Corona virus shows the China risk: wrong and good decisions alternate – with global consequences.
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The course development of the SMI in the last month.
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The Corona virus ended the week of carelessness on the stock exchanges this week. The courses now show the extent of the panic every second. It was the darkest week since the outbreak of the financial crisis in 2008. Yesterday also was another sinister crash prophet. The stock market tickers were all deep red.
Up until Friday evening, the Swiss Market Index was around 11.3 percent lower than on Monday morning. In the German DAX, it was 10.5 percent. The European collective index “Euro Stoxx 50” posted a weekly drop of 11.7 percent. In the US, the trade was still running at the time of going to press. But the Dow Jones cannot avoid a loss of over 10 percent. A trader commented: “There is fear on the streets.”
Some experts disagree with the doom prophets
No company was able to escape the wave of sales. When the corona virus dominated the headlines for the first time, investors had deliberately sold stocks of companies that appeared to be highly exposed in China.
This picky strategy was over when the first infections were reported in Europe. Now banks were diving too. UBS around 14 percent, Credit Suisse even 16 percent. At Novartis there were 12.6 percent. The Swatch Group was under the wheels before that. The week was down 7.2 percent.
Nevertheless: What the next few weeks will bring remains open. Crash prophets oracle darkly. Nouriel Roubini, nicknamed Doctor Doom, wrote in the Financial Times: “The worst is yet to come.” But others already see the fall in prices as an opportunity to buy shares cheaply. A former trader like Oswald Grübel therefore opposes the crash prophets (see article on the right). The former head of UBS and Credit Suisse says dryly: “As long as interest rates don’t go up, there will be buyers for shares.”
Xi stages his reaction to Corona as exemplary for the world
In China, on the other hand, the country of origin of the virus, the government is already trying to return to normal. President Xi Jinping responded late to the virus outbreak, then with force. A region was quarantined. A hospital pounded out of the ground. Now the workers should return to the factories.
Xi Jinping publicly demonstrates confidence. He leaves the growth targets for this year where they were before the Corona virus outbreak. At the same time, he says in flowery terms the motto: China’s development must be released, it has enormous potential and powerful dynamism.
Xi even presents itself as a role model for the world. The history of the corona virus is already written in China, literally. According to state media reports, a book about its countermeasures is published and translated into five languages. It is a song of praise to him: “His commitment to his people, his sense of mission, his far-reaching strategic mission and his great leadership as a leader of a great power.”
In truth, Xi had reacted late to the virus outbreak in the 11 million city of Wuhan. The first reports appeared in early December. However, the first warners were silenced, information withheld and the threat downplayed. Local officials were probably afraid to relay bad news to the upper levels of the bureaucracy.
The mayor of Wuhan replied to criticism that he had raised the alarm too late, so that he first had to have permission from Beijing.
Only late, then with power: Critics see this as an example of an old pattern in China’s history. The American geographer and bestselling author Jared Diamond has coined an image for this: staggering giant. China’s rulers would have largely ruled over a giant empire for two millennia.
This is in contrast to the always quarreling Europe. The rulers used their control to make decisions for good and bad, often in very quick succession. This “stagger”, for example, explains, according to Diamond, why China at the time of the European Renaissance had the world’s best and largest ships, sent fleets to China and India – and then simply gave up their fleets.
Cult of personality increases the risk of bad decisions
According to critics, this staggering will become more frequent in the next few years. For example, a Chinese professor, Xu Zhangrun, publicly described the extent of the corona crisis as a result of Xi’s “one-man rule.” His system turns every natural disaster into an even bigger man-made disaster. In Xi’s bureaucracy, facts are suppressed, officials only want to please their superiors. After his criticism appeared, Xu was promptly placed under house arrest.
For some observers, the cult around Xi is even the decisive reason to doubt China’s further rise. This is the case with Gideon Rachman, an analyst at the Financial Times. Thus, “Xi Jinping’s ideas” were incorporated into the Chinese constitution, a collection of his theories. Officials, students, and party members are forced to study the leader’s thoughts regularly. And on some streets in cities there is a large poster that quotes the wisdom of Xi.
It was not always like this. After the Mao disaster, China’s leaders tried to get away from the cult of one person. The presidential term was limited. Xi abolished the restriction. Rachman’s conclusion: “With a personality cult, the likelihood of bad decisions increases.”
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