Everything Riding On China Leader Xi Jinping To Get Coronavirus Contained

This is Xi Jinping’s war against the ‘demon’ virus as he’s referred to the deadly coronavirus. It’s not the People’s War.

If he doesn’t get this right; if the public there are in for a prolonged, 8-month long lockdown with death tolls in the thousands and no end in sight to new cases, Xi looks weak and may have to share some power.

But for now, Xi is coming out of hiding. The surgical mask is on. The white gloves are on. He’s made himself the maestro.

If you can trust WeChat messages from your Chinese friends in mainland China, life outside of Hubei province, the epicenter of the outbreak, is returning to normal. They went back to work on Monday after the extended Lunar New Year holiday break. The government’s got this under control. That’s what they tell me.

If the coronavirus is fully contained, with falling caseloads and higher recovery rates, Xi looks the hero. He and his party advocates in the Chinese press can tout the Communist Party’s victory over what was thought to become a global pandemic. Xi wins.

If this lasts as long as the SARS epidemic and is much more costly in terms of life and treasure, Xi loses.

On Friday, Xi called for even more restrictions on travel around Hubei. And an overhaul to the public health system’s risk management operation.

Xi said that the government has “fallen short” on taking action against the virus, and is positioning himself as the one to lead on this. He was seen in Beijing wearing a surgical mask last week, his first time out in public in front of the media since the outbreak became global news.

On Thursday, he ordered the firing of two Communist Party bosses in Hubei and Wuhan city, where the virus was first reported in December.

“There is not enough preparation for a catastrophe – the risk assessments, research and in-depth management for emergencies are not in place. There is inadequate monitoring and early warning systems, and the foundations of emergency management need to be strengthened,” the South China Morning Post has him saying today.

The coronavirus outbreak has been portrayed as a political crisis for Xi. Some reporting has suggested that it could force him to relinquish plans to remain in power for more than a decade, or to step back from the command center. Any dilution of Xi’s power would be meaningful for China’s economy and markets, if the so-called ‘reformers’ took the lead.

But don’t count on it.

Xi has said at least twice this week that the virus would have no impact on Beijing’s economic ambitions and agenda.

“We believe this speculation will prove wide of the mark,” says Tom Rafferty, principal economist for China at The Economist Intelligence Unit (EIU) in regards to Xi being weakened by the Wuhan pneumonia.

Managing the coronavirus is a huge challenge for the Party and its public health system, but it’s not necessarily a crisis for Xi himself. He can easily throw failed leaders under the bus, no matter how hard they’ve tried. 

Under the EIU’s baseline scenario, the outbreak comes under control by the end of March and Xi “will make the argument that his actions helped to bring the crisis to an end,” says Rafferty. He assigns just a 50% probability that the coronavirus, now referred to as Covid-19 by the World Health Organization, works its way out of the system by March 31.

“Xi will then use the episode to justify further centralization of political power, rather than being forced to devolve it,” Rafferty says.

But if the opposite is true, we would be heading into unchartered territory.

Trade war pressure, the remapping of a global supply chain that greatly benefited the Chinese economy for at least 25 years, and now Covid-19 could prove to be a breaking point if we are still dealing with this by August.

If the EIU assumes just a 50% probability that it’s over and done by March, that’s not a lot of conviction. That’s like sitting it out. It’s maybe yes, maybe no.

China’s own political press is warning readers that it could take until April before the number of new infections decreases and recoveries continue to rise.

This is a make or break for the Communist Party. Assuming those WeChat messages from the mainland many of us are getting here are correct — Beijing’s got this. Those people turn on the government if cities like Beijing and Shanghai suddenly have caseloads in the thousands and death tolls approaching 100.

So far, the two cities have under 1,000 cases combined, based on data compiled by John Hopkins University.

In a worst case scenario that Shanghai and Beijing start looking like Wuhan, who’s to say it’s not lights out for Xi Jinping? He knows this.

And for this reason, markets believe China will make sure the outbreak remains corralled as best as possible in Hubei.

Should the coronavirus prove uncontrollable by the end of March, public frustration “could escalate dangerously,” says Rafferty. He assigns this a 25% probability.

By then the economic costs of containment efforts will have become apparent. Companies that were thinking or relocating because of the trade war, may not just pull the trigger and do it.

Smaller companies dependent on foot traffic consumers may not be able to survive if travel restrictions last beyond April. Beyond just a health crisis, China would then face an economic crisis. And an economic crises means threats to jobs.

The Communist Party has to deliver on three things: opportunity for personal and economic growth, good paying jobs, and public safety. Of which health is important. We saw what happened with China’s energy policies after the release of the documentary “Under the Dome” — which examined life in highly polluted Beijing, and what it meant to public health. China has been closing coal plants.

If the virus goes as long as SARS, “rifts could emerge at the top of the CCP that could force Xi to yield to a more collective system of leadership,” says Rafferty. “And that means surrender his ambition to remain in power beyond 2022.”

Leave a Reply