“If you want to get rich, build a road first.” (要想富先修路). This is an actual Chinese proverb. The country’s economic planners have amply taken this saying to heart. Over the past decade, they have built an average of around ten thousand kilometers of freeways per year. The impact on the infrastructure speaks for itself.
But demand for road construction is currently faltering – and at a time when growth is threatened from many sides. This is something Ulrich Reichert wondered about when he spoke to Frank Sieren. Reichert works for the Wirtgen Group, a major manufacturer of construction machinery. “Omicron is the biggest brake at the moment,” says Reichert. His Beijing plant has been closed since March. His clients, namely construction companies, have already begun to run out of money.
Normally, the government would now step in with contracts – but nothing substantial has happened so far, it has been surprisingly inactive. Reichert is now hoping that the leadership will pull the lever on economic stimulus after all. Sometimes that happens overnight in China. And then construction contracts start flowing again.
Political observers in Taiwan also wonder about puzzling inactivity – specifically in dealing with Covid. The behavior of Taiwan’s government currently resembles Germany’s chaotic pandemic response. In Taiwan, the number of infections has already increased noticeably, reports David Demes. But the Taiwanese government is not following its initial concept of proactive containment. In fact, it continues to lift measures, and a lockdown is considered unacceptable by Taipei.
Those who now want to draw hasty comparisons to the People’s Republic have to keep the quality of the vaccines used in mind. Taiwan mainly administered Moderna, BioNTech and AstraZeneca. A large part of the population is therefore sufficiently protected against severe cases.
Uli Reichert, 66, has spent his entire career building up Wirtgen’s business in China since the end of the 1980s. The Wirtgen Group is one of the leading manufacturers of road construction machinery. It generates around €3 billion of revenue. The company manufactures in Germany, Brazil, China and India. In 2017, US agricultural machinery manufacturer John Deere acquired the Wirtgen Group for €4.4 billion. In May, Reichert will step down from the post of China CEO to work as a consultant at the German headquarters for another two years.
Mr. Reichert, you first came to China in 1988 and have lived in Hong Kong and on the Chinese mainland for over 30 years. In the road construction machinery business, you experienced the great upswing, but also crises. How profound is the current crisis?
The first major crisis in the 1990s was the Asian crisis of 1997, following the return of the British crown colony of Hong Kong to China. It only had a marginal impact on China. SARS in 2002 did not have much of an impact on China or our business, especially in Hong Kong. When the global financial crisis hit in 2008, Beijing immediately launched a stimulus package of around $400 billion. No slump for our business. But when this package ended in 2012, we had a significant decline from 2011 to 2012. For the first time during my time in China. Now, on my home stretch, the second slump is imminent.
Will it be as bad as 2012?
I cannot tell yet, of course, because the year is not over yet. What is clear, however, is that there will be a significant drop in revenue. But I hope that the Chinese government will not allow a major economic downturn. Especially not in 2022, ahead of the all-important 20th Party Congress in the fall of this year.
What is happening right now?
The more appropriate question would be, what is not happening? There is much less infrastructure being built. In a typical year, March, April, and May would see numerous annual deliveries. But the past few months from November through March have been the weakest delivery months in the past six years. That’s why 2022 will be a slower year for revenue. Unless, just like in 2012, the government suddenly flips the lever and really puts its foot down. In 2012, that happened overnight. But at present, there are few signs that something will change in the short term. Yet there is actually a lot that needs to be done, according to the 14th Five-Year Plan. There are already significant delays, and in my experience, the Five-Year Plan was always met, with only minor deviations.
Could the plan not be achieved this time?
This is something I have never experienced in the past 30 years. There were plans with a 30 percent lag in the first two years. But that was always made up for with a lot of effort.
What are the reasons for the standstill?
Well, at least we’re not at a standstill yet. But Omicron is the biggest brake at the moment. Then there is the unstable global situation, the difficult trade relationship between China and the USA, the crisis in the real estate market, and so on. There are enough reasons to list. All of this currently cripples our customers’ willingness to make decisions. On top of that, a great deal of construction machinery has been supplied to the Chinese market in recent years, perhaps more than was actually needed. Clients can make ends meet with these machines for another year if they want to.
What is the impact of Omicron?
Our factory in Langfang near Beijing has been closed since March 10. At least we were allowed to bring some workers to the factory for the first time a few days ago, to at least ship out some finished machines. These employees now have to spend the night in the factory. This is not a permanent situation. But Langfang seems to have the situation under control now, and we hope that the first steps toward normalization will happen soon.
How did the current crisis take shape?
For example, we had planned a major event last October to which we invited 2,000 of our clients. Then the administration of the economic zone in Langfang asked us to reconsider. A clear message in China. And of course, this doesn’t just affect us. There are many suppliers for Daimler and other major manufacturers here. Over 1,000 companies. At major events such as Bauma in Shanghai, the international trade fair for construction machinery, or our in-house technology days, we generate high sales. Sadly, that is not possible right now.
What is the mood among clients?
