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China Crisis

April 19th, 2020

Covid-19 is careering in many directions but among the most predictable has been the outbreak of Sinophobia. China is being blamed for causing the outbreak itself, for concealing its extent, for providing faulty equipment, for being too important in the manufacturing chain. President Trump has pushed the idea of a China virus for all it is worth. Not to be outdone, Nigel Farage has claimed that many members of our big business class, of the civil service, and indeed of our political class are increasingly in the pay of China.

What is to be done? Already there are dark populist murmurings of a reckoning. Dominic Raab has said it could no longer be “business as usual” with China. What these populists will do yet they know not, but they shall be the terrors of the earth. While they are making their minds up, we have been treated to the idea of boycotts of Chinese goods, of seeking reparations, of making China a pariah state and of repatriating production lines.   

You don’t have to think that China handled this whole affair well, or even adequately, to think that most of this is rabble-rousing bilge.  

The cause

There is no evidence that Covid-19 is an intentional attempt by the Chinese to bring the world to a standstill. Indeed, if it were, starting by rocking your own society to its foundations would be a pretty peculiar way of doing so.  

It has been suggested that Covid-19 might be an accidental leak from a lab in Wuhan. That is more plausible, though still with minimal evidence for a fairly grand claim. Perhaps more evidence will come out to support this idea in due course.  

Let’s assume for now this eventually becomes the likeliest hypothesis.  China is not the only country that investigates diseases in labs. Britain, for example, has its own: Porton Down. It has had accidents too. In 1962, a scientist died of bubonic plague there. Only last year, there was an accident at a Russian facility. If there is a need to tighten up on procedures at such laboratories, this needs to be done on a multilateral basis.

But at present it looks most likely that the disease emerged exactly as the Chinese authorities stated, from a market. You don’t have to be a signed-up enemy of China to find the eating of exotic animals disgusting. It also seems to be dangerous.  Pressing China hard to close down these practices is almost certainly pushing against an open door. It is most unlikely that the Chinese authorities want a repeat of the last few months.

Managing the outbreak

You’d have to be pretty naive to take China’s published figures at face value. The real death toll will almost certainly never be known.

The Chinese government hierarchy at every level seems to have made a hash of managing the outbreak, and has been weakened as a result. One well-known voice within China described it thus:

“self-commendation, with no reasons, reality or responsibility – even an idiot knows it’s all just happening after the horses have bolted. Actual great and wise strategic decision-making would have been preventing the epidemic happening and spreading in the first place, but all the government action only started after Professor Zhong Nanshan’s serious warning, it certainly didn’t happen before Professor Zhong’s warning. And they dare to call this wise? They dare to call this an accomplishment? They dare to call this “a prompt determination and beginning for the People’s War against the epidemic”? It obviously all happened after the event, when we had to do everything possible to rescue the situation, it’s just patching a leak, blocking a hole, but instead they talk about “when you need to act, we act”; does the word ‘shameless’ still exist under heaven!

The emperor can lie to himself about wearing clothes, but even the children know when the emperor’s bottom is bare, and those people who don’t dare to say the emperor is naked, they still all know what it is to wear new clothes, and what it is to go naked. When Nicolae Ceausescu thought the people still believed his lies, of course he didn’t know the ship had already sailed.”

The author, Ren Zhiqiang, is currently being investigated for alleged “serious violations of law and discipline”. Still, it’s a safe bet that Mr Ren, with his 37 million Weibo followers, speaks for many in China.

The broad contours seem clear. There was an extensive outbreak in Wuhan which was belatedly but ultimately contained at great cost. Of all the governments of the world, I expect the Chinese government is the one that wishes most heartily they’d done better.

Anyway, it would take some balls for the British, who fought two wars in order to have the right to sell opium to the Chinese with the side-effect of triggering a civil war that resulted in tens of millions of dead, to ask for reparations now. If you’re still inclined to do so, please try not to embarrass the rest of us.

Being too important

The other criticisms of China seem to be a hodge-podge of complaints about the effects of globalisation and the poor quality of Chinese goods for combating Covid-19. There may very well be a good case for looking again at supply lines of vital goods. The British government will need to answer questions whether it had prepared adequately for such a pandemic. You can’t, however, really blame the Chinese for having a successful manufacturing sector.

Talk of a boycott or making China a pariah state is fanciful. Zsa Zsa Gabor never hated a man enough to give him back his diamonds and the West will carry on buying its shiny goods from the world’s manufacturing powerhouse. The changes will be longer term and will require us to think carefully about the risks we are running and what we might do about them.

For as with banking in 2008, it turns out that this is another area where profits are privatised and risks are socialised. Producers who used stretched supply lines across continents were able to win contracts on price against those who kept supply lines short, taking advantage of the lower wages paid further afield. The risk that those stretched supply lines might be broken by very rare events has been borne by the rest of us. We just didn’t realise it.

As to what comes next, that’s down to us.  The talk should less be of boycotts and more of how we can put in place appropriate insurance against such low probability high impact risks. What premium, if any, are we prepared to pay for them?

We can approach these problems in one of two ways. We can whip up a frenzy of hatred against the Chinese government and the Chinese, not tackling the underlying problem of who bears the hidden risks, or we can analyse those risks and price them properly into our strategic thinking.  Personally, I’d go for option 2. I commend it to you.

Alastair Meeks