The Post-Covid-19 World. Part 1: China

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From our Swindon correspondent:

I thought I’d write a series of general predictions about the post-Covid-19 world. For anyone who saw the world before the last major global event, the attacks on New York on September 11 2001, there were undoubtedly changes, both short term and long.

Most articles making predictions have people coming at it from a wishful thinking perspective. Men of god are predicting we’ll all be more religious, commies more communism.

One of the strongest voices is the autarky fanboys who want us to stop trading with China at the end of this. They’ll mention human rights abuses, wet markets and the response to Covid-19, but it’s always the same story with these people. In an earlier age they would have been complaining about counterfeiting and quality, like the line from The Magnificent Seven by The Clash: “give me Honda, Sony, so cheap and real phony”. Although anyone who owned a Honda in 1980 would have had a better experience than a Morris Marina. China is just the grand fromage of imports now. When the autarky types stop China imports, they’ll go after the next big guys.

Personally, I think in general that not only is this a bad thing for us financially (who wants to spend more on their USB cables), but bad for China and bad for things like reducing the spread of infectious disease. All the “good society” things like democracy, free speech and open government come after industrialisation. That’s how Taiwan, Korea and the UK got them, and I think China will be the same. More wealth also improves what people eat. They stop eating random wild animals to stop them going hungry. In recent years, outdoor markets have been declining in favour of supermarkets in China, and that’s the result of industrialisation.

I predict there’s going to be a lot of sabre-rattling about China exports, perhaps a few token gestures, but not a lot of real action. There’s a constituency for this sort of talk, many of us even like the idea of more factories in Scunthorpe making iPhones, until we’re shown the price, at which point, we tend to put the union jack away and quietly buy the Chinese alternative. And the politicians know this. I think in areas such as medicine, we’ve had a wake-up call about protecting supply, but I think that applies wider than China after France and Germany blocked exports.

There might be some onshoring by business buying goods, but I think it will only be at the margins. Business will reassess the risk of offshore higher and where the price difference is insignificant, buy British. Again, that might be wider than China.

I think tourism to China is one of those “marginal shifts”, too. People have plenty of other places they’d like to go, and it’s going to take a long time for confidence to be restored to this.

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Bloke in North Dorset
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Bloke in North Dorset

On a general level you’re right for most consumer goods, but there was already a move out of China for some goods and that won’t change and might even speed up. There will need to be a bit more strategic thinking about some items like, say, drugs, and some diversity built in to the supply chains, even though it will cost more. But that doesn’t also mean other cheap countries in Asia, if we’re to have uncorrelated diversity it might mean bringing some home and moving some to countries Africa and South America. That will take time because work forces… Read more »

Bloke on M4
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Bloke on M4

I assume this relates to robotics and that once you have a highly automated factory and few staff, maybe the costs of a factory being further away (which there are some) start to be a bigger thing than the general salary costs. Plus Chinese wages are rising.

Pat
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Pat

China has shown itself an unreliable supplier, dishonet, and no longer has cheap labour. Firstly people will stop buying from China where quality matters or indeed for anything in any way important. No I don’t think it will be Scunthorpe that benefits, but rather some mix of other poor countries, Vietnam, Bangladesh, some parts of South America. China will fall back on cheap non critical goods which will affect their pockets. That in turn will persuade the Chinese that in the long term honesty is the best policy, so they will mend their ways out of their own self interest,… Read more »

Bloke on M4
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Bloke on M4

This sort of talk always drives me nuts, because this isn’t how business thinks. Business doesn’t think a whole lot about the country things come from. They think about the supplier they’re dealing with. OK, if the politics affect supply, that’s a thing, and perhaps that alters the risk calculation.

But am I going to avoid buying Lenovo Thinkpads, a reliable product from a Chinese manufacturer that I’ve bought 4 times before because the Chinese government lied about Covid-19? Like, why? How does that affect whether my Thinkpad is any good?

Spike
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Spike

I agree that, in general, businessmen don’t make such value judgements but react gracefully when politicians do (and impose tariffs or total prohibitions).

