China and Covid-19

Commentary: Currently the relationship between politics and economy is changing in China, and the impact of the coronavirus pandemic is stepping up the privatization of the Chinese economy and the new relationship between the political centre and the economic decision-making process. The pandemic shows that nowadays, irrespective of our ideology of reference, borders are much vaguer and more porous than we imagined.

 

Photo: Reuters

On December 31, 2019 the Chinese office of the World Health Organization officially informed of the existence of some cases of pneumonia of unknown aetiology in Wuhan, Hebei.

Subsequently, the Chinese authorities identified a new coronavirus for these pneumonias of unknown aetiology, which was isolated on January 7, 2020.

On January 30, the WHO declared a global public health emergency. In fact, on February 16, as many as 51,857 cases of coronavirus were confirmed in China and 25 countries were already affected by the virus at the time.

In those days, there were 1,666 deaths in China and only 3 outside the country.

At the beginning of the pandemic, marked by the WHO statement, the UN agency experts in China and in the rest of the world officially declared that neither the direction, nor the duration, purpose and extent of the pandemic itself could be predicted at that juncture.

What is certain is that almost all recent pandemics originated in China: suffice to recall SARS in 2002-2003, MERS-Cov (in 2012 and still weakly spread), as well as A/H1N1 between 2009 and 2010 and finally Ebola from 2013 to 2016.

Also in the case of SARS, harsh criticism was levelled at the Chinese government, because the first case was recorded on November 16, 2002, and the WHO was informed only on February 14, 2003.

It was precisely SARS that triggered a radical change of the Chinese ruling classes, not only in the health sector.

What is certain is that currently the economic extent and the interaction between China and the other developed economies is much greater than we could study at the time of SARS.

As is well known, currently China is the second largest economy and the second largest importer of goods in the world, with a total of 1,674 trillion U.S. dollars in 2019. It accounts for 13.7% of global exports.

The restrictions resulting from the Covid-19 pandemic mainly concerned the province of Hebei, while 26 of the 31 Chinese regions announced a prolonged lockdown for non-essential industries.

Covid-19 will mainly show its impact in the economic data for the first quarter of 2020, but also the second quarter may be clearly affected if the coronavirus lasts until May 2020, as was the case also with SARS.

Certainly China’s GDP of the first quarter of 2020 has fallen by 6.8%, which is a significant percentage.

The fall in economic activities has therefore been severe and substantial. It affects one of the primary assets of the Chinese regime: the citizens of the Celestial Empire are ensured ongoing and stable GDP and previously unimaginable consumption levels and standard of living, but they must recognize the political system and its hierarchy. They cannot call them into question. That is not up for debate.

However, how will the Chinese economy react to Covid-19, based on what we can currently perceive?

A first effect has been the very net increase in digitalization.

Another effect, which will be recorded ever more also in Western economies, will be the decrease in external projection and hence the increase in the economic and political importance of internal markets, finance and technology.

Moreover, China has never completely abandoned its internal markets to their fate, unlike what many increasingly passive export-led Western economies have done.

Nevertheless, the "re-nationalisation" process of the economy will be clearly visible both in China and in the Western countries, such as Italy, which have blocked their domestic markets to embark on the export adventure all the way. This will happen if there is a ruling class in Italy, which can by no means be taken for granted.

Competitive intensity, which is the pressure of competition between industries in the same sector, will also increase in China.

Consumption will also change, both in China and in the rest of the world, and will be more focused on health and quality and less connected to "image" and glamour. In the near future the successful industries will be ever more no frills, essential-oriented and sensitive to their impact on health.

Probably, it will also saturate needs that nowadays we would still call "post-modern".

The importance of the private and of the non-profit sectors, however, will increase also in China.

As said above, in China and in the rest of the world the pandemic has strongly accelerated digitalization in the B2C segment (business to consumer), but also in physical transactions (ever less frequent, given the pandemic) and in the B2B segment (business to business).

In China 55% of consumers will keep on buying food and everyday goods online even after the pandemic has ended, but China had already begun to reduce its exposure to world economies long before the outbreak of Covid-19.

Hence reallocation of parts of the supply chain to other economic and political areas and return to the Chinese territory or to the neighbouring countries by many of the sectors which, in the first phase of Chinese globalization, had been projected abroad. This is therefore the end of a project that, until the Covid-19 pandemic, was typical of Chinese politics.

The use of globalization as passive Revolution, just to put it in Antonio Gramsci’s words.

This means China’s imitation of the Western globalization-Americanization models so as to redevelop them with hegemonic aims.

Hence, according to the latest projects developed by their think tanks, it is a real decoupling for China and also for the European Union, i.e. the beginning of a great phase of industrial diversification and new global specialization among productive areas and among nations.

With an "industrial sequence", however, which is much shorter than the very long "value chains" that have so far characterized the American-led globalization and the structure of world trade.

