Pandemics cause short-term economic and political pain, and then their effects largely disappear

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Jorge Guajardo remembers the 2009 H1N1 flu pandemic well. He certainly doesn’t remember it fondly.

And that’s not just because the deadly influenza began in his home country of Mexico and killed thousands of his fellow citizens.

In fact, he was 8,000 miles away during the outbreak, running the Mexican embassy in Beijing.

“I spent six years as Mexico’s ambassador in China, from 2007 to 2013. Without a doubt, by far my worst time was during the H1N1 outbreak in Mexico, when China, out of the blue, without notice, started putting Mexican nationals in China under quarantine. They would go knock on their hotels and bring out entire families and put them under quarantine,” Guajardo told MarketWatch.

“They wouldn’t notify the consulates,” he recalled. “They, overnight, canceled direct flights from Mexico.”

So, as country after country has begun putting in place China-related travel bans because of the new coronavirus, Guajardo sees Beijing’s grumbling as hypocritical, to put it mildly.

And grumbling Beijing has done.

In nearly its third week of such complaints since the first travel bans began, Foreign Ministry spokesperson Hua Chunying said Thursday, “We deplore and oppose countries who went against the WHO’s professional recommendations. Their actions, which sowed panic among the public, will not help prevent and control the epidemic. They have severely disrupted normal personnel exchanges, international cooperation, and order of the international market of air transportation.”

More than a dozen governments have issued China travel bans, mostly prohibiting inbound Chinese travelers, but some curtailing their own citizens’ travel to China. These include some of Beijing’s biggest trading partners and political counterparts, such as the U.S., the U.K., Australia, Hong Kong, Taiwan, India, Japan, Singapore and South Korea.

‘Everything that China is now criticizing the U.S., Australia and other countries for doing, they did twice as much to Mexico [during the H1N1 crisis].’

Jorge Guajardo, former Mexican ambassador to China

So why does Beijing care so much? Largely for two reasons.

One, the economic pain. “These 2,500 flights that have been interrupted, going back and forth to China, are also filled with cargo, so that’s a big disruption,” Guajardo, now a risk consultant with Washington-based McLarty Associates, said.

Besides its decades-long dominance in manufacturing and exports, China has become an enormous engine of more discretionary spending and domestic consumption as well, like electronics, internal tourism, investment property and transportation, among others. Echoing moves by dozens of companies in several industries, Volvo, owned since 2010 by China’s Geely Automobile Holdings, said Thursday that the shutdown of two of its plants in China would last at least a “few weeks.” Analysts expect first- and second-quarter earnings to show significant impacts across numerous sectors.

Secondly, Beijing cares about how its citizenry views its leadership acumen. Economic growth, competently handling crises — these are how nondemocratic regimes maintain legitimacy in the absence of voting. In other words, President Xi Jinping and the Politburo Standing Committee know the population is watching how adeptly they contain this emergency.

And, in turn, that same population is watching how the world judges those actions. China’s thousands of years of history, numerous empires, and then its decline into what is known as its “century of humiliation” when industrialized foreign powers stormed in and divvied up the country makes its current-day resurrection that much more important to its people. Chinese citizens don’t want its return to great-power status to be marred by the outbreak of a globally infectious disease that may have begun at a filthy wild-animal market.

The country’s crisis-handling image matters to Chinese leaders, perhaps more now than in past decades, as economic growth — a main tool of their legitimacy — is nearing a 30-year low.

But there are two things Beijing should remember, as it goes through the early pangs of the epidemic. One, past examples reveal that these outbreaks don’t normally last beyond months, and they don’t have lasting economic effects.

“Since 1998 there have been nine global epidemics but little evidence linking them to long-term fundamentals,” according to Carolyn Szafli of Morningstar Investment Management, whose analysis of investment returns from SARS in 2003 to Ebola in 2018 showed that, despite early investor panic, there were almost always subsequent sustained rebounds. It’s premature to say for sure, but market rebounds may already be on a sustained trajectory.

Bolstering this call for political and market calm are compelling new data that suggest the fatality rate of the coronavirus has likely been overestimated and could be below 1%.

See: Death of Dr. Li Wenliang, who warned China about coronavirus, met with sadness — and fury at Chinese officials

Barron’s on MarketWatch: The market’s reaction to coronavirus is ‘ludicrous,’ economist says — here’s why

This would mean an even more rapid resumption of normalcy in economic areas. That is yet another reason that Beijing should tone down its rhetoric toward countries taking health measures that it took itself in the past.

“Everything that China is now criticizing the U.S., Australia and other countries for doing, they did twice as much to Mexico [during the H1N1 crisis],” Guajardo said. “They never apologized. They never acknowledged it. When they were doing this, I would call the Foreign Ministry to get a response from them, [and] they wouldn’t pick up the phone. Once they did pick up and heard it was Mexico calling, they’d just hang up.”

MarketWatch calls to China’s Foreign Ministry seeking response for this article were not returned.

Tanner Brown is a contributor to Barron’s and MarketWatch and producer of the Caixin-Sinica Business Brief podcast.

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