The future of China after Corona – A Prognosis of the the economy and the international relations – by Lt Gen P R Shankar (R)

COVID 19  is the only original thing that came out of china after SARS

Foot in The Mouth Prediction

COVID 19 is a now full-blown pandemic which has brought the world to a halt in panic. There is nothing like this I have seen in my life. I am sure many will agree with me. The pandemic is still raging unabated and bringing misery to nations and people individually and collectively. Thanks to China. The Sick Man of the East has made us all sick. Once we get past this stage and reach some level of stability all of us will realize that the world has changed in some manner irreversibly. One country which wants to reset everything in a hurry and do a ‘back to the future routine’ is China. However that will not be and should not be possible. My foot in the mouth prediction is that China is the country which will have to contend with the change the most. What will be the contours of this change? That’s what makes it such an analysis interesting.

Contraction and Reset

There is no doubt that the world economies will contract and reset themselves to a new future. The definition of this future will evolve over the next two to three weeks while doctors and governments battle to save people. In this period, national economies, industry and markets will have time to sit back and ruminate as to how to avoid such a situation again. The amount of RED they will see in this period will teach them a big lesson-never put your eggs in one basket; and if that basket is from China-beware, you might not get your eggs back. On the other hand China seems to be already attempting to pick it up from the time it went into a lockdown as if nothing happened. China seems to be blindsided with its ambition of being numero unoat any cost. It is in for an education and let us see why.     

A Virus From China

There is no doubt that the COVID 19 originated from China and Wuhan except in a Chinese mind.  Whether it originated from a seafood market as being claimed or from a botched experimentation in biological weaponry from the Wuhan BSL-4 lab will never be known since the Chinese have been as opaque and secretive as ever.  They have blocked all including WHO from the scene. From the start the extent or the misery of the outbreak has been hidden by the Chinese due to political and economic considerations. Humanitarian considerations have been given a backseat. Now the effrontery is so brazen that the Chinese propaganda machinery is drumming  up that they have reduced the global threat and that it is a counter COVID world leader! 

The Chinese Ministry of Foreign Affairs has even made the ludicrous claim that the virus did not originate in China. This is after they put pressure on WHO not to declare it as a pandemic. The Chinese government is also attempting to establish its global governance role. It has also gone on to be insensitive enough to say through its mouthpiece the Global Times that “it is completely irrational to implement inter-country isolation to prevent the spread of the disease. It is unscientific and violates the interests of all countries (meaning itself)”. This preach comes at a time when nations are battling hard to save their citizens from the deadly ‘Chinese Virus’ as christened by President Trump. In fact, if anything, there are serious question marks about Chinas leadership role in Global affairs. The answer is – NO. China is not a leader. It is a coercer.  

Chinese Future

Having stated all this, the more relevant issue is – what is China’s future? The fact that the Chinese economy will take a knock and is set to contract for the first quarter is not exactly a clairvoyant astrological prediction based on the lunar calendar. The more important issue is the deeper effects on the Chinese economy and resultantly on its power in the light of a few factors. In my opinion these factors are its already cooling economy, the BRI, Trade War, its financial markets and finally the force multiplication effect of the Corona Effect. The emergent picture is a bit frightening.

Corona Virus Effect

Halting the Chinese juggernaut has been the easy part. Restarting it will be the difficult side.  As per reports most factories in China have started running at 2/3 capacity, but where are the takers? The takers are abroad or are Chinese. Under the conditions, if I were a Chinese, I would not be buying a car or a smartphone or anything costly. Markets abroad are in lockdown battling Corona. If the Chinese go there with their goods, the response would be – Thank You but no Thank You. Their main markets in Europe and USA will also not have much appetite for Made in China goodies. Their own buying powers would have contracted post corona. Then there will also be a move by global companies to de-Sinicize their supply chains. Last but not the least, Chinese businessmen will hereafter always carry the Corona Virus calling card. It is a psychological stigma. It will not go away except in Pakistan and a few of its other acolytes. 

Cooling Economy

The Chinese economy was cooling even before the Corona Virus hit it. It was growing at the lowest rates in three decades. Indicators like industrial production, urban investment and retail sales were dipping. Unemployment was showing up. The real estate market was in the dumps. Overall the GDP was going downhill. Ever since the Corona Virus has surfaced all these indicators have nosedived anything between 20-25%. Unemployment has shot up to its highest levels. China’s real estate market is in pain. Home prices stalled for the first time in nearly five years. Overall if the GDP goes down by about 1-1.5 % on an annual basis it will not be out of place.

Trade War

The Trade War forced China to accept some adverse terms which were thrust on it. Given the current conditions, China might not live up to the commitments it made in Phase 1 of the Deal where-in it had to procure a certain amount of US goods (the effective figure is approx. USD 75 bn in 2020). If renegotiations start, things will get difficult for China. If the Trade War goes haywire as it could, under the circumstance, all US businesses will start diversifying. Diversification was already a process under thought which now gets reinforced by COVID19. So a permanent reduction in businesses is on the cards. It could be anything between 25-50%.

Financial Markets

Financial Markets are in a mess in China. It was always known that indebtedness, banking stress, shadow loans and housing bubbles were part of a mega bubble that could burst any time. Total private and public debt in China has ballooned to surpass 300% of GDP in over a decade. Economic and financial stability is now at huge risk with the outbreak of coronavirus. As per Wall Street Journal – China’s financial markets are probably more dangerous in the long run than China’s wildlife markets. Given the accumulated costs of decades of state-driven lending, massive malfeasance by local officials in cahoots with local banks, a towering property bubble, and vast industrial overcapacity, China is as ripe as a country can be for a massive economic correction. The question uppermost in many minds would be – will the Corona Virus effect bring the house down?

