COVID-19 is wreaking havoc on economies all over the globe, leaving many in the US to wonder when our economy will run at full steam again. Considering that China was the first reported country to suffer economic downturns from the new coronavirus, it follows that others would set their economic-recovery clocks based on China’s.
However, as countries experience varying levels of success with mitigating the pandemic’s impact, using China’s economic recovery as a barometer for the future becomes less plausible for some. Barring vast differences in the total reported COVID-19 case count, could the US achieve a V-shape recovery by following in China’s economic footsteps?
What is digital agility - and why does it matter?
A June executive survey summary released by the Economist/FT Global Business Barometer tracked the sentiment of global executives thinking about recovery. More than half of all respondents (50.1%) claimed that “greater digital agility” offers the greatest opportunities for post-COVID resilience.
“Companies that heavily invested in digital transformation and new ways of working before COVID-19 have been able to pivot more quickly than competitors and are better able to manage the requirements of a short runway,” wrote PwC Global CEO David Clarke. “Many leaders say that they’ve already gained flexibility as a result of this crisis — flexibility that they should take advantage of to build a digital company.”
This flexibility, as Clarke describes it, may be exactly what’s helping China pivot and recover. President of China Xi Jinping said in a Politburo session on blockchain technology in October 2019, “We must take blockchain as an important breakthrough for independent innovation of core technologies, clarify the main directions, increase investment, focus on a number of key technologies, and accelerate the development of blockchain and industrial innovation.”
With this blockchain-friendly mindset, it should come as no surprise that Chinese entrepreneurs may be dissuaded from attempting launches in the US — especially for those companies focused on the blockchain.
Ant Group, an affiliate of Alibaba Group Holdings, skipped a US debut entirely and chose to list its company instead on Hong Kong and Shanghai stock markets. What makes this more impressive is that Ant Group is the world’s largest unicorn company, valued at approximately $200 billion. For context, the next four largest unicorn companies are Toutiao/Bytedance ($140 billion), Didi Chuxing ($56 billion), Stripe ($36 billion) and SpaceX ($36 billion).
Following in China’s footsteps would mean the US moving steadily forward on blockchain — instead, as Shelagh Dolan at Business Insider points out, “[t]he U.S. maintains a generally positive outlook on the use of Bitcoin and other cryptocurrencies, though few formal rules have actually been introduced.” Overall, it seems that legislators in the States tend to drag their feet and hardly scratch the surface when attempting to pass blockchain-related policies. As Sean Stein Smith wrote for Forbes, “In order to actualize and realize the benefits of blockchain technology for the entire economy, and to help encourage mainstream adoption of both blockchain and cryptoassets, there needs to be a consistent blockchain policy developed and enforceable at the national level.”
Greater digital agility is key, according to the Global Business Barometer, and its importance stretches into many realms that all tie together.
Greater digital agility in remittances
The average cost for sending $200 from the US to China is around $10.77 — about 5.4% of the total remittance — according to WorldBank data. To lose more than 5% of their transfer to fees is unacceptable for Chinese immigrants sending money home to support economically vulnerable family and friends. In 2015 more than $16 billion crossed between these countries. If every remittance sent from the US to China was $200 that would mean more than $850 million in fees paid.
Reducing remittance costs could help stimulate global economies. When more money is received and spent within a country, it bolsters the recovery of smaller economies faster. Ant Group is the creator of AliPay — a fully digital way to deliver money to China at lower-than-average fees. The service isn’t the only inexpensive way to send money to China, but it’s among the more popular ways: AliPay reports more than a billion users worldwide.
Going digital when sending money comes with many other perks, like avoiding physical contact through bank account transactions when sending and receiving money. Of course, given the ever-changing circumstances surrounding the global pandemic, making the decision to send money now or later depends on many variables, including your personal circumstances and where you’re sending money from and to. Overall, if China can make it easier for its citizens to receive money from overseas, perhaps by integrating a nationally recognized digital currency, money can flow even faster into the economy from abroad.
Backing a currency with digital agility
Leaps and bounds ahead of the US on blockchain policy, China has begun implementing something we’ve only dreamed of: a nationally recognized digital currency. The DCEP — or Digital Currency Electronic Payment — is China’s national digital currency that could help turn the yuan into a globally sought-after asset. The DCEP is complex, to say the least, but a report from the Bank of China’s investment banking unit says it will help China by removing its dependency on US-based systems, like SWIFT, and the US dollar.
Global adoption of its national currency would also help China’s economic recovery, and China is building global trust in its digital currency, according to Roger Huang, a Forbes contributor. “By purporting to delegate more control to nominally private organizations as one might see China do with any ‘decentralized solution,’ China can present a digital currency that is more acceptable to local populations than a raw form version of the Chinese RMB, which will be only tied to the Chinese state,” writes Huang. “Foreigners may not trust the Chinese state, but they may be more inclined to trust Chinese companies from ByteDance (who owns TikTok) to Alibaba.”
Economic experts are looking at China’s recovery to gauge how quickly the US could bounce back. If the US isn’t able to prioritize greater digital agility, however, we may lag behind as the years pass us by. We’d all love to see a sharp V-shape recovery, but time will tell if we’re let off the COVID-19 hook so easily.