China and the coronavirus
By now everyone should be aware of the novel coronavirus, SARS-CoV-2 (COVID-19). It's a cousin of the original SARS virus that's less deadly but far more infectious, and it's increasingly looking like the world's containment efforts have failed. Reported cases are still growing exponentially outside of China, particularly in Iran, Italy and Korea, and there's a good chance it's already running wild through continental Europe.
Markets took a long time to react to this possibility, suggesting that the SARS experience and excessive faith in a government that sits on the totalitarian end of the spectrum in terms of human liberties may have caused some trepidation.
The city of Wuhan first announced that 27 people had fallen ill to a mysterious virus back on New Year's Eve, with the first cases officially diagnosed back on 10 January. Yet the S&P500 rose another 3.7% (between 10 Jan - 19 Feb) before the correction commenced on 20 February, and it has since declined more than 10% from those highs.
For while China took drastic measures, it also did what every good communist does when something potentially damaging to its image, and thus its power, emerges.
Oppress it. Hard:
Piecing together the events in Wuhan shows that for at least three weeks before the [18 January] banquet, city authorities had been informed about the virus spreading in their midst but issued orders to suppress the news. In effect, they engineered a cover-up that played down the seriousness of the outbreak, according to officials and medical professionals.
The most fateful consequence of the official silence was that it facilitated the exodus of some 5m people in the weeks before the city was quarantined on January 22, thus helping to transport the virus all over the country and overseas. Slow and sometimes contradictory statements from the World Health Organization, which is responsible for warning the world of public health emergencies, also hampered early efforts to combat the crisis.
The World Health Organisation naively took China at its word, while behind the scenes the communist apparatus was working hard to quash any dissenting views. Li Wenliang, the Wuhan doctor who challenged the official 'nothing to see here' narrative and sadly passed away as a result of the virus, was even ordered to sign a confession stating that:
...his truth-telling was in fact a lie that “gravely disturbed social order”. Not content with forcing the doctor to deny reality, police added school-bully phrases, asking him to write “I can” and “I understand” when asked if he would now calm down and heed the police, or face legal penalties.
China's President, Xi Jinping, has admitted he was aware of the outbreak more than two weeks before he ordered the full, and brutal, lockdown of Wuhan, using China's love of technology to assist in tracking down rogue civilians:
As China ramps up efforts to control the narrative around the coronavirus outbreak, it is also expanding its efforts to leverage online platforms to track down people who dare to speak out. From tracking down Twitter users using their mobile numbers to hacking WeChat accounts to find out someone's location, Beijing is eager to stop any negative news from being shared online — and is will to use intimidation, arrests and threats of legal action.
In theory, a state with the power that China possesses over its people's liberties should be able to contain something like a flu with relative ease. In reality, the incentives faced by local officials all the way up to the President often result in the opposite, particularly in the early phases when decisive action is most important. The party comes before the people (but not before yourself). Always.
Note that I'm not saying other countries fare any better (with the exception of Singapore, whose government seems to understand incentives). For example, in the United States - where everything must go through the CDC - testing for the virus has been chaotic:
The problem is that testing in the US has been limited so far, with only a small number of labs available to assess the results, flaws in the manufacturing of the earliest kits sent out to states, and out-of-date criteria for testing people. (Until Friday, most tests focused on people who’d been to China recently or those with known Covid-19 exposure.)
Governments are naturally ill-prepared and disorganised for dynamic shocks such as an outbreak of a previously unknown virus. If it was the same virus every time, they'd nail it; but that's not how viral outbreaks work. Dealing with a crisis requires decisions to be made and approvals granted at many levels of government before formally responding, with each actor along the way afraid of being blamed for either taking the wrong action, or for inaction.
Those forces are stronger in China than elsewhere, where any mistake means your career - and life - are at risk:
China has "removed" several senior officials over their handling of the coronavirus outbreak - as the death toll passed 1,000. The party secretary for the Hubei Health Commission, and the head of the commission, are the most senior officials to be demoted so far. The deputy director of the local Red Cross was also removed for "dereliction of duty" over "handling of donations".
China butchered its handling of the outbreak, but we shouldn't have expected any better. What remains to be seen is whether the delayed but heavy-handed response will strengthen Xi Jinping's stranglehold on power or begin to undermine it.
As usual, there's plenty more in the bits below 👇 If someone forwarded this to you, you can sign up for free here. Cheers,
Other bits of interest
A global recession?
The coronavirus containment efforts will have a serious economic impact. I'm not sure it will be enough to trigger a global recession, but it will come very close given that the current expansion was looking long in the tooth already.
One concern is that manufacturers that have so far used parts in stock or already in transit when China put itself on lockdown will suffer shortages of key components in the coming weeks, even as China’s manufacturers are slowly coming back online.
“When the last ships reach our harbors in a week or 10 days, that will be it from China,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China and chief local representative for German chemicals company BASF SE. “Then you will see shortages on the shelves of Europe. The impact has not really been felt yet.”
Incidentally, the betting odds of a recession in Trump's first term (i.e. this year) have dropped dramatically in the past two weeks and are approaching 50%.
- The German Economy Was Faltering, Then Came the Coronavirus
- Tokyo is "looking at a cancellation" if coronavirus not contained by late May
- Microsoft warns it will miss guidance for segment that includes Windows because of coronavirus
- The Week in Tech: Coronavirus Disrupts the Industry
Is China a tech threat?
I don't believe so. At least, not if Chinese companies maintain loyalties to the politburos' surveillance state. Reddit CEO and co-founder Steve Huffman [note that China's TenCent is a major investor in Reddit]:
...I look at that app [TikTok] as so fundamentally parasitic, that it’s always listening, the fingerprinting technology they use is truly terrifying, and I could not bring myself to install an app like that on my phone. I actively tell people, ‘Don’t install that spyware on your phone.'
TikTok isn't that good. Too much spying and users outside of China will vote with their feet, something Chinese citizens cannot do. And India might be even worse.
- Reddit CEO: TikTok is ‘fundamentally parasitic’
- No Email. No WhatsApp. No Internet. This Is Now Normal Life In Kashmir.
The world is embracing encryption
For its many faults, at least the European Commission is getting this one right (although it would have been cool if it had also suggested a decentralised alternative as well).
The European Commission has told its staff to start using Signal, an end-to-end-encrypted messaging app, in a push to increase the security of its communications. The instruction appeared on internal messaging boards in early February, notifying employees that "Signal has been selected as the recommended application for public instant messaging."
The Post reports that, according to assistant attorney general for national security John Demers, the DOJ has given up hope that tech companies will “voluntarily” backdoor their own encryption, as the agency had been pressing them to do since around 2016. Instead, the DOJ is now “focusing on getting legislation that forces companies to cooperate – and is hoping encryption-limiting laws in Australia and the United Kingdom will ease the path for a similar law in the United States.”
The United States government is going to lose this fight.
- EU Commission to staff: Switch to Signal messaging app
- DOJ Plans to Strike Against Encryption While the Techlash Iron Is Hot
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