approach to stabilizing the post-COVID-19 global economy threatens effective recovery. The potential outcome of the post-COVID-19 recovery can either yield the benefits of globalization or accelerate the deconstruction of globalization, replacing it with a new type of cold war built around protectionist sovereign economics. For some, the COVID-19 crisis has highlighted an over-dependency on China in supply chains and this furthers the anti-globalization calls. For others, COVID-19 solutions cry out for enhanced international co-operation, including the provisions of vaccines as a global public good.

The Belt and Road Initiative (BRI) plays a central role in this globalized approach as a tool for preventing this division and enhancing cooperation and economic stability.

The first step is ongoing support for multi-lateral organizations. There is room for improvement, but there is no reason for abandoning these organizations. Greater support and an increased role for China in the discussions that frame the COVID-19 recovery economy are important if lasting economic stability is to be achieved.

This calls for the accelerated expansion of the BRI particularly in the areas of poverty alleviation and capital market access. The alleviation of poverty is the foundation of economic growth and it underpins the development of new markets. Ongoing measures to alleviate poverty are the driving force behind economic stability.

A  moratorium on sovereign debt and access to the International Monetary Fund (IMF) Special Drawing Rights for developing economies are two immediate steps. China has agreed to a debt moratorium to assist with economic stabilization. However, the use of SDR for this purpose by the IMF has been blocked by the United States.

This signals a need to develop a broader range of alliances with middle power groupings to support China's greater involvement in world forums. Although inclusion in G7 and G8 is self evident, the ranks are closed at the behest of the United States. A wider coalition of middle range powers is required to apply pressure to change this.

The further opening of China's capital markets can be accelerated as a means of enhancing global economic stability. Capital is agnostic and it flows around obstacles in its quest for economic stability and returns. Increasing the attractiveness of China's capital markets provides an alternative to the current irrational exuberance of U.S. financial markets where the rising indexes do not reflect the reality of economic destruction.

When the market snaps-back to economic reality then the economic impact may be more destabilizing because of the capital destruction. A strong, stable, capital market alternative is a key component of post-COVID-19 global economic stability.

Workers load cargo on March 9 at the port of Nantong in the eastern province of Jiangsu. /VCG

Workers load cargo on March 9 at the port of Nantong in the eastern province of Jiangsu. /VCG

Business and business organizations like the Silk Road Chambers of International Commerce have an increasingly important role to play. They are in the best position to identify the costs of economic separation for the economy and consumers.

These initiatives, and others like them, help to stabilize the global economy. However, there is no guarantee that other countries will follow these leads so we must also consider some options if this so-called "cold war" style economic division develops.

How can we live with this division without engaging in a destructive anti-globalization trade war?

The BRI provides a counterbalance to anti-globalization by acting as a bulwark against the fragmentation and destabilization of global trading systems. It is incorrect to assume that in a bi-polar economic world that China would be at a disadvantage because this is no "cold war" waged against a much poorer protagonist.

We live with the destruction of global trade and its consequent global instability by reducing the vulnerability to the dollarized economy. This includes developing alternative trade settlement and cross border transaction processes that do not rely on the U.S. dominated SWIFT settlement system. The China Sovereign digital currency is part of this solution because it enhances and enables cooperation.

We live with global economic instability by creating an island of stability. This includes a more open economy to attract capital, along with programs and initiatives to alleviate poverty and the reduction of the debt burden on underdeveloped and emerging economies. If these remedies are left to China alone then it requires a further development of the BRI. In the interest of global economic stability, the BRI should always remain open to those economies which have mistakenly strayed down the anti-globalization path.

The BRI and its constellation of policies stand at the center of China's contribution to stabilizing the global economy. Accepted by all, or rejected by some, there is no question that China has a major role to play in the post-COVID-19 recovery.

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