What challenges will China's economy face under the COVID-19 epidemic? What impacts will the epidemic have on international relations, global value chains and economic trends? What adjustments can the Chinese government make to ensure economic and social stability this year?

To answer these questions, China Development Forum (CDF) launched a special column, CDF Online series, in which we will talk with forum delegates on the economic and political impacts of the virus outbreak.

Recently, Yu Jiantuo, Deputy Secretary-General of the China Development Research Foundation, had a call with professor Nicholas Stern of London School of Economics and Political Science to discuss the global economy and global governance system under the COVID-19 epidemic.

Professor Nicholas Stern of London School of Economics and Political Science

Lord Stern has been an old friend of CDF. Firstly, he congratulated China’s effort in controlling the virus and hoped that the epidemic will be contained soon.

Lord Stern is one of the pioneers of climate economics. The 2006 The Stern Review on the Economics of Climate Change had a profound impact on global climate policy. Regarding global risks such as climate change and pandemics, he believes the world is much like it was after World WarⅡwhen the international system needed to be rebuilt.

In his view, health cooperation is one of the opportunities to rebuild international cooperation at a time when the World Health Organization is in need of greater input in the face of greater population mobility.

----------------------------------------------

Impact on global economy and supply chain might be huge
· We don’t yet know how disruptive the impact the epidemic has on global supply chain

· Negative impact on aggregate demand and in terms of supply chains

Yu: We are really keen to learn your view on the prospect of this year's global economy and the impact of coronavirus crisis on the global economy, and in particular on the UK and Europe.
Lord Stern：China's economy is roughly 1/6 of the world economy. China grows by 6%, and then it contributes 1% overall growth in the world economy. So, what happens to China is very important for the world economy.

It's actually a bit more complicated than that first point, which is just the aggregate numbers.Because what happens in China can influence the supply chain in quite a complicated way and could actually directly disrupt the production that takes place in various parts of the world.

China's growth will likely be close to zero in this quarter. We don't yet know, but that would havea direct effect on the world economy.

The supply chains are an issue. This is a new one because when we had the SARS in the beginning years of this century, China was only 4% of the world's economy, and it wasn't so closely integrated. On that question of the supply chains. We're really in a new era, and we don't yet know how disruptive they will be.

If people carry inventories, then they can get through. But we know, at some point, the inventories might run out. So the timing of all this is very important.

But we can say that the impact of the virus is negative, clearly not only for the Chinese economy, also for the world economy, both in terms of aggregate demand and in terms of supply chains. It's very difficult to give you quantitative estimates because we don't yet know how big the effect on GDP in China is going to be.

Take Measures to make epidemic less likely to happen
· We are in a similar moment with the WWⅡ, when the international system needs to be rebuilt

· Invest very strongly in the WHO, and change infrastructure in a very strong way

· This is a moment for leadership and internationalism. Two places in particular where that leadership could come are China and Europe.

Yu: We all know you are a pioneer in the climate change area. Crises like coronavirus now and also climate change are a common challenge to all human beings. Do you think the current global governance system can handle these challenges, and what's your vision on the global governance system?

Lord Stern: I think this period is a very severe test for the system of global governance. But I think there are some ways forward.

Let me give one example after the second world war, and it was clear we had to find a new way of doing things. And the world created the United Nations, the Declaration of Human Rights, the Bretton Woods Systems, the World Bank, and the IMF and the WTO, and so on. We saw the importance of putting in place structures of the kind I have just described, which would help make those previous conflict economic and military much less likely.

I think we're actually in a similar moment now, because over the next 15 or 20 years, we have to change our infrastructure in a very strong way. We need to rebuild to make our infrastructure much more clean and sustainable. We need to put in place measures which make a lack of sustainability and the spread of viruses and so on much less likely.

I think we're in a similar moment in many ways. I think that we should be rebuilding multilateral development banks. We should be integrating their activity with the development finance institutions. I think the Asian Infrastructure Investment Bank is a very good example of how to go forward. I'm on the international advisory panel of that bank.

I think we should be investing very strongly in the World Health Organization because we know now that new viruses come along. And we know now that we move about much more than we did. And that is a second example of the way in which internationalism through, in this case, health could rebuild international collaboration.

They're not military. They're not conflictual. They are not trade related. But if we do better on those fronts, I think we could restore the spirit of international collaboration, which would help us on the trade front as well.
This is a moment for leadership. And it's a moment for internationalism. I see two places in particular where that leadership could come, that's China and Europe.

Yu：In the building of international governance capacity, do you think it's a good idea to establish a climate change bank?

Lord Stern: I think a climate change bank in China would be an extremely good idea. I think it would give people the kind of confidence they need to make long-term investments.
I was the chief economist of the European Bank for Reconstruction and Development when it was investing in Eastern Europe, Central Europe and the former Soviet Union. Its presence brought confidence in the sense of direction.

So，I'm very much in favor of a climate change bank, and I hope China establishes it. I think it could also invest in A Belt and Road initiative.

Paris agreement was stood up quite well

· The progress is different in different parts of the world, the prospects depends a lot on China

· It is hoped that China will specify the target of peak emissions in the five fourteen planning

Yu: What's your view on the prospect of the Paris Agreement of Climate Change, in particular, after some major economy are withdrawing from the agreement？

Lord Stern: On the whole, the Paris agreement has stood up. The United States has indicated its intention to withdraw, and formerly thatthe withdrawal would take place in the early days of November this year. In many parts of the United States, you still see strong progress on climate action. And probably at least half of the united states GDP is produced in states or cities with good climate policies. People are still trying to do their best to follow the Paris Agreement.

I think Europe itself is with its green deal is going to move strongly. The UK has set itself the target of going net-zero by 2050 in CO2.

On the whole, I think that the Paris agreement was stood up quite well.

In this year in Glasgow COP 26, we have to see a big increase in the commitment to reduce emissions through to 2030 and good plans for 2050.

COP 26 in November is extremely important, but many things are unclear. A lot depends on China. I hope that China will commit to peaking its emissions during the Fourteenth Five-year Planning. If China said that, that would really make a big difference to international discussion.

China has said in Paris it would peak by 2030. I think the best position would be China to say we will peak during the 14th plan, which means before 2025