DE-DEGLOBALISATION AND THE SHANGHAI COVID OUTBREAK

25 April 2022

Strange how China, the world covid champion, is currently managing the latest outbreak in Shanghai.

There are 25,000 new cases a day and 9 deaths, offically. Only a third of over 65s are vaccinated as workers get priority. This is nothing, given popn.s of 57 million and 1.4 billion, compared to the UK's 27,000 new daily cases and 280 deaths daily - figures at 25 April.

The trouble for China is that the zero covid policy doesn't work with omicron. Especially not at Shanghai, a city as civilised as London or Edinburgh where much of the hi-so population voyage for conferences etc. And 45 other cities in that same area.

And so all the foreigners are leaving Shanghai. And the locals are under "house arrest", screaming and in rebellion. They've had this policy of confinement for two years now. The infected are shut into "concentration camps". Everyone is obliged to submit to regular testing. There are food riots. There are massive mental health problems. Shops and factories are closed. Entries to the city are blocked, with lorries backed up on the ring roads. 

And finally there are two separate communities: the infected and the healthy.

So to summarise, there are problems with health, social and mental, and economic.

But despite this suffering, there are few signs in the data of victory. And it is not clear if sinovac works so well. China has been unable to develop a messenger-RNA vaccine and yet at the same time, China cannot really go begging the States for three billion doses.

What should Chinese authorities do? Should they double down on quarantine? Should they admit zero covid doesn't suit omicron?

In October, there's the 20th party congress. So time is pressing for solutions. All that really matters is that the CCP continue in power with no competition. If they have to take an economic or health hit, so be it - all that matters is to stay in power. They learnt from Soviet Russia not to open up, not at any price, not let go. 

Yet Shanghai with a quarter of the popn of China is in lockdown for the last month and its port, the biggest port in the world, is shut.

Condo blocks and factories are locked, the the residents inside.

What we don't realise maybe is the extent to which the west, eg the automobile industry, relies on components made in China. We can't get them, so car prices go up and a second-hand car costs more today than a new car yesterday.

So we look for other suppliers. For example when I was with Airbus we used a lot of suppliers in the Magreb eg in Morocco there was a wiring factory in Tangiers. So why not give work to Tangiers?

And here are emerging the interesting points:

If this is all true, then the world is no longer flat and open, in fact it is round and countries have borders. We must decide where to place our orders, with what suppliers. But on what criteria?

Second, deglobalisation was already a trend but now you can see that this deglobalisation prompted by deteriorating balances of payments and growing civil unrest, has been sped up by the coronavirus and in particular by China's zero covid policy.

And thirdly, Yellen the US Sec of The Treasury, spoke somewhere recently of "friend-shoring". She is talking about a new primacy of politics over economics. This is the change. Ukraine is as responsible as China's zero covid. It's about choosing to work with partners who share our values, even if it means paying more. That's another new one and another nail in the Liberal coffin, which ordains that capital for investment flows to the areas where it will find the biggest returns. So work with other democratic countries and not the authoritarian ones, and this gives us two worlds and maybe to reserve currencies and two hegemons.

But, fourthly, having said that, how can Europe or America get away without the Chinese middle class, as suppliers and consumers? The deal with Airbus was that it had to install four production lines in China at Chinjing, if it expected China to buy its A320s. Same for German Mercedes. So China and covid is a far more importand driver than Russia and the war in Ukraine.