China remains ‘hugely important’ to the global economy, says Standard Life Aberdeen chairman

SINGAPORE — The importance of China’s role in the world economy has not diminished despite rising geopolitical tensions, said Douglas Flint, chairman of Standard Life Aberdeen.

“I think China is hugely important to the global economy and to global trade,” said Flint, who spoke to CNBC’s Nancy Hungerford during this year’s virtual Singapore Summit.

“Seven months ago, every single company in the world virtually saw its growth opportunities in Asia, led by China. I don’t think that’s changed,” he said on Wednesday. A very strong middle class and the desire to consume in a different way will continue to drive the economy, he said.

But Flint acknowledged that geopolitical tensions can present new challenges for companies.

“Business operates under the umbrella of a geopolitical relationship, and when that relationship is tense, it is more difficult for business to operate,” he said. “Having said that, at the business level, our own relationships with our counterparts and clients in China continues to be very strong. It is not impacted at that level, but obviously there’s an overriding political relationship that makes things difficult.”

He also pointed out that there’s a difference between the political rhetoric and actual moves on the ground. 

“There are many elements in the Chinese economy that are continuing to open up, and we’ve seen many of the major U.S. firms — BlackRock, Vanguard, JPMorgan — beginning to expand their operations, even during this period in China,” Flint said.

That shows continued progress toward the integration of the Chinese economy into the global economy that both sides have aspired to, he said.

“But the political rhetoric is somewhat distant from what’s happening on a commercial side. I think we need to try and bring the two back together and, as I said, I think that should be done through engagement.”

Flint also pointed out that many economies have become dependent on government support as a result of the coronavirus crisis, and it will be difficult to wean them off aid.

“That government support was timely,” he said. “It was extremely heavy in terms of its impact, but it can’t go on forever.”

Countries rolled out generous fiscal packages to help businesses and individuals in the wake of the Covid-19 outbreak and subsequent lockdowns. However, concern has grown over what will happen when that support is withdrawn or runs out.

“I think the challenge for governments across the world is how to wean the economy off governmental support,” he added.

It will be a “significant” challenge because confidence will fall as people start losing their jobs. “That then has sort of a multiplier effect on what happens, in terms of people’s willingness to go out and spend, and do the things that would bring the economy back.”

“How to get the economy functioning in an independent way again … is going to be very important, and how to use the firepower that the central banks and governments may have left, to target that very specifically and efficiently to the sectors that need it,” he said.

Flint added that the need to build resilience in various sectors is an important lesson from the coronavirus. He said the banking system was reinforced after the global financial crisis, and that helped it to withstand an “extraordinary stress test” this year. 

“If the amount of money that had been spent strengthening the financial system had been spent on strengthening the health service and other parts of the economy that have been severely tested in the pandemic, we probably would have had a much lower cost to society,” he said.