The clients, usually private companies, have told us openly that they don’t know what the year will be like. They have no certainty about the order situation. And they still have a lot of outstanding receivables from their clients – mostly state-owned companies. At some point, this will affect us. Normally, just before the Chinese New Year, which this year was in early February, is the best time to collect money. This has to do with a mixture of honor and superstition. The Chinese don’t want to start the new year with debts. But this year, our clients were able to collect just less than 50 percent of their receivables. In some companies, cash flow has almost dried up.
This sours the mood?
Yes, it’s easy to imagine what the mood in the country is like at the moment. In the second half of 2021, the state has already fully hit the brakes. For small construction companies, their existence is now at stake. In this sector, no foreigners are affected. These are practically exclusively Chinese companies. Foreigners easily forget this when they complain that everything is getting worse. It affects not just them, but above all our Chinese clients, without whom we wouldn’t exist here at all.
And politics ignores this?
Premier Li Keqiang has repeatedly stressed in recent months that small companies must be paid faster for the work they do. So we thought: Finally, now comes the order to state-owned companies. But strangely enough, nothing is happening. There have been times when state-owned companies have even been fined for not settling their debts. We in the business are already wondering: What’s going on in Beijing? It seems the decision-making processes are particularly complex in the run-up to the 20th Party Congress of the Communist Party. By now, I don’t believe any announcements until they reach the streets, our clients, and ultimately us.
Could there be a loss of confidence in political control?
In any case, policymakers should ensure that they remain credible. What is also difficult is that the provinces do not always do what Beijing wants. That was different in 2008. Financial aid came overnight when the global financial crisis hit. Naturally, that’s the benchmark for the government today. And expectations are high: Since 2012, despite many naysayers in Western media, things have gone steadily uphill. From 2013 to 2017, we averaged double-digit percentage growth every year. Then, from 2018 to 2021, growth was only in the single digits at a high level.
Globally, Taiwan was long considered a paragon of Covid. For more than two years, the democratic island republic had kept the SARS-CoV-2 epidemic at bay and, despite several local outbreaks of the Alpha, Delta and Omicron variants of the virus, had repeatedly managed to push the number of new infections to zero. Unlike its neighbor, the People’s Republic of China, it also managed this without severe restrictions on everyday life and personal freedoms. A poster child for many proponents of a zero-covid strategy – even in Europe. However, in the third year of the pandemic, the latest variant, Omicron BA.2, now appears to have breached Taiwan’s defenses.
On Sunday, the country’s health minister, Chen Shih-chung, announced the latest infection numbers at his daily press conference: 16,936 local cases. The Thursday before, Chen had to announce a five-digit number for the first time. In total, 121,515 individuals have contracted the Coronavirus in Taiwan since the start of the pandemic, 853 of whom have since died as a result of the disease. By comparison, more than 134,000 people in Germany died from or with the virus during the same period.
Taiwan and China both struggle with highly virulent Omicron. However, while authorities in Shanghai, China, imposed a lockdown, Taiwan decided differently. Despite the slowly rising infection figures since mid-March, a departure from zero-covid and a continued opening of the country began in early April.
A baffling passivity. “Making preparations well in advance” (超前部署) – that was actually the secret to the success of the Taiwan model. Back on December 31, 2019, Taiwan had started to screen travelers from China’s Wuhan for symptoms of the then-unnamed lung disease while still on the plane. Then, three weeks later, Taipei activated its Central Epidemic Command Center (CECC), a central government agency created as a lesson from the 2002 SARS crisis to pool interagency expertise in case of emergency. Minister Chen, the head or “commander” (指揮官) of the CECC, oversees all other government agencies for the duration of the pandemic.
After two years of relative calm, there had been repeated local outbreaks of omicron variant BA.2 in Taiwan since the beginning of the year. Existing measures, such as the ten-day quarantine for arriving travelers and the general mask requirement in public areas, were apparently no longer sufficient to ward off this even more contagious variant of the coronavirus. Due to the high number of asymptomatic cases, many chains of infection went undetected, and positive cases were often not identified until the mandatory test before entering a hospital.
At a strategy session held in the presidential residence on April 6, President Tsai Ing-wen summoned key officials from the government, CECC, and the ruling DPP party to coordinate a new direction for national pandemic response. Then, in the afternoon, she declared on Facebook that Taiwan could not go back to zero-covid, nor did they want to “coexist with the virus” (與病毒共存).
Instead, the new goal is to “reduce severe cases to zero” and “effectively contain mild episodes” (重症求清零、有效管控輕症). This “‘New Taiwan Model’ is to take into account national economic development and people’s normal life through active epidemic prevention and steady opening up.”
But Taiwan’s expert disease policymakers had been caught off guard by the virulence of Omicron BA.2 and its rate of spread. Previously long-winded methods for tracking and isolating possible contacts of positive cases were soon overwhelmed by the current outbreak. Speaking to China.Table, Huang Yu-fen, a nonpartisan city councilor for the Shilin and Beitou districts of the capital Taipei, tells us that one of her staff members has not yet received an official notice to go into quarantine, even four days after her positive test result. The reason: The employee is registered in neighboring New Taipei City. A different health department is responsible for the issue. However, the data transfer takes some time. Huang Yu-fen was one of the first people’s representatives in Taiwan to speak openly about her positive test result. Infected individuals are still stigmatized by society in some cases.
