‘When America sneezes, the world catches a cold’ wits used to pronounce. They might now say: ‘when China coughs, the world gets a coronary’.
With the world equity markets in free fall, recessions looming and people being forced to spend time with their loved ones working from home, it is important to ask if any of this was foreseeable.
Since entering the World Trade Organisation in 2002, China has turned itself from an economic minnow into a giant. Its GDP grew from USD 2 trillion in 2000 to USD 14 trillion now. Then, it represented around 4 per cent of total global exports; now it is 15 per cent. The Middle Kingdom hasn’t just exported manufactured goods, textiles and technology, however, it has also inadvertently traded in viruses.
Over the last 25 years, China seems to have been either at or close to epicentres of a handful of major flu related pandemics: Asian H5N1, aka Bird Flu, was first detected in China in 1996, and between 1997 and 2005 was largely confined to South East Asia; SARS in 2003; and lately the Coronavirus in 2020.
Every 8 years or so on average a new strain of flu can be traced to China. The recurrent disruption has grown to reflect China’s exponential rise on the world stage.
The S&P, a US stock market index, is down a quarter since mid-February 2020, equating to a loss of $8 trillion. The FTSE 100, the main index in the UK, fell 30 per cent, losing circa GBP 400 billion in value, taking us back to a September 1997 market capitalisation in nominal terms. Were we to include inflation, the value of the FTSE 100 would much (much) lower. All major indices are currently down by similar percentages.
As China becomes ever more critical to our supply chain, and with a history as a source of regular pandemics, is it not the duty of our leaders to take into account the true cost of such risks? If every 6 to 8 years, we lose a year’s worth of growth, maybe all the pain and local dislocation that out-sourcing to China entails is not really worth the candle.
A decade and a half ago, the meat markets of Wuhan Province mattered little to the West; now they seem to be the key to everything.
In that short period of time, we have become used to thinking of China as an integral part of the world’s manufacturing and supply chain. In addition, China and her people have become students in our universities, investors in our infrastructure, and suppliers of our latest technologies. All this from a country that registered its last famine in the mid 1970’s. The turn-around has been truly astounding and, from a human perspective, heart-warming.
Our corporate sector, as swift-footed as Achilles in front of Troy’s walls, took the opportunities presented to it, in the name of the broadly taught shareholder value theory, which champions the view that the only responsibility of management is the company’s share price.
It is not the workforce, the suppliers, or the country of origin that matter, it is the price of the company’s stock alone. As a result, our corporate leaders have given themselves the theoretical justification to dismantle much of our long term actual productive capabilities, both technical and human – needless of the long term consequences.
What are these? Waking up in 2020, in the health care sector, for instance, we find that over 95 per cent of all antibiotics in the US originate from China. Indeed, during the summer of 2019, Gary Cohn, then chief economic advisor to President Trump, mentioned a US Department of Commerce study that found that 97 per cent of all antibiotics in the United States came from China – ‘If you’re the Chinese and you want to really just destroy us, just stop sending us antibiotics,’ he said.
Last week, Xinhua News, the Chinese Government’s official news site, concluded in its editorial that ‘If China retaliates against the United States at this time, in addition to announcing a travel ban on the United States, it will also announce strategic control over medical products and ban exports to the United States.’ The threat was barely disguised before the good cop in the editorial team came back to the desk stating that ‘there is great love in the world’ and that of course China would never do such a thing. But beware.
The dream, often repeated at the time of China’s entry in the WTO, of democratising the country by allowing her into our trading club has not been realised. We in the West never really asked China to play by the rules membership of our club demanded. We turned a blind eye to the most egregious breaches of principles and allowed parts of the UK, the mid-West of the US, and many other parts of Europe to be stripped and gutted, whilst simultaneously accusing our own countrymen and women of laziness.
Our leaders preached the new religion of un-anchored, global capitalism to be policed by supra-national authorites, out of reach of national electorates and powered by short term profit maximisation theories taught across the world in most MBA classes – the True deadly virus.
As a synopsis, China chose to subsidise its industries; to have something close to slave labour; to steal between USD 300 to USD 600 billion of Intellectual Property a year every year for decades from the US alone, not to mention the UK and the rest of the world; to put a large minority of her own people in concentration camps; to tear down churches; to execute thousands and spy on millions; to use child labour, which the author witnessed on many occasions whilst visiting businesses in Fujian province, and to stroll unchallenged towards the end game of the total dismantlement of much of our inherited industrial capabilities.
To all this, our leaders turned a blind eye for decades. Our political and corporate leaders have allowed themselves to be wooed by the siren calls of prestige and wealth, giving their Chinese counterparts the opportunity to implement a ‘reverse-East India Company’ strategy on the Western world. This entails co-opting our leaders to work and lobby against our respective countries’ long term interest in exchange for personal gain. The success of China’s strategy leaves us in a very uncomfortable position of maximum dependence at a very critical time.
Our leaders should end the practice of treating China with kid gloves. Either China is in the WTO, or a potential successor organisation, or it is not.
Firstly, the Chinese should play by the rules they themselves signed up to when they joined the World Trade Organisation. The leaders of the West should, for their part, have the courage to demand of the Chinese that they do, with real consequences if they don’t.
Secondly, we should tread carefully when out-sourcing, manufacturing, and investing to prop up the Chinese regime – a country ranked 80th on the global corruption index – alongside Benin and Ghana no less.
The silver lining in the dark cloud of the Coronavirus would be if it starts a process of rethinking our current supply chain, bringing back much of the industries closer to home or indeed to our own internal emerging markets such as Northern England, where wages are often way below EU average.
It could be a real game changer. If our corporate leaders started to implement such an epochal re-ordering of the Global order, it would do more to change our current situation than President Trump’s well-meant trade deal discussions with China to rebalance trading flows in favour of the West.