With specific reference to industrial diversification, it should be noted that in China the highest decile of companies currently captures over 90% of profits, while the average is 70% in the rest of the world.

This maximum verticalization in China is matched by a particular relationship - although less obvious than we can imagine - between the economy and political direction and leadership.

This system will certainly change and many new companies will enter the top ten list of profits, with an internal transformation of the productive systems, many of which are already mature, as well as the entry of new activities in the top companies, such as digital systems, work-replacing technologies, large distribution, entertainment.

Just as the great U.S. crisis in the 1930s -  which was overcome only by means of the war spending of World War II - created the great mass and already globalized cinema, currently the pandemic crisis will create a new big market for specialized TV, streaming movies and the Internet.

Furthermore, as shown in a very recent analysis by McKinsey in China, 70% of consumers will look ever more for healthy food, as well as eco-friendly and high-quality products for personal care. Another historic paradigm shift in consumption.

Moreover, at the time of the SARS epidemic, it was China and its state-owned companies that started again economic expansion quickly and with large investment, while nowadays the Chinese private sector is worth 90% of new jobs and two thirds of economic growth.

Hence currently the relationship between politics and economy is changing in China and the impact of the coronavirus pandemic is stepping up the privatization of the Chinese economy and the new relationship between the political Centre and the economic decision-making process.

On the political and, above all, strategic levels, the quick containment of the coronavirus pandemic in China, even after the initial difficulties, doubts and slow paces, has triggered - also in the West - a new debate on possibly simplistic, but clear political concepts such as authoritarianism, populism and liberalism, albeit in the classic criteria of these political traditions in the West.

There is a new fact, however, in global politics, i.e. a new correlation between different geopolitical models and geopolitical competition.

The Chinese model emerges as the leading reference point in the vast area we could call "anti-liberal" or "anti-liberalist", with China promoting its specific "victory against the virus" to defend and, for the first time, propagandize its specific political system.

No longer the imitation, possibly with "Chinese criteria and characteristics", of North American and European globalization, but the claiming of a centralist, authoritarian, nationalist and Confucian criterion for the victory against Covid-19.

Moreover, the coronavirus pandemic shows that nowadays, irrespective of our ideology of reference, borders are much vaguer and more porous than we imagined.

Hence we are dealing with a new cold war, albeit with unimaginable limits, while the struggle between political and economic systems becomes a "war of the worlds", just to borrow from the title of an old science-fiction masterpiece.

Moreover, think what you like, in the United States there is an evident deficit of political leadership, with a U.S. President - the last true modern sovereign - who is wildly unpopular even with his deep state and with a good part of his own ruling classes.

From this viewpoint, China’s ideological and cultural war attack on the United States is technically correct and rational, especially if we look at the clash on duties and tariffs.

The E.U. is undergoing a deep and possibly definitive crisis and certainly nobody outside Europe thinks of the E.U. model as an example.

Moreover, considering South Korea, Japan, China, Singapore and Taiwan, Asia has shown it has tackled the pandemic better than many Western countries.

Hence China wants to maintain, first of all, the shift to Asia, but with a different production formula that the coronavirus pandemic will bring out: more privatizations, different products from those of the old globalization and often better ones, a different distribution network and less productive verticalization.

Hence what will be the future scenarios, in the phase of control and stabilization of Covid-19?

a) The first assumption is the return to the past, i.e. the classic clash between the United States and China to limit each other, while the above described processes are going on with their long time schedules. In the West as in the East, the share of public spending on health will increase and the structure of health protection will change in "liberal and liberalist" countries which, like the United States, spend even more than Italy on healthcare. The hospital system will change also in China and the same holds true particularly for the health early warning system, which has been the real weakness of all the Western and Eastern healthcare networks.

b) We can also imagine maintaining stable Chinese growth under new conditions. The success resulting from the quick containment of the contagion could catalyze a new vast group of sympathizers and supporters vis-à-vis China. There is also the election year in the United States, which would probably witness the shift from President Trump, who has clearly organized his campaign focusing on "China’s faults", to a more moderate Joe Biden.

c) If this happens, the United Sates will once again have a network of international institutions from which to exercise its hegemony, while maintaining a clear contrast with China in terms of hard power and trade relations.

c) The E.U. could even be part of the game if it succeeds in convincing the United States to distribute the strategic effort more widely than currently, but I do not believe that, apart from a few isolated European leaders, the E.U. can go that far. The E.U. strategic thinking is minimised. The (bad) accountants have won.

Certainly the fight against coronavirus will at first reduce the U.S. military potential in the Pacific and, pending the economic therapy against the Covid-19 crisis, the E.U. will have its economic and strategic survival test. The Maghreb region is now floundering in a definitive crisis and I fear that the pandemic has destabilised the whole region. It is currently hard to predict what the E.U. blind kitten will be able to do in the tense, migration, economic, military and oil situation prevailing in the Maghreb region. But it will always be too little, that is for sure.