In response to obviously overwhelmed health departments, contact tracing has now been simplified. According to Minister Chen, movement data of individual cases will no longer be published in the future. In addition, quarantine for contacts has been shortened from ten to three days. It is possible to leave quarantine as early as day four if a negative test is provided.
The only problem: There was an initial lack of rapid tests. It was only last Thursday that the state launched a system for issuing rationed rapid tests at a discount. In the days before, tests were sold out almost everywhere.
Even though the government responded quickly to the new situation, it has to ask itself why it had not prepared for this situation “well in advance”. Why wasn’t the production capacity of rapid tests increased months ago, and why weren’t the administrative procedures in health departments simplified? Huang Yu-fen, a city councilor, believes that too much time has been wasted on political party disputes.
Still, Huang is confident about the success of the Taiwan model. “After all, the success of our strategy of ‘making preparations well in advance’ is that Taiwan has used the time gained to largely vaccinate the population before this major outbreak.” Currently, 80 percent of Taiwan’s population is fully vaccinated, and 59 percent is boostered. However, in the particularly vulnerable over-75 age group, a good fifth of citizens are unvaccinated.
Taipei Mayor Ko Wen-je has now raised the possibility of a “soft lockdown” (軟封城), meaning the closure of all schools and restaurants, should the number of infections rise too rapidly. However, Huang, a city councilor, thinks that this would be difficult to implement. Last year, when Taiwan declared a Stage 3 epidemic emergency in May, there was no other choice. At that time, the vaccination rate was still too low. There would be little acceptance for a lockdown because of the low mortality rate. Just like in Germany.
A building collapsed in the central Chinese city of Changsha, the capital of Hunan, on Friday. According to international agency reports, it contained apartments, a hotel and a cinema. Xinhua news agency, on the other hand, spoke of a “self-constructed residential building.” According to the CCTV television station, residents made “structural changes” that damaged stability. Prosecutors are now investigating why building regulators did not intervene. On Sunday, police arrested nine individuals. So far, Chinese media report that seven people have been rescued from the debris. Two to three dozen persons are missing. fin
The predictable downward revision cycle for the global economic outlook has officially begun. That’s the message from the semi-annual World Economic Outlook just released by the International Monetary Fund, which reinforces earlier revisions from several prominent private forecasting teams.
The revision, largely in response to the war in Ukraine, is a big one – a sharp reduction in world economic growth to 3.6% for 2022, fully 1.3 percentage points below the IMF’s global growth forecast of 4.9% made just six months earlier. To its credit, the IMF warned that this was coming, with an interim downward revision of 0.5 percentage point previously released in January. Even so, in looking back over the past 15 years, this is the third-largest cut in the IMF’s regular six-month revision cycle.
In April 2009, as the global financial crisis (GFC) was unfolding, the IMF cut its global growth estimate for the year by 4.3 percentage points (taking its pre-crisis projection of 3% positive growth down to an outright contraction of -1.3%). And, of course, as the COVID-19 pandemic erupted in early 2020, the IMF slashed its growth estimate for the year by 6.4 percentage points (from a pre-pandemic projection of +3.4% to an outright contraction of -3%). In both of those earlier cases, the outsize forecast reductions foretold sharp global recessions – in fact, the two worst recessions in modern history.
Yet neither the IMF nor most other forecasters believe that the current shortfall in global growth will push the world into outright recession. The latest World Economic Outlook calls for a perfect soft landing in the $96 trillion global economy. Following the recent downward revision, global growth is now expected to settle comfortably into a 3.6% growth trajectory over 2022-23, which is fractionally above the 3.4% average since 1980. Landings don’t get much smoother than that.
But that could well be wishful thinking, for several reasons. For starters, forecasters were overly optimistic in extrapolating the sugar high of 2021 into the future. The 6.1% surge of global growth in 2021 was the sharpest rebound on record, according to IMF statistics dating back to 1980. But this followed the steepest plunge on record, a -3.1% collapse in 2020. Just as COVID lockdowns brought the bulk of the global economy to a virtual standstill in early 2020, reopening, in conjunction with aggressive monetary and fiscal stimulus, produced the mother of all snapbacks.
Forecasters are an autoregressive species, with an uncanny knack of extrapolating the latest trend into the future. The same is true of investors. For that reason, alone, it is important to look through the extraordinary volatility of 2020-21 to get a clean read on which trend to extrapolate. Over those two years, global GDP growth averaged just 1.5%, well below the official global recession threshold, widely thought to be around 2.5%. Needless to say, if world economic growth slows more toward that underlying trend than the soft-landing glide path, another global recession is hardly farfetched.
A second reason to doubt buoyant forecasts is that the China cushion has been deflated. China’s economy is currently growing well below the nearly 8% pace recorded from 2010 to 2019. The latest IMF outlook puts average Chinese growth in 2022-23 at 4.75%, only a little more than half the post-GFC trend when strong Chinese growth was literally the only thing that prevented the world from relapsing into recession over the 2012-16 period. As was the case back then, global resilience without a more vigorous Chinese economy is highly unlikely.
