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Professor Stephen Nagy, COVID 19, China and the Global Impact

Classiarius Talks East Asian Geopolitics with Stephen Nagy


COVID 19 health epidemic, the Chinese economy and the global consequences
Key take homes:
1)
 President Xi’s visit to COVID 19 epicenter strongly suggests that CCP believes it has control of the outbreak in Wuhan/ Hubei Province
2) Chinese economy functioning at no more than half speed
3) Spread to manufacturing powerhouses South Korea,  Germany, Italy and Japan to a lesser extent suggests global engines of economic growth all in trouble
4) COVID 19 spread in US to be highly imbalanced affecting communities and industries unevenly 

China: President Xi’s visit to Wuhan meaningful but cannot  mask downward pressures on Chinese economy exacerbated by COVID 19 epidemic. The adoption of the Provisions on the Governance of the Online Information Content Ecosystem is meant to stem negative criticism of the government, including its responses to the COVID 19 epidemic. 
1) China’s exports plunged 17.2% in the January-February period compared with last year. Imports down 4%.
2) Public transport in Beijing 15% of capacity indicating transport and consumption down significantly.
3) March 6th, the China Enterprise Confederation (CEC) released the results of another survey assessing the Q1 performance of 299 large manufacturers. Over 95% of companies saw their revenues drop and over 80% saw operational costs go up.
4)  Purchasing managers’ index (PMI), which measures China’s service sector activity, fell by half last month from 51.8 in January to 26.5 in February.  
Supply changes will begin to breakdown mid-March as businesses would have already factored in the Spring holiday season in an ordinary year. As inventories dry up, manufacturing businesses outside of China that rely on China for parts will either have to find alternative suppliers or close down.  
The problem for many manufacturers is that the sheer volume of the Chinese economy in terms of being able to produce parts and good for global export cannot be replaced overnight.  This dilemma is further complicated by the fact that the usual suspects to make up for some of the drop in goods from China such as South Korea are also deeply impacted by COVID 19.
The U.S. and the rest:With Italy (3,850 cases), South Korea (6,300 cases), Germany (400 cases) and a lesser extend Japan (350 cases) being impacted by COVID 19, the globals key manufacturing economies are being impacted negatively. Italy has shut its borders, Japan has nullified travel visas to Japan from South Korea and China, and Germany and the rest of the EU are considering counter measures to stem the spread of the virus. 
The good news is the generous national health systems in the countries above mean they will be able to minimize the number of deaths and enact effective policies to mitigate the spread. 
In contrast, the US is likely to experience a very uneven spread of the virus do to socio-economic inequality, unequal access to medical treatment, concerns about the cost of treatment. 

Key industries already being impacted are tourism, the airline industry, and the service sector.
Leadership matters! Uninformed comments by the top leadership in Washington has GOP Governors and supports dissociating themselves with the top leadership to focus on the COVID 19 Taskforce and their expert insight into stemming the spread of the COVID 19. Expect markets to be further rattled if President becomes politicizes the outbreak in the U.S.  

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