‘Devil virus’ has plenty of black swan potential
China officially went back to work last Monday after an extended two-week Lunar New Year holiday, while the authorities struggled to get the spread of the new coronavirus under control.
But a lot of Chinese are not going back to work yet, and the spread of the ‘‘devil virus’’, as President Xi Jingping called it, is manifestly not under control.
This virus has already killed more than 800 people – more fatalities in two months than the Sars (severe acute respiratory syndrome) outbreak of 2002-03 caused in seven months – and it’s accelerating.
The death rate in the city of Wuhan in Hubei province, the point of origin of the disease and still its epicentre, is now 4 per cent of those infected.
Significantly, Xi is no longer claiming that he is ‘‘personally commanding’’ the fight against the virus.
If this is going to be a complete disaster, somebody else should take the blame – and the man in charge of the national campaign against the virus is now vice-premier Sun Chunlun.
Well aware that he is now the designated fall guy, Sun immediately visited Wuhan and declared that the city and country faced ‘‘wartime conditions’’. Waxing full-on hysterical, he warned: ‘‘There must be no deserters, or they will be nailed to the pillar of historical shame forever.’’
But mere rhetoric won’t save him if the epidemic goes nationwide.
It probably will. The two or three weeks that were wasted after the virus was first detected cannot be recovered.
But the enforced holidays, travel curbs and lockdowns, belated though they are, may still limit the spread of the virus beyond China. Or maybe not, but even if the virus is largely contained within China, the risk of financial infection is high. High enough, in fact, to qualify as a potential ‘‘black swan’’.
A ‘‘black swan’’ is an unforeseen event that has a huge impact on the normal course of events.
The Sars epidemic was a black swan – it knocked about two percentage points off China’s economic growth in 2002-03. However, that epidemic did not cause a global recession, because back in those days China was only a small part of the global economy.
Now the Chinese economy is the world’s second-biggest.
It takes up four times the space in the global economy that it occupied in 2002, so a 2 per cent fall in Chinese economic growth translates to at least a half-percent hit to the entire global economy.
This would not be a big deal if the global economy was in good shape, but it isn’t.
Indeed, 12 years after the 2008 sub-prime financial crisis, the global economy is still in the intensive care ward.
There has been no return to the pre-crisis high growth rates – and interest rates, except in the United States, are still at rock bottom.
This means the banks have no room to cut the cost of borrowing and stimulate demand if the economy is starting to tank.
This applies in particular to China, where the banks have been forced by the government to finance huge amounts of unproductive investment as the regime continuously ‘‘primed the pump’’ to ward off a recession.
By now, China has a Potemkin economy, where the official economic growth rate is 6 per cent a year, but the true number, as measured by electricity use or the tonnage of freight carried by the railways, is between 2 and 3 per cent.
Knock 2 percentage points off that and you have no growth at all – and a crisis of survival for the regime.
That would be the biggest black swan you ever saw, but remember that the lies and official incompetence surrounding the Chernobyl disaster played a big part in making the Soviet public ripe for regime change a few years later.
Could the coronavirus have a similar effect? It’s not likely, but it is conceivable.
The immediate and short-term deaths from the Chernobyl meltdown amounted to 60 people.
The Wuhan coronavirus has killed a dozen times as many Chinese citizens already.
The Sars epidemic was a black swan . . . [but] did not cause a global recession, because back in those days China was only a small part of the global economy.