Saturday, 22 February 2020


The bug in Xi Jinping's command and control economy

Even if COVID-19 proves intense but short-lived, it could still leave its mark on both world business and China's politics
The AFR ViewEditorial
"There is no force that can shake the foundations of this great nation,’’ China’s leader Xi Jinping thundered last September.
But a microscopic bug has, for now, literally stopped the behemoth in its tracks and presented Mr Xi’s new-style authoritarianism with its greatest domestic challenge.
Four-fifths of high-speed trains and airliners in China are now halted as authorities stop people and the COVID-19 coronavirus from moving. In the world’s factory, up to 60 per cent of production remains shuttered.
Massive lockdowns are meant to compensate for failures to manage the outbreak early on. Getty
Even though 99 per cent of coronavirus cases and almost all the fatalities have been in China, concentrated in one city and province, silent Chinese ports and shipping movements falling below global financial crisis levels mean the economic effects are already cascading down world supply chains.
China’s air pollution has dropped by a third – only because the country’s falling energy use could tip world oil consumption into its first retreat in a decade; Australian LNG exporters may indeed have to be flexible on their China contracts as demand falters.
The global spillover was apparent in Australia’s corporate results season this week. Casino giant CrownQantas and other travel shares, and logistics software providers WiseTech proved immediately vulnerable. Further upstream in the economy, resources producer BHP has been cautious with its dividend in case the worst doesn’t pass quickly and raw materials tumble too.
Prime Minister Scott Morrison, caught on the back foot by the bushfire crisis, reacted quickly to the outbreak. Along with the US, New Zealand and others, he announced an early total ban on foreign nationals who had recently been in China.
Chinese President Xi Jinping, left, wearing a protective face mask, receives a temperature check as he visits a community health center in Beijing on February 10.
Could clean hands be the basis for President Xi Jinping's next patriotic call to arms? AP
It’s left the university sector in limbo as 100,000 Chinese students with places in Australia, the highest dependence on overseas students from China anywhere in the world, wait at home to start their courses. Even if new cases plateau or fall soon, Mr Morrison will face a tricky call in declaring a definitive end to the ban, not helped when China keeps loosening how it measures new infections.
So far the outbreak has been short-lived if intense. Most economic analysts, still relying on the history of SARS in 2003 – when China was 4 per cent of the world economy, not today’s 16 per cent – forecast a bad first quarter for China, the pessimists saying growth could halve.
But then comes the big catch-up as factories reopen and Beijing turns on cheap loans and stimulus spending. Even if the coronavirus becomes an Asian pandemic, lost output could be made up by the end of 2021, say forecasters.
But COVID-19 will still leave its mark. After their experience of the Sino-US trade war, some multinationals may be ready to rethink whether they want such long, complex and vulnerable supply chains, with their multiple shuttling of semi-components around the world.
And it is a major test of Mr Xi’s government. Since the global financial crisis, Beijing has maintained that its technocratic dictatorship better delivers progress for its people than does shambolic Western democracy. That has justified the concentration of more power in the leader than at any time since the Mao era.
But Mr Xi will now bear all responsibility for defeating a tiny bug, with Beijing’s massive lockdowns and mobilisations of resources trying to compensate for the classic one-party state’s early smothering of unwelcome news.
In China’s online world there is public scepticism and fury at the cover-up – even government hardliners concede it was too difficult to raise the alarm. The party centre will worry that the Chinese internet platform giants it secretly mistrusts, and communities using mobile apps, did most to help the epicentre of Wuhan get by during the crisis.
The Communist Party wants to use the war against COVID-19 to rally the masses, just like the old days; but it could just as likely find itself under rare questioning.
Viral shocks to economies are not black swan events. Venice kept the medieval world’s trade moving by isolating suspect ships and cargoes for 40 days – quarantia – and our global era of SARS, MERS and Zika is proving no different.
And this week one of Australia’s leading economists, Warwick McKibbin, called for massive governmental investment in better personal hygiene – as basic as more thorough handwashing – around the world. Could that be Mr Xi’s patriotic call to arms?

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