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https://www.wsj.com/articles/china-is-the-real-sick-man-of-asia-11580773677

OPINIONGLOBAL VIEW

China Is the Real Sick Man of Asia

Its financial markets may be even more dangerous than its wildlife markets.

y Walter Russell Mead

. 3, 2020 6:47 pm ET
The mighty Chinese juggernaut has been humbled this week, apparently by a species-hopping bat virus. While Chinese authorities struggle to
control the epidemic and restart their economy, a world that has grown accustomed to contemplating China’s inexorable rise was reminded that
nothing, not even Beijing’s power, can be taken for granted.

We do not know how dangerous the new coronavirus will be. There are signs that Chinese authorities are still trying to conceal the true scale of the
problem, but at this point the virus appears to be more contagious but considerably less deadly than the pathogens behind diseases such as Ebola
or SARS—though some experts say SARS and coronavirus are about equally contagious.

China’s initial response to the crisis was less than impressive. The Wuhan government was secretive and self-serving; national authorities
responded vigorously but, it currently appears, ineffectively. China’s cities and factories are shutting down; the virus continues to spread. We can
hope that authorities succeed in containing the epidemic and treating its victims, but the performance to date has shaken confidence in the
Chinese Communist Party at home and abroad. Complaints in Beijing about the U.S. refusing entry to noncitizens who recently spent time in
China cannot hide the reality that the decisions that allowed the epidemic to spread as far and as fast as it did were all made in Wuhan and Beijing.

The likeliest economic consequence of the coronavirus epidemic, forecasters expect, will be a short and sharp fall in Chinese economic growth
rates during the first quarter, recovering as the disease fades. The most important longer-term outcome would appear to be a strengthening of a
trend for global companies to “de-Sinicize” their supply chains. Add the continuing public health worries to the threat of new trade wars, and
supply-chain diversification begins to look prudent.

Events like the coronavirus epidemic, and its predecessors—such as SARS, Ebola and MERS—test our systems and force us to think about the
unthinkable. If there were a disease as deadly as Ebola and as fast-spreading as coronavirus, how should the U.S. respond? What national and
international systems need to be in place to minimize the chance of catastrophe on this scale?

Epidemics also lead us to think about geopolitical and economic hypotheticals. We have seen financial markets shudder and commodity prices fall
in the face of what hopefully will be a short-lived disturbance in China’s economic growth. What would happen if—perhaps in response to an
epidemic, but more likely following a massive financial collapse—China’s economy were to suffer a long period of even slower growth? What would
be the impact of such developments on China’s political stability, on its attitude toward the rest of the world, and to the global balance of power?

China’s financial markets are probably more dangerous in the long run than China’s wildlife markets. Given the accumulated costs of decades of
state-driven lending, massive malfeasance by local officials in cahoots with local banks, a towering property bubble, and vast industrial
overcapacity, China is as ripe as a country can be for a massive economic correction. Even a small initial shock could lead to a massive bonfire of
the vanities as all the false values, inflated expectations and misallocated assets implode. If that comes, it is far from clear that China’s regulators
and decision makers have the technical skills or the political authority to minimize the damage—especially since that would involve enormous
losses to the wealth of the politically connected.

We cannot know when or even if a catastrophe of this scale will take place, but students of geopolitics and international affairs—not to mention
business leaders and investors—need to bear in mind that China’s power, impressive as it is, remains brittle. A deadlier virus or a financial-market
contagion could transform China’s economic and political outlook at any time.

Many now fear the coronavirus will become a global pandemic. The consequences of a Chinese economic meltdown would travel with the same
sweeping inexorability. Commodity prices around the world would slump, supply chains would break down, and few financial institutions
anywhere could escape the knock-on consequences. Recovery in China and elsewhere could be slow, and the social and political effects could be
dramatic.

If Beijing’s geopolitical footprint shrank as a result, the global consequences might also be surprising. Some would expect a return of unipolarity if
the only possible great-power rival to the U.S. were to withdraw from the game. Yet in the world of American politics, isolation rather than
engagement might surge to the fore. If the China challenge fades, many Americans are likely to assume that the U.S. can safely reduce its global
commitments.

So far, the 21st century has been an age of black swans. From 9/11 to President Trump’s election and Brexit, low-probability, high-impact events
have reshaped the world order. That age isn’t over, and of the black swans still to arrive, the coronavirus epidemic is unlikely to be the last to
materialize in China.
Appeared in the February 4, 2020, print edition.