But one reason you might not buy Lenovo is that the Red Army knows all the product’s vulnerabilities, including any deliberately inserted, and the day China attacks a US carrier group all your Lenovos might fail, if there is any chance China would find your distraction advantageous.

Bloke on M4
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Bloke on M4

So Lenovo put their reputation at risk to help in some plan for China to attack a carrier group, wiping out China’s exports for a decade or more and destroying millions of jobs.

Cui bono?

Spike
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Spike

Another punter assumes the Chinese share our value system! War is always an option for China, every Chinese asset is a military asset, and engaging in war will not wipe out exports for a decade.

Destroying jobs? Is that going to cost anyone an “election”?

Lenovo’s business reputation? You are assuming Lenovo is a separate entity concerned with optimizing its own benefit, and would refuse to let its products be used to further national goals in wartime. Such people are in prisons or re-education camps.

Bloke on M4
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Bloke on M4

I assume that Chinese people, like most other people, want a payoff from war. What’s the payoff of China going to war for the Chinese people?

And no, it’s not going to cost anyone an election, but even dictators have to watch out for revolutions. People aren’t going to be best pleased if their status goes from growing prosperity to war, death, unemployment and famine.

Spike
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Spike

I do not think these dictators think they are at risk of revolution, nor care what pleases the Chinese people. Even Maduro in Venezuela has enough Cubans embedded throughout in society not to think he is at risk of revolution nor care how many Venezuelan people starve or emigrate. You would normally not “feel it is in your best interest” to ruin your country’s ability to refine its chief export by putting cronies and soldiers in charge of the refineries. But it happened.

Bloke in North Dorset
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Bloke in North Dorset

Every time I’ve been involved in business planning that involves working in or buying from different countries political risk has always been considered. In most cases quickly discounted but even in the late ’90s when I was doing a lot of work in Asia, including China, political risks were considered.

I don’t think we ever considered a pandemic starting there and China lying so much, though

Quentin Vole
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Quentin Vole

Wearing my business continuity and security hat, I’ve carried out (for mid-size enterprises) or assisted with (for larger ones) many a risk assessment. Pandemics are, for most businesses, one of the bigger threats – how would you cope with 20% or more of staff off sick at once? And reliability of key suppliers and/or ease of switching sources is another.

Spike
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Spike

In other words, they will discard their value system and adopt ours? That’s nice to know

jgh
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jgh

That was how the Hong Kong handover was supposed to work out. How’s that going?

Spike
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Spike

Not well, for the Hong Kong people. We knew that going in, hence the 50-year promise that the Chinese would refrain from being who they are. Another piece of evidence that the Chinese Communist Party will not discard their value system and adopt ours.

Wheels
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Wheels

The Chinese government has never put aside ideology to improve trade or economy and will not for a very long time. The communist party wants to stay in power and has a very long term horizon to make sure this happens and they will manipulate the news as much as is needed to make it happen. Look at the “re-education camps” they have. A few headlines in the major papers and oh my gosh this is terrible and then nothing. There is no Chinese company that can stand up to the government and there is almost no US or British… Read more »

Chester Draws
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Chester Draws

There might be some onshoring by business buying goods, but I think it will only be at the margins. Business will reassess the risk of offshore higher and where the price difference is insignificant, buy British. Which will almost never happen, because the price difference is almost never insignificant. The “buy local” in case there is an emergency is hopelessly unrealistic. Quite apart from cost, the ability to ramp up in a crisis is key, and that’s precisely what is hardest in an emergency. It’s no good having a small local supplier when, under pressure, you need a large one.… Read more »

Bloke in Germany
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Bloke in Germany

China isn’t going to find industrialisation is a route to democracy, quite the opposite. Not only is all substantial industry in the hands of the government (or at least riddled with ideologically-approved plants), but the technology for almost total control of people and the flow of information is available and heavily used there. This has coincided with the end of almost 20 years of liberalisation by the elevation of an old-school autocrat to a North Korean-style supreme leader for life, and a truly massive purge of dissidents and troublemakers, anyone who could make Xi’s life a little more difficult, from… Read more »