Thursday, 27 February 2020

China in the Year of the Metal Rat 2020

So this is the Year of the Metal Rat (from Jan 25 2020).

But for some, it is also the Year of the Golden Rat, and it starts on 4 Feb 2020.

And this Rat Year is especially auspicious as it is a double spring year.

Tell that to China who is dealing with the Covid19 , a.k.a. the  "Wuhan virus".

Technically, that virus/epidemic started in Dec 2019 (the Year of the Earth Pig), and lingered into the new year.
So, whether it is the Year of the Pig or the Rat, the reality is that the Wuhan virus (this is what it is know colloquially though experts have finally agreed to call it "Covid19") has caused more deaths than SARS.

And China has not been able to get a break.

Most of last year has been a steady drumbeat of unrest and protests in Hong Kong. Which, objectively, while a little embarrassing to China, was of little consequence economically. Or even, politically. Hong Kong's unrest was a storm in a teacup.

And before that, POTUS had started a trade war with China. This was a little more irksome, more so because the rationale for the trade war was stupid.

And even before that, China's growth had been slowing.

To add (a small) insult to injury, the HK District Council Elections was a slap in the face for the HK and Beijing governments.

The bigger slap was from the Taiwanese General Election where the pro-Beijing candidate lost to the pro-democracy, pro-independence Tsai Ing-Wen.

Beijing could blame "black hands" for instigating protests in HK. Or foreign agents influence in Taiwan's elections.

But who can they blame for the Wuhan virus?

Well, they tried to blame the US for exploiting the situation, and being unhelpful.

Which is, ironically, unhelpful.

BUT, they are the communist party of China, and they do have unfettered power.

And they could also sacrifice a whole province to save the rest of the world... and their reputation.

If this makes you feel safe, and the fate of those lockdown in Wuhan does not worry you,  you may have latent racism.

The act of a totalitarian government denying their citizens access to adequate medical care in the face of an epidemic is cold and ruthless. The result is that in Hubei/Wuhan (Province and Capital city), the fatality rate was 4.9% (Wuhan) and 3.9% (Hubei, as at 4 Feb), while the rate in the rest of China was 0.16%.

The situation in Hubei/Wuhan is dire, with overworked medical staff, and inadequate medical supplies.

But the Chinese government can do it because they are a totalitarian government, and the Chinese people do not know any better (about their rights).

But the effect of the virus on the World's economy is or will be chilling. The global economy grew 3% in 2019. If the epidemic cools trade and the global economy slows to 2.5%, the IMF would consider that a recession.

The 2003 SARS epidemic knocked 2% off China's growth in Q2, and 1% for the whole year. 17 years later, China has become the 2nd largest economy, facing a trade war with the US, and slowing growth. A global epidemic is exactly what China does not need right now.

Covid19 seems to be more infectious than SARS, though less deadly.

Which is not stopping people from panicking. I was about to write "panicking for no rhyme or reason" which is redundant. Panics are by definition being fearful without understanding or rationale.

But while the coronavirus is drawing a lot of attention and forcing Beijing to take drastic actions, the real threat to China is the longer term outcome of this epidemic:
The likeliest economic consequence of the coronavirus epidemic, forecasters expect, will be a short and sharp fall in Chinese economic growth rates during the first quarter, recovering as the disease fades. The most important longer-term outcome would appear to be a strengthening of a trend for global companies to “de-Sinicize” their supply chains. Add the continuing public health worries to the threat of new trade wars, and supply-chain diversification begins to look prudent...
... China’s financial markets are probably more dangerous in the long run than China’s wildlife markets. Given the accumulated costs of decades of state-driven lending, massive malfeasance by local officials in cahoots with local banks, a towering property bubble, and vast industrial overcapacity, China is as ripe as a country can be for a massive economic correction.
And if China's growth slows, the rest of the world will feel it. In 2003 when the world was concerned about SARS, China's share of global GDP was about 4%. It is now about 16%. "When China sneezes, the rest of the world catch a cold." Or Covid19. "Any slowdown in the Chinese economy sends no ripples but WAVES across the globe."

So what does this all mean?

Well, if you are a Sinophile and perhaps a China Apologist, or you have hopes of a Resurgent China becoming once again The Middle Kingdom of the world, and re-taking her place as the foremost, pre-eminent, and leading world Power, you may somewhat realistically believe (or hope) that this is just a temporary setback. That this is just a bump in the road. And it too shall pass. And China's rise is inevitable, inexorable, and predestined.

And China is in it for the long game.

And China's destiny may be delayed but will not be prevented.

Or you might see events through jaundiced or cynical eyes, hoping that this or a combination of all of the challenges facing China will slow and ultimately stop China from being the pre-eminent world power.

China's population is ageing, and growth is slowing. China may well grow old before it grows rich.

China's domestic economy is betting on urban population growth, as evidenced by pre-emptive "Ghost Cities". Or where these white elephants and monuments of excess and/or fraud propelled more by hope and greed than by clear-headed planning?

China's economic growth numbers are suspect. Official figures may be padded and unsupported (even contradicted) by objective measures. The reported figures are more political necessity than objective reality.

Peaceful Reunification with Taiwan is further than ever before, and unlikely to get more likely in the foreseeable future.

Reunification by Force is decades away.

Integration of Hong Kong is less than 30 years away, but things are not looking hopeful. HK may be another Xinjiang. Or Tibet.

China has a lot of internal issues and problems. It is resourceful and resource-rich, so it may be able to overcome these problems on its journey to being Number One.

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