That’s the risk today. With China currently facing a trifecta of shocks – a new wave of COVID-19 lockdowns, the ongoing pressures of deleveraging (especially in its unstable property sector), and war-related collateral damage resulting from its ill-advised partnership with Russia – the world economy can no longer rely on China as a source of resilience. That, of course, cuts both ways. If China deepens its commitment to Russia, it will share in the isolation of its “unlimited partner.” For a Chinese economy that remains deeply reliant on the rest of the world, that could prove to be President Xi Jinping’s greatest challenge.
Third, the downshift in the global growth cycle is being accompanied by a major upswing in the global inflation and interest-rate cycles. The soft-landing crowd is dismissive of the consequences. As inflation surges to 40-year highs, there is loose talk of “peak inflation” – the fanciful idea that it is so bad now that it can only get better from here.
This superficial arithmetic argument misses the point. With the US Consumer Price Index surging by 8.5% in March, there is of course an excellent chance that this key barometer of inflation will be considerably lower by year end. But how much lower? Low enough to rescue the US Federal Reserve from its most irresponsible monetary-policy gambit since the mid-1970s and early 1980s?
Don’t count on it. While the Fed is now talking tough, talk is cheap. So far, it has delivered only 25 basis points, or just 10%, of the some 250 basis points of cumulative tightening that financial markets are expecting over the next six months. Even if the Fed moves as expected and boosts the federal funds rate to 2.5% by this November, the nominal policy rate is likely to be well below the inflation rate.
That means the real (inflation-adjusted) federal funds rate will remain in negative territory throughout the year, marking a 38-month period of negative real policy rates – far more stimulus than in earlier periods of über-accommodation under Alan Greenspan, Ben Bernanke, and Janet Yellen. Real interest rates matter in maintaining price stability and driving economic growth. When assessing risks to the global business cycle, the bottom line is that the upswing in real rates has much further to go.
All of this underscores the downside risks that are building in the global economy. As a recovering Wall Street forecaster, I empathize with the mindset of most forecasting teams, including the IMF’s highly talented professionals, who believe that they have factored in most conceivable risks. In this case, financial markets concur, convinced that an inflation-prone world, with still jaw-droppingly accommodative central banks, is somehow gliding gloriously toward a soft landing for the ages. But is this already-rosy scenario really supposed to play out without China? Dream on.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and the forthcoming Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, November 2022).
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
China’s street scene these days no longer features beauties and beaus with light complexions, instead, it’s light-skinned people with a Covid complexion: the so-called “dabai”. This is how the Chinese vernacular has christened medical staff, helpers and law enforcement officers in white protective gear who manage the country’s sometimes turbulent state of Covid emergency.
Interestingly, this neologism goes back to a Disney movie, “Big Hero 6” from 2014, which drew Chinese popcorn audiences to their seats in droves at the time. The movie’s protagonist is a personal health robot named Baymax. And his Chinese name is 大白 dàbái (“big white”). Thanks to special programming, the white giant with a Michelin man look even knew karate. The Chinese namesake, however, which does remotely resemble the animation original, mainly twirls cotton swabs during PCR tests and drags white plastic bags with food through the city streets.
If you search for the hashtag “dabai” on Weibo, you will find a wild mix of posts about the white giant. Many users pay tribute to the tireless efforts of the epidemic workers, who sometimes spend days in white plastic suits. But there are also scenes repeatedly posted in which lockdown-weary “dabai” clash (verbally or even physically) with frustrated residents or rigorously enforce mandated Covid measures.
So the relationship to these “helpers in white” is divided. The situation is similar in the Chinese language, by the way, if we take a closer look at the color white. On the one hand, it evokes positive connotations, since “white” skin is considered the ideal of beauty in China. An entire industry (called 美白 měibái “beauty white”) has dedicated itself to bleaching the skin with countless products. No wonder the 白富美 báifùměi (literally “white and wealthy beauty”) is China’s synonym for “dream woman” (the male equivalent, by the way, is 高富帅 gāofùshuài – “tall and wealthy beau”).
Traditionally, however, the color white has less positive associations in China. It is considered the shade of funerals and mourning for the dead (白事 báishì “white affair” means “bereavement” or “funeral”) and is thus the counterpart of the joy, wedding and happiness color red (红事 hóngshì “joyful affair, wedding” – literally “red affair”). In Beijing opera, villains are traditionally painted white, so “pale face” (白脸 báiliǎn) is a synonym for “villain”. “Playing/singing paleface” (唱白脸 chàng báiliǎn) is a colloquial expression for “being the bad guy”. The cultural negative image of this color has even been grammaticalized throughout linguistic development. Thus, “to do something white” (bái + verb) means to do things “in vain/for nothing” or, in English, “for the birds” (for example, 白等 bái děng “to wait for nothing”, 白跑一趟 bái pǎo yī tàng “to rush/run somewhere for nothing,” 白做核酸检测 bái zuò hésuān jiǎncè “to do a Covid test for nothing”).
With this in mind, we can only hope that the Covid fuss will not have been in vain and that China will soon return to pre-Covid normality – so that “baifumei” may once again dominate the street scene and no longer “dabai”.
Verena Menzel runs the online language school New Chinese in Beijing.
