Is COVID-19 a 'black swan'?


LONDON – The “devil virus,” as President Xi Jinping called COVID-19, has already killed over 1,300 people and it’s accelerating. The last few days have seen more than 100 deaths a day, and the death rate in Wuhan is now 4 percent of those infected.

Significantly, Xi is no longer claiming that he is “personally commanding” the anti-virus fight. If this is going to be a disaster, somebody else should take the blame, and the man in charge of the campaign against the virus is now Vice Premier Sun Chunlun. Aware that he is now the designated fall guy, Sun immediately visited Wuhan and declared that the city and country now face “wartime conditions.” Waxing hysterical, he warned: “There must be no deserters, or they will be nailed to the pillar of historical shame forever.” But mere rhetoric won’t save him if the epidemic goes nationwide.

It probably will: The two or three weeks that were wasted after the virus was first detected cannot be recovered. But the enforced holidays, travel curbs and lockdowns, belated though they are, may still limit the spread of the novel coronavirus beyond China.

Or maybe not, but even if the virus is largely contained within China the risk of financial infection is high. High enough, in fact, to qualify as a potential “black swan.”

A black swan is an unforeseen event that has a huge impact on the normal course of events. The SARS epidemic was a black swan: It knocked about 2 percentage points off China’s economic growth that year. However, that epidemic did not cause a global recession, because back in those days China was only a small part of the global economy.

Now the Chinese economy is the world’s second-biggest. It takes up four times the space in the global economy that it occupied in 2002, so a 2 percent fall in Chinese economic growth translates into at least a half-percent hit to the entire global economy. Which would not be a big deal if the global economy was in good shape, but it isn’t.

Indeed, 12 years after the 2008 sub-prime financial crisis the global economy is still in intensive care. There has been no return to the pre-crisis high growth rates, and interest rates are still largely at rock bottom. That means the banks have no room to cut the cost of borrowing and stimulate demand if the economy is starting to tank. This applies in particular to China, where banks have been forced by the government to finance huge amounts of unproductive investment as the regime continuously “primed the pump” to ward off a recession.

By now China has a Potemkin economy where the official economic growth rate is 6 percent a year, but the true number, as measured by electricity use or megatons of freight carried by the railways, is between 2 percent and 3 percent. Knock 2 percentage points off that and you have no growth at all — and a crisis of survival for the regime.

That would be the biggest black swan you ever saw, but remember that the lies and official incompetence that surrounded the Chernobyl disaster played a big part in making the Soviet public ripe for regime change a few years later. Could the coronavirus have a similar effect? It’s not likely, but it is conceivable.

Gwynne Dyer is an independent journalist.