Even the major OPEC countries are undergoing a very critical phase, while Russia is carefully controlling its pandemic, which is probably greater than we know. Closure of the oil channels for the E.U., pending the fall in oil barrel prices? Europe would not survive.

Hence the coronavirus is a very quick game changer for the whole world.

Whoever will have greater information and psywar projection power than the others will create a "storytelling" that will be focused both on laying the blame and shame upon the enemy of the moment and on the relative success recorded in the fight against coronavirus precisely by the country that develops the "storytelling".

Currently, we do not know that the E.U. and, in some ways, the United States have created a narrative suitable for this new viral psywar.

What we can see on the American side is the adaptation of old models previously implemented with Japan, in the early 1990s, or in the propaganda against the "rogue" States in the Middle East or Latin America. The pattern has always been the same: a) you are anti-democratic; b) you have committed a series of offences and crimes, in the private law sense of the term; c) you are a "liar". The U.S. psywar is subjectivist.

Today President Trump talks about "Chinese virus" and has organized actions against China in international legal fora, but this does not seem to be fully effective at the moment.

In the psywar of "storytelling", the winner is whoever tells the most fascinating and credible story, which does not mean it is true at all, while whoever files lawsuits, is too aggressive or formally accuses a hypothetical or real enemy, never wins.

Moreover, the issue of Wuhan's laboratory is more complex than we might think.

Barack Obama had placed a four-year moratorium on the results of the tests in Wuhan, while for years both the United States and France funded the Hebei laboratory, specialized in research on animal viruses, possibly the research that their laboratories could not or did not want to carry out.

In fact, in 2004 France began to build a top security laboratory in Wuhan for research on animal viruses.

The laboratory was inaugurated in 2017, but China kept out the 50 French researchers who had to have access to it anyway.

The Americans took over immediately. It was precisely Anthony Fauci, the Head of the National Institutes of Allergy and Infectious Diseases (NIAID), who replaced France in funding - with 3.7 million U.S. dollars - a fully Chinese project on viruses.

In previous years, 7.4 million U.S. dollars had been provided to Wuhan.

These are the facts, as far as we can establish them. But certainly the safety and security issue was primary even for China, after the outbreak of the pandemic.

Pending the ongoing clash between China and the United States, the first geopolitical and strategic scenario developed by the former is that of a limited war between the two superpowers in the South China Sea.

The is also inland China that has long been sending no reassuring signs. There are signs of social destabilization, which do not result into riots, but are well analysed by the Communist Party of China.

Currently China is endeavouring to restore "social peace", also with ad hoc government structures.

In the minds of the Chinese decision-makers, nothing prevents opposing countries from operating in this context, also with distant operational means and support.

Since the outbreak of the epidemic, President Xi Jinping has spoken of a "people's war" against the virus.

For the time being, the paradigm of Chinese propaganda is that of efficiency: we do not know where the virus originated, but we were certainly quick to contain the pandemic.

Initially China also left some psywar controls open, because it was believed that, immediately after the pandemic started, people needed some outlets and relief valves.

Nevertheless, the image of efficiency of the Chinese regime was certainly successfully managed abroad, but had some flaws and shortcomings at domestic level.

These flaws and shortcoming come from afar: at the beginning of globalization, the Chinese regime offered Western employers low wages, low unionisation, low levels of environmental protection and a friendly relationship with the regime leaders.

Now that mechanism has inevitably broken down.

The delay in curbing the pandemic did not prevent it from being finally effective, but now the inevitable economic crisis is biting, despite China’s rapidity in responding to it.

The "social credit", which is the synthesis of every individual’s city and social life, is now in crisis.

Created in 2014, it is a traditional or advanced surveillance system that leads citizens to adopt a better and more "social" behaviour.

For example, the system monitors and punishes citizens' membership in associations not approved by the Government, delayed debt payment, excessive dependence on video games, poor cleanliness or even lack of kindness towards other citizens.

Obviously, low scoring prevents those who record it from enjoying a whole series of advantages, permits and opportunities.

Incidentally the system had to be definitively perfected in 2020 and also affect companies.

Nevertheless, the U.S. psywar against China, with specific reference to coronavirus, concerns these basic assumption: a) China always has something to hide, which is certainly very severe, although we do not yet know it completely; b) we (the USA) throw many and varied accusations, but China responds only to those that it is interested in refuting; c) everyone has something against China, hence it will necessarily have done something.

China responds with a series of psywar counter-arguments: a) a whole "story" is immediately created which, being complete, tends to ridicule the U.S. attempts. The whole story always insists on rhapsodic allusions. Furthermore, b) the demonstration that also others are upset with China and therefore our (U.S.) accusations against China are founded. But it also demonstrates that there is a conspiracy against China.

A trivial and sometimes rough war of OSINT information.

Then, multiple messages and subliminal messages from both countries.

 

Professor Valori is President of the International World Group