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New World in waiting Post-Covid19

covid-19-china-india-marketexpress-inThat Covid-19 comes from the city of Wuhan, China is in no doubt at this point. As new human flus come from Asia every year, almost in a pendulum-like fashion, but also avian flues, the H1N1 or H5N1. This time it is a new virus, but a well-identified family: the coronaviruses, like the SRAS of 2003. As for it, the same classic mechanism of authoritarian regimes hiding information and sowing fear in all decision-making chains played a major role: too late, too strong, but so much the worse because of Too Big To Fail probably thought Beijing. Even if Taiwan or South Korea were able to react faster and better, Beijing was too quick to present itself as the great for champion of the victory against Covid-19, and no one could challenge it at the risk of incurring the wrath of its increasingly aggressive diplomats all over the world.

Dr. Jean Joseph Boillot
Thought Leader,
Global Sharing Platform

But bad luck this time around, the epidemic was exponential and turned into a pandemic affecting every country in the world without exception five months after its appearance in Wuhan. Covid-19 is proving to be more virulent, more contagious and, above all, more mysterious than initially thought. The health shock has clearly been multiplied by the delay in transparency, information, and containment of the Chinese authorities.

The economic shock will undoubtedly be longer and will affect hundreds of millions of people throughout the world, including India and Africa in particular. It is due to a globalisation that continued to center around the “made in China” after 2003, just slowing down a little after the financial crisis of 2008, but actually more intense sector wise: movement of people, including a growing number of Chinese tourists, the core of the health and digital economy sectors, and finally the internet revolution and interconnected networks related. Unluckily also, the epicentre of the epidemic is also the epicentre of the global economy. Directly, but above all indirectly as far as the emerging countries of the world are concerned, Asia of course, but also Africa. Both the breakdown of global production chains and the fall in the price of raw materials are not about to see their effects fade away in a few months.

However, the Chinese scapegoat is proving to be a little easy from both a sanitary and economic point of view.

Sanitary, because developed countries knew what to expect since the SRAS epidemic.The first information leaked as early as December 7, 2019, and on January 7, 2020, Beijing officially announced the identification of a new Coronavirus, Covid-19. The diplomatic services and even most of the press correspondents knew roughly what to expect by mid-January. No action was taken by most countries, especially when 700 million Chinese went on holiday for Chinese New Year, including more than 10 million in the four corners of the world. Firstly in Asia, but also by tens of thousands in the United States or Europe, including Italy and France, which do not take any strict measures at the borders. India, for example, began screening and isolating suspicious passengers on 18 January, and suspended all flights to China on 5 February. Not to mention China’s neighbours such as Hong Kong, Taiwan and South Korea, which reacted as soon as Wuhan was sealed off on 24 January.

Economic, because it is indeed the developed countries, and under no diktat from Beijing, that are also responsible for the systemic fragility of the globalization model around increasingly complex and internationalized value chains, such as Just in Time and Hub & Spoke. This is to the detriment of national economies, but above all of their local territories. Despite the warning of the 2003 and 2008 crisis, globalization had certainly experienced a relative pause in terms of the rate of openness of economies (X+M/GDP) but not at a sectoral level as we have seen, on the contrary.

It is therefore not mainland China, but the combination of two systemic weaknesses that is at stake: health systems were unprepared for any emerging virus despite the likelihood of which has been known to all experts for years; and the global economic system was totally interdependent, above all dependent on Asia and in particular on its Chinese industrial heartland. This combination explains the magnitude of the current economic crisis, comparable for the moment to that of 1929 with the combination of a supply and demand shock, millions of workers without activity, and a cumulative risk between the real economy and the financial systems, even if the causal relationship is reversed this time. It remains to be seen whether the responses will be better than those of the early 1930s.

How can relations with China evolve?

On the Beijing side, a real diplomatic offensive on all fronts started in parallel with the deconfinement and the resumption of activity for reasons that are at once internal (to play on nationalism), geopolitical (to avoid isolation) and economic (strong dependence on foreign markets). Especially in the direction of the developing world since Beijing has an imperious need both geopolitically and economically being the factory of the World. However, there is a risk of exaggerating the success of this offensive, as can be seen in India who is also upset about Beijing’s lack of transparency and was looking for several years for an opportunity to reindustrialize the country away from Beijing dumping. This could also be the case in Africa, even if some countries on the continent are more dependent on Beijing and therefore more cautious, as we discovered with the Ethiopian director of the WHO. But the emergence of a strong public debate on the huge debt owed to China in the context of a global debt cancellation, or the April emergency meeting of African ambassadors in Beijing following serious xenophobic incidents in Guangdong, or Kenya and Tanzania’s expulsion of illegal Chinese residents, all show that Africa could play on its negotiating power vis-à-vis China who has become a major supplier and creditor, hence dependant as well.

On the Western side, tensions are clearly rising between, on the one hand, neo-conservative hawks who would like to make Beijing the number one culprit and prepare for a confrontation that is both strategic and economic, and on the other hand, a pragmatic attitude of countries like Germany, which is taking advantage of this to rebalance its relations with China Some countries like Italy or Eastern Europe are even more conciliatory with China.

