China Is the Real Sick Man of Asia

Its financial markets may be even more dangerous than its wildlife markets.

By Walter Russell Mead, WSJ   

A Chinese woman wears a protective mask in Beijing, Feb. 3. Photo: Kevin Frayer/Getty Images

The mighty Chinese juggernaut has been humbled this week, apparently by a species-hopping bat virus. While Chinese authorities struggle to control the epidemic and restart their economy, a world that has grown accustomed to contemplating China’s inexorable rise was reminded that nothing, not even Beijing’s power, can be taken for granted.

We do not know how dangerous the new coronavirus will be. There are signs that Chinese authorities are still trying to conceal the true scale of the problem, but at this point the virus appears to be more contagious but considerably less deadly than the pathogens behind diseases such as Ebola or SARS—though some experts say SARS and coronavirus are about equally contagious.

China’s initial response to the crisis was less than impressive. The Wuhan government was secretive and self-serving; national authorities responded vigorously but, it currently appears, ineffectively. China’s cities and factories are shutting down; the virus continues to spread. We can hope that authorities succeed in containing the epidemic and treating its victims, but the performance to date has shaken confidence in the Chinese Communist Party at home and abroad. Complaints in Beijing about the U.S. refusing entry to noncitizens who recently spent time in China cannot hide the reality that the decisions that allowed the epidemic to spread as far and as fast as it did were all made in Wuhan and Beijing.

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.

Events like the coronavirus epidemic, and its predecessors—such as SARS, Ebola and MERS—test our systems and force us to think about the unthinkable. If there were a disease as deadly as Ebola and as fast-spreading as coronavirus, how should the U.S. respond? What national and international systems need to be in place to minimize the chance of catastrophe on this scale?

Epidemics also lead us to think about geopolitical and economic hypotheticals. We have seen financial markets shudder and commodity prices fall in the face of what hopefully will be a short-lived disturbance in China’s economic growth. What would happen if—perhaps in response to an epidemic, but more likely following a massive financial collapse—China’s economy were to suffer a long period of even slower growth? What would be the impact of such developments on China’s political stability, on its attitude toward the rest of the world, and to the global balance of power?

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. Even a small initial shock could lead to a massive bonfire of the vanities as all the false values, inflated expectations and misallocated assets implode. If that comes, it is far from clear that China’s regulators and decision makers have the technical skills or the political authority to minimize the damage—especially since that would involve enormous losses to the wealth of the politically connected.

We cannot know when or even if a catastrophe of this scale will take place, but students of geopolitics and international affairs—not to mention business leaders and investors—need to bear in mind that China’s power, impressive as it is, remains brittle. A deadlier virus or a financial-market contagion could transform China’s economic and political outlook at any time.

Many now fear the coronavirus will become a global pandemic. The consequences of a Chinese economic meltdown would travel with the same sweeping inexorability. Commodity prices around the world would slump, supply chains would break down, and few financial institutions anywhere could escape the knock-on consequences. Recovery in China and elsewhere could be slow, and the social and political effects could be dramatic.

If Beijing’s geopolitical footprint shrank as a result, the global consequences might also be surprising. Some would expect a return of unipolarity if the only possible great-power rival to the U.S. were to withdraw from the game. Yet in the world of American politics, isolation rather than engagement might surge to the fore. If the China challenge fades, many Americans are likely to assume that the U.S. can safely reduce its global commitments.

So far, the 21st century has been an age of black swans. From 9/11 to President Trump’s election and Brexit, low-probability, high-impact events have reshaped the world order. That age isn’t over, and of the black swans still to arrive, the coronavirus epidemic is unlikely to be the last to materialize in China.

February 6, 2020 | 5 Comments » | 4,868 views

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5 Comments / 5 Comments

  1. Concerning China,

    1. I thank God for answered prayers, in keeping my family there. The self-imposed lockdowns across the country have actually been a plus for many families such as my own, in bringing them together with one another and with more distant relatives.

    2. I thank God for the new US-China trade deal, which may help my family in China to recover from the recent lean years.

    3. I believe President Xi did the right thing, in the draconian lockdowns, and

    4. I thank God for the stalwart Republican US senators, for putting the Impeachment nonsense behind us. The net result looks like a win-win situation in US-China relations this year, and that is good for everyone.

  2. I am furious about the Wuhan officials who not only ignored the warning by the whistleblower doctor (who by the way has now died from the virus) but actually punished him. It is the Wuhan officials who should be imprisoned for being responsible not only for the scope of this virus disaster, but for the MURDER of so many who have succumbed because of it.

  3. @ Buzz of the Orient:
    Buzz, you may know this story:

    “The Great Leap Forward of the People’s Republic of China (PRC) was an economic and social campaign by the Communist Party of China (CPC) from 1958 to 1962. Chairman Mao Zedong launched the campaign to transform the country from an agrarian economy into a communist society through the formation of people’s communes. Mao decreed increased effort to multiply grain yields and industry should be brought to the countryside.

    –Local officials were fearful of Anti-Rightist Campaigns and competed to fulfill or over-fulfill quotas based on Mao’s exaggerated claims. They collected “surpluses” that in fact did not exist, leaving farmers to starve.–

    Higher officials did not dare to report the economic disaster caused by these policies, and national officials blamed bad weather for the decline in food output and took little or no action. The Great Leap resulted in tens of millions of deaths.[1] A lower-end estimate is 18 million and upper estimates find that some 45 million people died.[2] About the same number of births were lost or postponed, making the Great Chinese Famine the largest in human history.[3]”

    This extreme “Yes Man” culture caused the Wuhan virus to get out of control. Ultimately, President Xi and the Central Committee are responsible for having created this culture.

    On the other hand, the various lockdowns are proving to be probably the best solution for the crisis. Xi will probably get the credit for this, even though many closures and lockdowns were initiated by vigilantism. US President Trump, meanwhile, has been criticized by both Xi and Trump’s enemies in the US, for having called for border restrictions. If history repeats itself long-term, the Jewish people will no doubt ultimately be blamed.

  4. The death toll continues to rise in China. The official results, five hours ago, were 724 dead and 34,000 infected. At the current mortality rates, I estimate that deaths should easily top 3,000 in the weeks ahead.

    “A report at the Epoch Times on Thursday found appalling conditions at the hotels in Wuhan, China, where coronavirus patients have been quarantined. Whistleblowing family members of the quarantined patients said they have been left to die without medical care.

    “A woman with the surname Yang told the Epoch Times her mother died swiftly from the coronavirus after inadequate testing and a lack of treatment because hospital beds were scarce. Yang’s father was warehoused in one of the quarantine hotels soon afterward, where he found no one actively caring for the patients. Running a fever as high as 104 degrees, he eventually secured permission to leave the hotel and walked two miles to a medical center, which said he probably had the coronavirus but would not admit him because no beds were available. He walked all the way back to the quarantine hotel, where he remains in grave condition, able to communicate with his daughter only through a video chat system…

    “The Chinese government has highly publicized the rapid construction of new hospitals and the conversion of large buildings like sports arenas into emergency treatment centers, but the Epoch Times noted there may still be an acute shortage of actual medical supplies to go around, so those “treatment centers” might be better understood as “containment camps.””

  5. @ Buzz of the Orient:
    The doctor that died from coronavirus, who you guys think was the whistleblower, was actally not the real whistleblower. The real whistleblower is another medical specialist who called JiXian Zhang.

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