“If you want to get rich, build a road first.” (要想富先修路). This is an actual Chinese proverb. The country’s economic planners have amply taken this saying to heart. Over the past decade, they have built an average of around ten thousand kilometers of freeways per year. The impact on the infrastructure speaks for itself.
But demand for road construction is currently faltering – and at a time when growth is threatened from many sides. This is something Ulrich Reichert wondered about when he spoke to Frank Sieren. Reichert works for the Wirtgen Group, a major manufacturer of construction machinery. “Omicron is the biggest brake at the moment,” says Reichert. His Beijing plant has been closed since March. His clients, namely construction companies, have already begun to run out of money.
Normally, the government would now step in with contracts – but nothing substantial has happened so far, it has been surprisingly inactive. Reichert is now hoping that the leadership will pull the lever on economic stimulus after all. Sometimes that happens overnight in China. And then construction contracts start flowing again.
Political observers in Taiwan also wonder about puzzling inactivity – specifically in dealing with Covid. The behavior of Taiwan’s government currently resembles Germany’s chaotic pandemic response. In Taiwan, the number of infections has already increased noticeably, reports David Demes. But the Taiwanese government is not following its initial concept of proactive containment. In fact, it continues to lift measures, and a lockdown is considered unacceptable by Taipei.
Those who now want to draw hasty comparisons to the People’s Republic have to keep the quality of the vaccines used in mind. Taiwan mainly administered Moderna, BioNTech and AstraZeneca. A large part of the population is therefore sufficiently protected against severe cases.
Uli Reichert, 66, has spent his entire career building up Wirtgen’s business in China since the end of the 1980s. The Wirtgen Group is one of the leading manufacturers of road construction machinery. It generates around €3 billion of revenue. The company manufactures in Germany, Brazil, China and India. In 2017, US agricultural machinery manufacturer John Deere acquired the Wirtgen Group for €4.4 billion. In May, Reichert will step down from the post of China CEO to work as a consultant at the German headquarters for another two years.
Mr. Reichert, you first came to China in 1988 and have lived in Hong Kong and on the Chinese mainland for over 30 years. In the road construction machinery business, you experienced the great upswing, but also crises. How profound is the current crisis?
The first major crisis in the 1990s was the Asian crisis of 1997, following the return of the British crown colony of Hong Kong to China. It only had a marginal impact on China. SARS in 2002 did not have much of an impact on China or our business, especially in Hong Kong. When the global financial crisis hit in 2008, Beijing immediately launched a stimulus package of around $400 billion. No slump for our business. But when this package ended in 2012, we had a significant decline from 2011 to 2012. For the first time during my time in China. Now, on my home stretch, the second slump is imminent.
Will it be as bad as 2012?
I cannot tell yet, of course, because the year is not over yet. What is clear, however, is that there will be a significant drop in revenue. But I hope that the Chinese government will not allow a major economic downturn. Especially not in 2022, ahead of the all-important 20th Party Congress in the fall of this year.
What is happening right now?
The more appropriate question would be, what is not happening? There is much less infrastructure being built. In a typical year, March, April, and May would see numerous annual deliveries. But the past few months from November through March have been the weakest delivery months in the past six years. That’s why 2022 will be a slower year for revenue. Unless, just like in 2012, the government suddenly flips the lever and really puts its foot down. In 2012, that happened overnight. But at present, there are few signs that something will change in the short term. Yet there is actually a lot that needs to be done, according to the 14th Five-Year Plan. There are already significant delays, and in my experience, the Five-Year Plan was always met, with only minor deviations.
Could the plan not be achieved this time?
This is something I have never experienced in the past 30 years. There were plans with a 30 percent lag in the first two years. But that was always made up for with a lot of effort.
What are the reasons for the standstill?
Well, at least we’re not at a standstill yet. But Omicron is the biggest brake at the moment. Then there is the unstable global situation, the difficult trade relationship between China and the USA, the crisis in the real estate market, and so on. There are enough reasons to list. All of this currently cripples our customers’ willingness to make decisions. On top of that, a great deal of construction machinery has been supplied to the Chinese market in recent years, perhaps more than was actually needed. Clients can make ends meet with these machines for another year if they want to.
What is the impact of Omicron?
Our factory in Langfang near Beijing has been closed since March 10. At least we were allowed to bring some workers to the factory for the first time a few days ago, to at least ship out some finished machines. These employees now have to spend the night in the factory. This is not a permanent situation. But Langfang seems to have the situation under control now, and we hope that the first steps toward normalization will happen soon.
How did the current crisis take shape?
For example, we had planned a major event last October to which we invited 2,000 of our clients. Then the administration of the economic zone in Langfang asked us to reconsider. A clear message in China. And of course, this doesn’t just affect us. There are many suppliers for Daimler and other major manufacturers here. Over 1,000 companies. At major events such as Bauma in Shanghai, the international trade fair for construction machinery, or our in-house technology days, we generate high sales. Sadly, that is not possible right now.
What is the mood among clients?
The clients, usually private companies, have told us openly that they don’t know what the year will be like. They have no certainty about the order situation. And they still have a lot of outstanding receivables from their clients – mostly state-owned companies. At some point, this will affect us. Normally, just before the Chinese New Year, which this year was in early February, is the best time to collect money. This has to do with a mixture of honor and superstition. The Chinese don’t want to start the new year with debts. But this year, our clients were able to collect just less than 50 percent of their receivables. In some companies, cash flow has almost dried up.