Clearly, Trump’s United States has no legitimacy to form a solid coalition against Beijing. The next elections in November will determine whether isolationism will prevail or the construction of a more coherent Western coalition, the outlines of which were outlined in two recent articles by Dominique Strauss-Khan and Henry Kissinger. It should be noted that neither recommends a hard line of confrontation with Beijing but a more balanced engagement, including on the economic front.

Paths to the next world: beware of false cleavages

In major crises, history is never written in advance, as Keynes said. They simply tend, in general, to accelerate changes that are already underway. This is what we have been observing over the last three months. What we can possibly describe are the areas of possibility for China as well as for the Western side. Just to discover that the anti-Beijing stance may in fact conceal a model closer than we think to the one emerging in mainland China, and why not elsewhere like in India.

In Beijing, China has been preparing for more than a decade a strategic autonomy coupled with an extension of its new Chinese Wall in the form of the OBOR Silk Roads. So that it could emerge from the crisis with a new internal and external economic model: a model of reinforced surveillance at home and tilting towards the NBIK paradigm designating the new industrial revolution of Nanotechnology, Biotech, IT and Knowledge.

At the macroeconomic level, Beijing would completely move away from the primitive extroverted accumulation model of the Deng Xiao Ping era since China can manage without exports and foreign investment as key drivers, and project itself relatively self-reliant in the future since it has a continental size being already by far the largest economy of the world. Admittedly, internal debt, which has exploded to around 300% of GDP, reduces the room for manoeuvre for new stimulus plans, as confirmed by the latest announcements amounting to only 1.6% of GDP. But since the arrival of President XI Jinping in 2013, the CCP has been working on the mentality of an ageing population with the concept of the “New Normal”, in other words, a clear slowdown in growth. The Coronavirus crisis will only precipitate the full implementation of this new regime.

As far as the model of society is concerned, ants would not become cicadas, but in transition towards a civilization of leisure and “harmonious” ageing, a sort of confirmation of the intuitions of Aldoux Huxley’s Brave New World written in 1932. A recent Hong-Kong newsletter provides precise indications of the “Digital Contagion” acceleration during the crisis. The Chinese giants like Huawei, Alibaba, Tencent and a multitude of startups in e-commerce, teleworking, remote surveillance, telecommunications and Internet were active as never and could experiment on a mass scale some innovations already on the shelves.

Externally, the same Newsletter speaks of a “China that suffers but rises again… Outside the Walls”. All the major groups have become generous donors of masks or tests like Jack Ma the boss of Alibaba who has toured Africa; others like Huawei are taking advantage of a huge demand of sanitary materials to push their 5G equipment in countries previously reluctant like France. At the most, the authorities in Beijing have been careful to maintain the work in progress on the Silk Roads in Central Asia and Africa, even if it means sending health teams to the site, as in Nigeria.

On the geopolitical front, Beijing continues to wield carrot and stick, to “twist the chicken’s neck to scare the monkey”, but without any apparent military signs more than usual. The Beijing dynasty will obviously want to take advantage of the crisis to strengthen its zone of influence, particularly in Asia. To do so, it benefits from the whole panoply of Suntzeu’s Art of War, but nothing says that the Japan-Korea-Taiwan arc, enlarged to Australia, India and of course the United States, or France -which has signed strategic agreements with India on the Indian Ocean- will not contain the Chinese appetite.

What will happen in the developed countries? Relocation is a very fashionable leitmotif. It is true that the new economy can now allow it under conditions of competitiveness and profitability that are quite satisfactory: 3D printers, robotics, a mature digital economy, etc. But relocating what and why, at what level? For the time being, the real debate on the economic model to be implemented is only just beginning. The slogans of the “Next World” or the “World of Tomorrow” sometimes, make us think of the formulas “tomorrow we’ll shave for free” or the beautiful promises of the repentant: “I promise, I won’t do it again”. But actually the most probable scenario seems to be a kind of Brave New World à la Huxley, quite close actually to the Beijing model: mass production plus post-industrial mass consumption with connected objects, teleworking, uberization of the new blue collar workers and a generalized citizens surveillance society. The big winners of the crisis in particular are the US GAFAM whose turnover and profits have exploded when the old-economy stars were going to hell as in the auto sector. On the ecological front, nothing in this model prevents from thinking that it is not capable of greening itself and integrating ecological challenges as new sources of growth and profit. Lastly, in Huxley’s Brave New World, the planet is divided into large like-empire regions that coexist rather peacefully. In Orwell’s 1984, they sometimes go to war with each other, but just to maintain a patriotic spirit as a cohesive internal force. Such could also be the relationship with Beijing and its allies like Putin in Russia.

Some are dreaming of another economic model of true relocation with a bottom-up approach starting from the local level with a principle of subsidiarity both economically and politically till the global level. They try to build-up a frugal, sustainable and equitable economic model like the “Doughnut circular economy” of Kate Raworth inspiring the Amsterdam Council or the just announced Welsh Doughnut 2020 program. Such alternatives on a large scale presuppose political and geopolitical conditions that are difficult to meet with the current scenarios, especially with China and the United States. But nothing prevents us from thinking with Oscar Wilde that “Progress is only the achievement of utopias.” They always start with oneself, roll up one’s sleeves and undertake what one believes to be good for humans and the ecology of which they are part. Whatever comes out, the post-Covid19 world is another world.