China could carry out a "very impressive" economic growth but the US is its biggest risk, according to a Deutsche Bank economist on Monday.
Michael Spencer, Deutsche Bank’s chief economist and head of research for Asia Pacific, commends the improving Chinese recovery. It registered a growth of 5%-6% quarter on quarter in April-June, after a contraction in the previous three months.
The coronavirus pandemic has hit the global economy. The lockdown measures implemented to curb the spread of the coronavirus led to the closure of offices and stay-at-home orders. These events put businesses to a halt, dampening any prospects for growth this year.
However, China, where the coronavirus first emerged, is often regardedas one of the few economies that could still recover well.
“The domestic demand part of the Chinese economy has recovered well,” said Spencer during an interview on CNBC’s “Squawk Box Asia.”
Spencer pointed out that “a broad range of indicators” — such as auto and property sales — are “returning to normal” in China. Moreover, the country’s exports have also manifested better recovery. However, Spencer warned that it could get “a lot worse” in the next few months due to the economic weakness in China’s major export destinations.
The biggest risk to China
What remains the biggest risk to the Chinese economy is the US, according to Spencer. He noted that the US is reopening too early from lockdown measures. He believes this could lead to another surge of coronavirus infections.
Spencer said more rounds of infections could further damage the US economy despite a hike in employment rate.
Meanwhile, Steve Hanke, a senior fellow at American libertarian think tank Cato Institute, said that it would take many years before the American economy recovers.
“And to repair it, it’s just not going to happen immediately. I don’t think we will reach the level of pre-crisis GDP until ... 2022 and probably way beyond that,” he told CNBC’s “Street Signs Asia” on Monday.
“So, we’ve got a tough road to follow here,” he added.
Phase one trade deal
Spencer noted that the conflict between the US and China could become “exceptionally sensitive” this year.
“So the rhetoric between China and the U.S. has already gotten very worrying, and I think can only get worse through this summer,” he said, adding that “there’s no prospect” for the two countries to conclude the second phase of the trade deal.
The two countries signed the “phase one” trade deal in January, which paused their tariff war that lasted over a year. However, Spencer thinks this phase one deal may be “hanging on by a thread.
“The risks are that even that phase one ... gets broken or gets abandoned in the next few weeks and months," he added.
Lose-lose situation
The US-China conflict is a “lose-lose” situation for both sides, according to a political science professor from Harvard University.
Graham Allison, Harvard’s Douglas Dillon professor of government, said that the tension between the world’s major economies, US and China, may worsen. He added that the result is a “lose-lose” situation for both sides.
“The endgame will probably be lose-lose,” he said during an interview with CNBC’s “Squawk Box Asia."
“I think this will be worsening across the board and I hope that they don’t do any permanent damage,” said Allison. He served as assistant secretary of Defense under President Bill Clinton and special advisor to the secretary of Defense under President Ronald Reagan.
