The legendary Irish columnist Fintan O’ Toole wrote a piece at the weekend for the UK’s Observer (a Sunday newspaper) in which he was covering the Irish general election, but neatly encapsulated the challenge facing every country that has felt the waves of globalisation crashing over itself in the last few decades. O’ Toole wrote: “Voters are now asking their next government to conduct a fascinating experiment: can Ireland retain the global investment that makes its economy look so successful, while providing the public goods without which its society is not sustainable?”
As you might expect, I immediately thought of China's Belt and Road Initiative in this context. In the light of debatable benefits to local private enterprise and communities in host countries, China has faced growing inertia towards its Belt and Road investments, either directly or indirectly. For instance, its neighbour Cambodia has been a beneficiary of considerable inward investment from China but Cambodia’s labour relations have increasingly come under scrutiny from its overseas trading partners. The European Union is reviewing Cambodia’s favoured trading partner status because a European Commission report found the government had imposed restrictions on the opposition, on civil rights and on the media. The EU accounts for around half of Cambodia’s exports, many of which are textiles and garments. Exports account for two fifths of Cambodia’s GDP.
According to Canadian newspaper the Financial Post, “Cambodian Prime Minister Hun Sen has been in power for more than three decades, and his ruling party was re-elected in July 2018 after a campaign “widely recognized to have been marred by voter intimidation and manipulation of the polls,” the Canadian government said at the time. The main opposition party had been dissolved before the vote and its leader imprisoned.”
Is it too far a stretch of the imagination to wonder if the EU’s decision is unrelated to Cambodia’s decision last year to open a naval base near Sihanoukville to the Chinese navy under a thirty year agreement? Sihanoukville itself has enjoyed a wave of Chinese investment as hotels and casinos have been erected, doubling property prices in the port city in just a year. The naval agreement gives the Chinese PLA Navy access to the Gulf of Thailand, enabling it to grow its String of Pearls naval bases to protect its energy supply lines from the Middle East. It also gives China a strategic base to the west of the South China Sea where it is building naval bases and artificial islands to secure its eastern seaboard in the face of strategic competition from the US.
The Philippines meanwhile has extracted itself further from the orbit of the US and gained favour with China by ending the 21-year standing visiting forces arrangement it had with the US. President Trump shrugged off the move, saying it would save the US a lot of money, but the US military fears this will embolden China’s position in the Western Pacific. The Duterte administration is said to be discussing military cooperation with China and Russia, drawing it into closer collaboration with the Shanghai Cooperation Agreement allies. Will the Philippines now find trade collaboration with the western powers faces new obstacles?
These strategic changes will have a far greater long-term effect on global trade than the Corona virus outbreak. That may have led to increased incidences of anti-Chinese racism in local populations around the world dealing with their own outbreaks. It may have led to a short-term hiatus in Chinese manufacturing output. But, if the World Health Organisation is to be believed, China is doing a good job managing the outbreak in spite of recalibrating the way it counts cases last week. The thing is, should we trust the WHO to trust official Chinese data?
Already the public health issue has become an economic issue and a political one too. Public health measures may slow down trade and take a long time to unwind if and when the outbreak subsides. And President Xi finds himself in a strangely vulnerable position. Having created a superman personality cult around himself, he may find his bubble bursts and his authority leaks if he can’t be visibly winning the “war” on the “devil virus.” The bafflingly complex internal Chinese political culture could make it harder for him to promote further Belt and Road investments if he can’t manage China’s internal public health and economy. At the same time, a reduction in output and domestic consumer spending will cut government revenues and limit China’s ability to pull fiscal levers to stimulate the economy at home. Developing China’s export markets is now more important than ever, just as it is getting more difficult than ever.
THE TAKE AWAY
Who do you trust to give you the facts on public health and economic issues in China and their effects on the global economy and global trade? If you have a ship quarantined after a China visit, or if your ship is stuck in China waiting for dockyard labour to return to work, or if your scrubber can’t be located due to the logistical SNAFU, then you might prefer local knowledge and capability to pronouncements from China’s central government. If your cargo of iron ore, coal, oil or chemicals is on its way to China, can you be sure it will discharge in time or even be able to access a berth? And if your business plan is contingent on economic data and facts about China’s domestic or export economic activity, how confident can you be in the numbers emanating from the Middle Kingdom? You can guess my suspicion: we have entered a fog of uncertainty encompassing public health, economic and political realms. It’s amazing what a tiny virus can achieve when pitted against the great mass of humanity.