This sours the mood?
Yes, it’s easy to imagine what the mood in the country is like at the moment. In the second half of 2021, the state has already fully hit the brakes. For small construction companies, their existence is now at stake. In this sector, no foreigners are affected. These are practically exclusively Chinese companies. Foreigners easily forget this when they complain that everything is getting worse. It affects not just them, but above all our Chinese clients, without whom we wouldn’t exist here at all.
And politics ignores this?
Premier Li Keqiang has repeatedly stressed in recent months that small companies must be paid faster for the work they do. So we thought: Finally, now comes the order to state-owned companies. But strangely enough, nothing is happening. There have been times when state-owned companies have even been fined for not settling their debts. We in the business are already wondering: What’s going on in Beijing? It seems the decision-making processes are particularly complex in the run-up to the 20th Party Congress of the Communist Party. By now, I don’t believe any announcements until they reach the streets, our clients, and ultimately us.
Could there be a loss of confidence in political control?
In any case, policymakers should ensure that they remain credible. What is also difficult is that the provinces do not always do what Beijing wants. That was different in 2008. Financial aid came overnight when the global financial crisis hit. Naturally, that’s the benchmark for the government today. And expectations are high: Since 2012, despite many naysayers in Western media, things have gone steadily uphill. From 2013 to 2017, we averaged double-digit percentage growth every year. Then, from 2018 to 2021, growth was only in the single digits at a high level.
Globally, Taiwan was long considered a paragon of Covid. For more than two years, the democratic island republic had kept the SARS-CoV-2 epidemic at bay and, despite several local outbreaks of the Alpha, Delta and Omicron variants of the virus, had repeatedly managed to push the number of new infections to zero. Unlike its neighbor, the People’s Republic of China, it also managed this without severe restrictions on everyday life and personal freedoms. A poster child for many proponents of a zero-covid strategy – even in Europe. However, in the third year of the pandemic, the latest variant, Omicron BA.2, now appears to have breached Taiwan’s defenses.
On Sunday, the country’s health minister, Chen Shih-chung, announced the latest infection numbers at his daily press conference: 16,936 local cases. The Thursday before, Chen had to announce a five-digit number for the first time. In total, 121,515 individuals have contracted the Coronavirus in Taiwan since the start of the pandemic, 853 of whom have since died as a result of the disease. By comparison, more than 134,000 people in Germany died from or with the virus during the same period.
Taiwan and China both struggle with highly virulent Omicron. However, while authorities in Shanghai, China, imposed a lockdown, Taiwan decided differently. Despite the slowly rising infection figures since mid-March, a departure from zero-covid and a continued opening of the country began in early April.
A baffling passivity. “Making preparations well in advance” (超前部署) – that was actually the secret to the success of the Taiwan model. Back on December 31, 2019, Taiwan had started to screen travelers from China’s Wuhan for symptoms of the then-unnamed lung disease while still on the plane. Then, three weeks later, Taipei activated its Central Epidemic Command Center (CECC), a central government agency created as a lesson from the 2002 SARS crisis to pool interagency expertise in case of emergency. Minister Chen, the head or “commander” (指揮官) of the CECC, oversees all other government agencies for the duration of the pandemic.
After two years of relative calm, there had been repeated local outbreaks of omicron variant BA.2 in Taiwan since the beginning of the year. Existing measures, such as the ten-day quarantine for arriving travelers and the general mask requirement in public areas, were apparently no longer sufficient to ward off this even more contagious variant of the coronavirus. Due to the high number of asymptomatic cases, many chains of infection went undetected, and positive cases were often not identified until the mandatory test before entering a hospital.
At a strategy session held in the presidential residence on April 6, President Tsai Ing-wen summoned key officials from the government, CECC, and the ruling DPP party to coordinate a new direction for national pandemic response. Then, in the afternoon, she declared on Facebook that Taiwan could not go back to zero-covid, nor did they want to “coexist with the virus” (與病毒共存).
Instead, the new goal is to “reduce severe cases to zero” and “effectively contain mild episodes” (重症求清零、有效管控輕症). This “‘New Taiwan Model’ is to take into account national economic development and people’s normal life through active epidemic prevention and steady opening up.”
But Taiwan’s expert disease policymakers had been caught off guard by the virulence of Omicron BA.2 and its rate of spread. Previously long-winded methods for tracking and isolating possible contacts of positive cases were soon overwhelmed by the current outbreak. Speaking to China.Table, Huang Yu-fen, a nonpartisan city councilor for the Shilin and Beitou districts of the capital Taipei, tells us that one of her staff members has not yet received an official notice to go into quarantine, even four days after her positive test result. The reason: The employee is registered in neighboring New Taipei City. A different health department is responsible for the issue. However, the data transfer takes some time. Huang Yu-fen was one of the first people’s representatives in Taiwan to speak openly about her positive test result. Infected individuals are still stigmatized by society in some cases.
