The shape of China’s economic recovery has been up for debate since early 2020, as Beijing shut down much of the economy and put huge swaths of its population under lockdown from late January through April in a largely successful effort to contain COVID-19.
Economists initially predicted it would resemble a V, with the bounce-back coming as quickly as the decline. But as China’s lockdowns dragged into their second and third months, a more gradual recovery in the form of a U looked increasingly likely. Then there are those in the “Nike swoosh” camp, who predict the recovery will follow a tick-shaped trajectory, in which an initial bounce back slows down before the economy fully recovers. The threat of a second wave of infections has sparked fears among analysts that a W-shaped rebound is possible, with the economy spiking and sinking alongside infection rates. Finally, experts have raised the possibility of an L-shaped recovery; a depression, in other words, or little recovery at all.
Amid all that speculation and as new economic data rolls in, Andy Rothman, an investment analyst at the mutual fund company Matthews Asia, says China is in fact experiencing a V-shaped recovery. He argues that China’s April consumer data puts the country squarely on track for a quick economic rebound.
“The Chinese consumer is back, and we are well on a way to a pretty broad consumer recovery,” he said.
In a discussion with Fortune’s Clay Chandler on Wednesday, Rothman expanded on that analysis and tackled other topics, such as how businesses are navigating the escalating U.S.-China feud, how the U.S.’s struggle with COVID-19 threatens its economic future, and the always looming question of decoupling. The Q&A below has been edited for length and clarity.
Fortune: What’s your take on the health of China’s economy?
Andy Rothman: The recovery after the pandemic has been considerable. China’s economy is clearly not back to normal and probably won’t get back to normal this year, but we’re in the early stages of a V-shaped recovery right now. I think the real challenge is going to be for the last 20%.
But what we’re seeing is the Chinese consumer is back, and we are well on a way to a pretty broad consumer recovery. Compared to the rest of the world, China is going to be the world’s best consumer story. The rebound of big-ticket items like home and car sales indicate that a big part of the country has not only enough money, but enough confidence in the future to make a purchase like that.
In the U.S., there is a lot of political debate about pulling out of the Chinese market and decoupling. But can multinationals afford to sacrifice the growth they could get in China?
No. This whole conversation about decoupling is, in my mind, just nuts. We’re talking about the two largest economies in the world decoupling, how does that make sense for either economy? If a U.S. company is in China, they’ve done it for business reasons. Now, isn’t that kind of a bedrock foundation of how we work here in the United States; that companies should make decisions based on what’s good for business?
Is there a risk that the January phase 1 trade agreement between China and the U.S. will come apart as a result of the pandemic?
Definitely there is a risk. The United States’s initial purchasing targets from China were completely unrealistic from the get-go, even if the pandemic did not come. But it’s really clear to me that Chinese President Xi Jinping really wants the deal to work. He has significantly increased Chinese purchases of agricultural products from the United States.
I think those numbers give the U.S. President an option. He can say, “Yeah, because of COVID-19, they weren’t able to meet the targets, but they were doing their best.” Or he can say, “They are not even close to meeting their targets, and therefore I’m going to break the deal because they haven’t lived up to their end of it.” So, this is really a political position for him.
The U.S. government recently announced a rule change that would block the Chinese tech giant Huawei from accessing semiconductor chips from Taiwan Semiconductor Manufacturing Co., or TSMC, one the world’s leading chipmakers. How do you see this standoff between the U.S. government and some of China’s biggest tech giants playing out?
I think it is likely to continue to get worse over the next six months, at least through the next presidential election. Right now, I’m puzzled as to what the objectives are.
Engineers here in California tell me that as long as Huawei gear and 5G is installed on the periphery of the network, and that Nokia and Sony Ericsson equipment is installed at the core, the risks are not that great and can be significantly mitigated.
American chipmakers are also getting a significant share of their revenue from China Qualcomm, for example, gets about two-thirds of its global revenue from China. If these chipmakers were to lose the China market, what would that do to their research and development budgets and overall financial health?
Do you see the pandemic as encouraging Asia to trade more with itself and less with the United States?
I think the biggest risk of the U.S. falling behind China right now is related to the virus. If I’m thinking longer term, reopening in a smart way in the United States is probably more important to our economic competitiveness vis-à-vis China and the rest of the world than worrying about semiconductor sales or Huawei.
This story and video are part of Eastworld Spotlight, a series of conversations on matters of business, tech, and finance with executives, experts, entrepreneurs, and investors in Asia. Subscribe to Fortune’s Eastworld newsletter to get them in your inbox.
