nakedcapitalism | We’ll focus on China, since the immediate economic concern is how the
progress of the disease and efforts to manage it hurt their citizens
and companies, which affects the West directly (supply chain disruption,
loss of critical supplies, damage to companies that do a lot of
business in and with China) and indirectly (the hit to global demand).
So forgive me a US aside before returning to the China front. Even
though the plural of anecdote is not data, I see signs of concern even
in the currently low-risk US (my scenario for how things might get
troublesome here is that coronavirus winters in the global South,
particularly Africa and Australia, and is primed to become US health
risk during the 2020-2021 flu season). For instance, a friend in Dallas
supplied me with several products, including a hand sanitizer used in
operating theaters that supposedly kills nasties for five hours.
Interestingly, she didn’t view coronavirus as a current risk but felt it
was important to establish protective habits and routines well in
advance of a potential threat. This suggests that not only will
Americans stay well away from China for some time, but some may already
be considering foregoing travel not just to Asia, but potentially even
non-essential US trips.
Back to the main event. The fact that gas prices at the pump in
low-fuel tax states are increasingly at or below $2.00 a gallon ought to
be a wake-up call that serious deflationary forces are at work, even if
cheaper fillups provide a short-term boost to consumers.
The apparent reason for continued peppy stock markets is that too
many investors are mistakenly comparing the coronavirus to China’s
2002-2003 SARS outbreak. There are plenty of reasons why this is
wrong-headed. SARS was easier to contain because China was much poorer
then, so Chinese traveled less. Its high fatality rate (nearly 10%) also
likely resulted in citizens taking social distancing measures of their
own, in addition to official ones. Experts in China also claim the
government was faster to address the contagion then. One result was the
successful identification of “supertransmitters,” which was a
considerable aid in containment.
Economically, China was vastly smaller in global GDP terms. It had
just been admitted to the WTO and thus was only beginning to become
integrated into global supply chains. And the timing of SARS worked out
to be better too. Its major outbreak took place later in the year, as
opposed to during a peak travel time.
And the coronavirus has already surpassed SARS in number of deaths and number of confirmed cases.
China has been fragile for some time. It has managed to avoid a
downturn but to a significant degree, that has occurred by virtue of
increasing risk, particularly private sector leverage. That might not be
such a cause for concern if the additional borrowing were going into
productive activities. But China bears have been pointing out for years
how borrowing is producing less and less incremental GDP growth, as
evidenced by often shoddily built ghost cities. China has been trying to
curtail bank lending, but the government has engaged in stop and go
tightening, relenting and loosening liquidity when growth flags.
China has already taken damage from the swine flu, with more costly
pork hitting consumer budgets, and from the Trump trade wars, where many
small and mid-sized Chinese companies reporting considerable delays in
getting paid, forcing them to belt-tighten to conserve cash.
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