In response to obviously overwhelmed health departments, contact tracing has now been simplified. According to Minister Chen, movement data of individual cases will no longer be published in the future. In addition, quarantine for contacts has been shortened from ten to three days. It is possible to leave quarantine as early as day four if a negative test is provided.
The only problem: There was an initial lack of rapid tests. It was only last Thursday that the state launched a system for issuing rationed rapid tests at a discount. In the days before, tests were sold out almost everywhere.
Even though the government responded quickly to the new situation, it has to ask itself why it had not prepared for this situation “well in advance”. Why wasn’t the production capacity of rapid tests increased months ago, and why weren’t the administrative procedures in health departments simplified? Huang Yu-fen, a city councilor, believes that too much time has been wasted on political party disputes.
Still, Huang is confident about the success of the Taiwan model. “After all, the success of our strategy of ‘making preparations well in advance’ is that Taiwan has used the time gained to largely vaccinate the population before this major outbreak.” Currently, 80 percent of Taiwan’s population is fully vaccinated, and 59 percent is boostered. However, in the particularly vulnerable over-75 age group, a good fifth of citizens are unvaccinated.
Taipei Mayor Ko Wen-je has now raised the possibility of a “soft lockdown” (軟封城), meaning the closure of all schools and restaurants, should the number of infections rise too rapidly. However, Huang, a city councilor, thinks that this would be difficult to implement. Last year, when Taiwan declared a Stage 3 epidemic emergency in May, there was no other choice. At that time, the vaccination rate was still too low. There would be little acceptance for a lockdown because of the low mortality rate. Just like in Germany.
A building collapsed in the central Chinese city of Changsha, the capital of Hunan, on Friday. According to international agency reports, it contained apartments, a hotel and a cinema. Xinhua news agency, on the other hand, spoke of a “self-constructed residential building.” According to the CCTV television station, residents made “structural changes” that damaged stability. Prosecutors are now investigating why building regulators did not intervene. On Sunday, police arrested nine individuals. So far, Chinese media report that seven people have been rescued from the debris. Two to three dozen persons are missing. fin
The predictable downward revision cycle for the global economic outlook has officially begun. That’s the message from the semi-annual World Economic Outlook just released by the International Monetary Fund, which reinforces earlier revisions from several prominent private forecasting teams.
The revision, largely in response to the war in Ukraine, is a big one – a sharp reduction in world economic growth to 3.6% for 2022, fully 1.3 percentage points below the IMF’s global growth forecast of 4.9% made just six months earlier. To its credit, the IMF warned that this was coming, with an interim downward revision of 0.5 percentage point previously released in January. Even so, in looking back over the past 15 years, this is the third-largest cut in the IMF’s regular six-month revision cycle.
In April 2009, as the global financial crisis (GFC) was unfolding, the IMF cut its global growth estimate for the year by 4.3 percentage points (taking its pre-crisis projection of 3% positive growth down to an outright contraction of -1.3%). And, of course, as the COVID-19 pandemic erupted in early 2020, the IMF slashed its growth estimate for the year by 6.4 percentage points (from a pre-pandemic projection of +3.4% to an outright contraction of -3%). In both of those earlier cases, the outsize forecast reductions foretold sharp global recessions – in fact, the two worst recessions in modern history.
Yet neither the IMF nor most other forecasters believe that the current shortfall in global growth will push the world into outright recession. The latest World Economic Outlook calls for a perfect soft landing in the $96 trillion global economy. Following the recent downward revision, global growth is now expected to settle comfortably into a 3.6% growth trajectory over 2022-23, which is fractionally above the 3.4% average since 1980. Landings don’t get much smoother than that.
But that could well be wishful thinking, for several reasons. For starters, forecasters were overly optimistic in extrapolating the sugar high of 2021 into the future. The 6.1% surge of global growth in 2021 was the sharpest rebound on record, according to IMF statistics dating back to 1980. But this followed the steepest plunge on record, a -3.1% collapse in 2020. Just as COVID lockdowns brought the bulk of the global economy to a virtual standstill in early 2020, reopening, in conjunction with aggressive monetary and fiscal stimulus, produced the mother of all snapbacks.
Forecasters are an autoregressive species, with an uncanny knack of extrapolating the latest trend into the future. The same is true of investors. For that reason, alone, it is important to look through the extraordinary volatility of 2020-21 to get a clean read on which trend to extrapolate. Over those two years, global GDP growth averaged just 1.5%, well below the official global recession threshold, widely thought to be around 2.5%. Needless to say, if world economic growth slows more toward that underlying trend than the soft-landing glide path, another global recession is hardly farfetched.
A second reason to doubt buoyant forecasts is that the China cushion has been deflated. China’s economy is currently growing well below the nearly 8% pace recorded from 2010 to 2019. The latest IMF outlook puts average Chinese growth in 2022-23 at 4.75%, only a little more than half the post-GFC trend when strong Chinese growth was literally the only thing that prevented the world from relapsing into recession over the 2012-16 period. As was the case back then, global resilience without a more vigorous Chinese economy is highly unlikely.