BRI

The mega economic and strategic plan – BRI has hit a massive air pocket. The BRI is executed by Chinese companies using Chinese Labor, Chinese material and Chinese credit. This is under massive disruption for two months now. The Chinese might not be able to return to sites or go back to China for a while. Input material disruption will be significant.  As it is, projects in Pakistan, Indonesia, Malaysia, Kenya, Monte-Negro, Myanmar, Bangladesh, Nepal were in problems. Significant delays or renegotiations or scaling down was under way. They were often christened as a ‘Road to Nowhere’. Many recipient countries were under strain of a debt trap. Countries will now renegotiate since they will not be able to afford these projects anymore. Languishment, delay or even abandonment of projects is on the cards. Corona has also brought forth the vulnerability of any international venture with a Chinese initiative or partnership. At a more fundamental level, there was always resentment directed at the ‘Sinic’ colonial BRI approach. The resentment will now multiply beyond the capacity of local governments to handle. The BRI as a profit-making venture or as a strategic gambit was always under question. It will now get reinforced. The worst hit will be the Jewel in the Crown – CPEC. If its failure in Pakistan was in doubt earlier, it is clear beyond doubt now. Pakistan will not repay. Already their PM christened as ‘Katora Khan’ by social media has appealed for debt write-offs. Will China be able to handle a costlier BRI with its own and recipient economies shrinking? Despite all this, the BRI is now being projected as a pathway to Chinese soft power. In many ways it is pathetic. It is only a viral pathway after all.   

Summation of Factors

In summation, any one of these factors discussed above have the power to bring the Chinese strategic bubble down. All these factors now acting in unison with corona as the adhesive can lead to collapse. With more than 130 countries now restricting Chinese entry, China will be in extended isolation. An isolated China might not have the sensitivity, vision, skills or authority in an over centralized structure governed by deluded decision makers to handle this episode.  On a philosophical note, economic laws are akin to water dynamics. If there is flow of water, hydrolysis takes place and impurities get washed ashore. If water is stagnant, the scum rises to the top. Chinese economy has reached stagnancy and the scum is showing up. Corona Virus will not let the Chinese economy flow easily again. Something will give.

Future Imperfect

Historically powers have risen with a predictable pace and scale which makes them and the world comfortable with each other. China has risen at a scale and pace in geometric proportions. Neither the world nor itself has understood the nature of this power and its manifestation. The dash to be the world leader irrespective of the consequences is not sustainable. At some point it appears that mother gravity is all set to exercise its influence and bring the gravity defiant rise of the Chinese back to earth. The COVID19 could well be the unintended medium. In such a situation, the extremities of an imperfect Chinese future is discernible. One extremity is the Collapse of China. It is feasible if all factors have taken China past the tipping point.  As the Virus extends its influence in time, the probability increases. If China collapses, we are going to see a new world order. On the other extremity, if China manipulates well, then it will survive. However its survival will not be at its terms but that of the rest of the world. In such a case we will see another kind of a new world order where China might still be the second largest economy but short of the power it wields now. In any case it is doubtful if we will see a world order where China is at the pinnacle. A new world order is emerging whose contours seem to be based once again on unipolarity with new sub poles.

The Unknowns

If we look at it from any direction, there is little or no doubt that China will not be able to fund its great militarization drive. In any case with impending contraction of economy and overseas assets, China might not need such a strong outbound military for some time. On the other hand China might see internal turmoil on two counts. Firstly authoritarian and communist systems are known to have purges. As this settle, we might see a purge and a degree of internalization.  Will the purge result in a regime change or not is a million-dollar question? In any eventuality PLA will have its plate full with protecting the regime. After all one of PLAs primary roles is regime protection against its own people. The second issue is historical. Historically the outlier areas like Xinjiang, Tibet and Mongolia were under suzerainty arrangements with the reigning Chinese dynasties. Whenever central authority in Beijing waned, these outliers have raised their flags of independence. A decelerating economy and reduced role in world affairs, might embolden the outliers to again raise their flag of revolt. In any case they can take heart and help from other social tensions like the Hong Kong issue and Chinese treatment of Uighurs and Hui Muslims.

Corona Handwash

Overall it is very evident that China will experience rough seas ahead. Its effort to obfuscate matters, shift blame and dictate issues to the world will no more be acceptable to the developed world. Even the developing world will push back except maybe Pakistan. A Viral China has caught a Virus which will not let it off the hook. We are going to see a period of change. The road ahead for China will be steep and hard. More than anything, they must get over a prevalent sentiment of lack of trust best exemplified by a thought expressed in vernacular by a common Indian.  – what is it that China has eaten that the whole world is made to wash its hands nonstop? ( yeh Chinion ne kya kaya? Poora duniya ko baar baar haath dohna pad raha hai) Is it time to wash our hands off a viral China?  

Parting Shot

Chinese Gabbar to a Pakistani – tera kya hoga kaaliya?
Pakistani to Chinese Gabbar- namak kaya Sarkar.
Chinese Gabbar to Pakistani – ab virus ka!

This analysis is not a figment of my imagination but a distillation of international views and my own articles from links below :- International Views

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