Political Impact

transportation systems to a halt, empty out shopping centres, movie theatres and restaurants, and, most important, persuade revellers to just stay put this year during the Lunar New Year rather than join the hundreds of millions of people who take part in the world’s largest annual human migration.

The costs add up quickly. The SARS outbreak in 2003, for example, dented Chinese gross domestic product by as much as $30 billion, reducing annual growth by between 1-2%. Globally, the bill for the pandemic ran up to as much as $100 billion.

Not all economic activity will be lost for good. Short-term hits to the sort of sectors most exposed to the epidemic – mostly ones tied to consumer spending – often lead to supercharged recoveries.

Chinese growth drivers where short-term disruption would have longer-lasting effects, such as manufacturing exports, industrial production and investment, stayed mostly intact in 2003. Indeed, while Chinese GDP growth dropped from 11.1% in the first quarter of 2003 to 9.1% in the second, it bounced all the way back to 11.6% a year later.

Still, even if nCoV proves more manageable than SARS, there are reasons to think the impact this year will be worse. For one, the SARS epidemic occurred on the heels of the dotcom crash, when consumer spending across the region was already somewhat suppressed. (Incidentally, the resulting reduction of international travel may have helped contain the spread of the virus.) For another, locking down an urban area as large as Wuhan – a city at the centre of one of China’s most important internal shipping routes along the Yangtze – will be immensely disruptive.

Moreover, a substantial portion of the lost holiday spending will never be recovered. This is a problem for Asia Pacific nations that, unlike in 2003, are now highly dependent on Chinese tourists. All told, Chinese people took an estimated 130 million more trips abroad in 2018 compared to 2003, and before the outbreak, the China Outbound Tourism Research Institute predicted that more than 7 million Chinese people would head overseas during the Lunar New Year this year.

In Thailand, which has already reported four cases of nCoV, foreign tourism accounts for as much as a fifth of economic growth. Around 57% of visitors to Thailand last year were Chinese, including more than 2 million in January and February alone. Japan, which hosts the 2020 Summer Olympics, is estimating an economic loss of nearly $25 billion if the virus spreads as widely as SARS.

The biggest difference for China this time around is that the economy can’t as easily shrug off a major shock. In the early 2000s, annual GDP growth was still climbing well above 10%. Today, with a long structural slowdown well underway, Beijing is running up staggering debts just to keep growth from swan-diving below 6%.

Add to this an unresolved trade war with its largest export customer – along with its scramble to implement critical but growth-sapping measures to stave off a financial meltdown before the next global slowdown strikes – and the epidemic starts to look like the sort of thing that could derail Beijing’s best-laid plans for avoiding an economic reckoning.

The outbreak will also complicate a broader, existential challenge weighing on the CPC: preserving its very legitimacy with the public. Delivering steady gains in prosperity is, of course, at the centre of this challenge. But breakneck economic growth has become impossible to sustain – and was never going to be sufficient, anyway.

The wealthier a country becomes, the more its citizenry demands quality of life that can’t be sourced solely from rising GDP, things like clean air and water, medical services, social safety nets and responsive, corruption-free governance. This is why President Xi Jinping has encouraged the party to shift its focus to “high-quality growth,” and it’s why he’s put environmental and emergency management initiatives at the centre of his sweeping reform agenda. No amount of propaganda or censorship can convince his people that a smog-choked sky is actually blue or make devastation from an earthquake disappear.

The 2003 SARS outbreak laid bare the political risks of mismanaging a public health emergency. The government came under withering public criticism for covering up the scale of the epidemic (inadvertently worsening panic), impeding the World Health Organisation’s investigation, and moving slowly to contain the outbreak. Bungled government responses to a number of other crises, such as the 2008 Sichuan earthquake, a high-speed rail accident in 2011, and a string of scandals involving tainted milk, tainted vaccines and fiery industrial accidents likewise prompted fierce public outcry.

Beijing received higher marks in subsequent health scares, particularly the H171 bird flu outbreak in 2013. And this time around, initially at least, it received international praise for its improved transparency and swiftness in moving to contain the virus. Chinese authorities had isolated and published the nCoV genome by the second week in January, allowing foreign governments to develop critical testing procedures for the virus.

Xi addressed the emergency personally last week, ordering “all-out prevention and control efforts.” China’s top political body responsible for law and order said officials who withheld information would be “nailed on the pillar of shame for eternity.”

But facts on the ground are once again giving the public reason to doubt its government’s candour and capability. Authorities have been claiming for more than a month that the virus is “preventable and controllable.” Now, they’re taking extreme measures like locking down the Wuhan metro area, home to some 19 million people, and making belated mea culpas.

The government has also struggled to abandon its practice of reflexively cracking down on independent sources of information, despite commands to do so from on high. This has led to contradictory messaging and suppressed information that might have helped contain the virus. Chinese censors initially ordered local media outlets to stick to reprinting official reports, according to the Financial Times, effectively silencing independent reporting. And in early January, eight people were reportedly detained for posting information about the outbreak on social media.

As also happened in the SARS outbreak, moreover, the government’s rigidly enforced top-down decision-making structure has once again worsened matters by incentivising, for example, hospitals to under-report cases and local authorities to go forward with high-profile public gatherings deemed politically important.

For all the criticism they are receiving, authorities in Beijing are trying to address a problem that would bedevil any government. China is very large and very dense. As happened with SARS, panic would almost certainly do more damage than the disease itself. And Beijing may reasonably conclude that resorting to drastic measures may truly be in the public interest, even if they’re at odds with public sentiment.

Perhaps more than any government, Beijing has given itself the power to surveil its citizenry, to shut down cities, to silence unfounded rumours on social media – all without permission. Such powers certainly could come in handy in this sort of crisis.

But by hoarding authority – by insisting on the right to micromanage the country – the CPC has raised the bar for what the public expects in response when the country is under attack, whether from foreign powers, economic forces or viral mutations.

This is a problem when tight centralisation has also, paradoxically, created a rigid top-down institutional culture that’s ill-suited to respond nimbly to public demand. When faced with a crisis, the machinery of the state is programmed to default to the tools it knows best. Censorship, disinformation and problem-solving by brute force are hardwired into the Chinese system, often making it at once flat-footed and prone to overcorrection.

Yet, the more pressure intensifies, the more Beijing is doubling down on this model. And the stakes riding on its bet are getting higher.

Phillip Orchard is an analyst at Geopolitical Futures.

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