That’s the risk today. With China currently facing a trifecta of shocks – a new wave of COVID-19 lockdowns, the ongoing pressures of deleveraging (especially in its unstable property sector), and war-related collateral damage resulting from its ill-advised partnership with Russia – the world economy can no longer rely on China as a source of resilience. That, of course, cuts both ways. If China deepens its commitment to Russia, it will share in the isolation of its “unlimited partner.” For a Chinese economy that remains deeply reliant on the rest of the world, that could prove to be President Xi Jinping’s greatest challenge.
Third, the downshift in the global growth cycle is being accompanied by a major upswing in the global inflation and interest-rate cycles. The soft-landing crowd is dismissive of the consequences. As inflation surges to 40-year highs, there is loose talk of “peak inflation” – the fanciful idea that it is so bad now that it can only get better from here.
This superficial arithmetic argument misses the point. With the US Consumer Price Index surging by 8.5% in March, there is of course an excellent chance that this key barometer of inflation will be considerably lower by year end. But how much lower? Low enough to rescue the US Federal Reserve from its most irresponsible monetary-policy gambit since the mid-1970s and early 1980s?
Don’t count on it. While the Fed is now talking tough, talk is cheap. So far, it has delivered only 25 basis points, or just 10%, of the some 250 basis points of cumulative tightening that financial markets are expecting over the next six months. Even if the Fed moves as expected and boosts the federal funds rate to 2.5% by this November, the nominal policy rate is likely to be well below the inflation rate.
That means the real (inflation-adjusted) federal funds rate will remain in negative territory throughout the year, marking a 38-month period of negative real policy rates – far more stimulus than in earlier periods of über-accommodation under Alan Greenspan, Ben Bernanke, and Janet Yellen. Real interest rates matter in maintaining price stability and driving economic growth. When assessing risks to the global business cycle, the bottom line is that the upswing in real rates has much further to go.
All of this underscores the downside risks that are building in the global economy. As a recovering Wall Street forecaster, I empathize with the mindset of most forecasting teams, including the IMF’s highly talented professionals, who believe that they have factored in most conceivable risks. In this case, financial markets concur, convinced that an inflation-prone world, with still jaw-droppingly accommodative central banks, is somehow gliding gloriously toward a soft landing for the ages. But is this already-rosy scenario really supposed to play out without China? Dream on.
Stephen S. Roach, a faculty member at Yale University and former chairman of Morgan Stanley Asia, is the author of Unbalanced: The Codependency of America and China (Yale University Press, 2014) and the forthcoming Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, November 2022).
Copyright: Project Syndicate, 2022.
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China’s street scene these days no longer features beauties and beaus with light complexions, instead, it’s light-skinned people with a Covid complexion: the so-called “dabai”. This is how the Chinese vernacular has christened medical staff, helpers and law enforcement officers in white protective gear who manage the country’s sometimes turbulent state of Covid emergency.
Interestingly, this neologism goes back to a Disney movie, “Big Hero 6” from 2014, which drew Chinese popcorn audiences to their seats in droves at the time. The movie’s protagonist is a personal health robot named Baymax. And his Chinese name is 大白 dàbái (“big white”). Thanks to special programming, the white giant with a Michelin man look even knew karate. The Chinese namesake, however, which does remotely resemble the animation original, mainly twirls cotton swabs during PCR tests and drags white plastic bags with food through the city streets.
If you search for the hashtag “dabai” on Weibo, you will find a wild mix of posts about the white giant. Many users pay tribute to the tireless efforts of the epidemic workers, who sometimes spend days in white plastic suits. But there are also scenes repeatedly posted in which lockdown-weary “dabai” clash (verbally or even physically) with frustrated residents or rigorously enforce mandated Covid measures.
So the relationship to these “helpers in white” is divided. The situation is similar in the Chinese language, by the way, if we take a closer look at the color white. On the one hand, it evokes positive connotations, since “white” skin is considered the ideal of beauty in China. An entire industry (called 美白 měibái “beauty white”) has dedicated itself to bleaching the skin with countless products. No wonder the 白富美 báifùměi (literally “white and wealthy beauty”) is China’s synonym for “dream woman” (the male equivalent, by the way, is 高富帅 gāofùshuài – “tall and wealthy beau”).
Traditionally, however, the color white has less positive associations in China. It is considered the shade of funerals and mourning for the dead (白事 báishì “white affair” means “bereavement” or “funeral”) and is thus the counterpart of the joy, wedding and happiness color red (红事 hóngshì “joyful affair, wedding” – literally “red affair”). In Beijing opera, villains are traditionally painted white, so “pale face” (白脸 báiliǎn) is a synonym for “villain”. “Playing/singing paleface” (唱白脸 chàng báiliǎn) is a colloquial expression for “being the bad guy”. The cultural negative image of this color has even been grammaticalized throughout linguistic development. Thus, “to do something white” (bái + verb) means to do things “in vain/for nothing” or, in English, “for the birds” (for example, 白等 bái děng “to wait for nothing”, 白跑一趟 bái pǎo yī tàng “to rush/run somewhere for nothing,” 白做核酸检测 bái zuò hésuān jiǎncè “to do a Covid test for nothing”).
With this in mind, we can only hope that the Covid fuss will not have been in vain and that China will soon return to pre-Covid normality – so that “baifumei” may once again dominate the street scene and no longer “dabai”.
Verena Menzel runs the online language school New Chinese in Beijing.
