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Generational Dynamics Web Log for 2-Feb-2020
2-Feb-20 World View -- Wuhan coronavirus hits China's economy hard, threatens world economy

Web Log - February, 2020

2-Feb-20 World View -- Wuhan coronavirus hits China's economy hard, threatens world economy

Investors nervous as China's stock market to reopen on Monday

by John J. Xenakis

This morning's key headlines from GenerationalDynamics.com

Investors nervous as China's stock market to reopen on Monday
Dangers of social unrest in China
Effects of Wuhan coronavirus on global stock markets

Investors nervous as China's stock market to reopen on Monday

New York's annual Lunar New Year parade on January 25 (Getty)

New York's annual Lunar New Year parade on January 25 (Getty)

Investors are nervously waiting to see what will happen on Monday, when China's stock market reopens for the first time since the beginning of the Lunar New Year celebrations. It closed down 3.1% on January 23, and has been closed since then. It was supposed to open last week on Thursday, but the opening was postponed until February 3 because of the Wuhan coronavirus crisis.

Taiwan's stock exchange did open on Thursday, and fell nearly 6%. Hong Kong's Hang Seng stock market index also fell nearly 6%.

Worldwide there have been 14,000 confirmed cases, with 304 deaths. That means that 2.1% of confirmed Wuhan coronavirus cases are ending in death. Deaths from ordinary influenza are closer to 0.1%.

Not that there's been much of a Lunar New Year celebration this year. Coronavirus is now present in every province of China.

China’s economy seems to be grinding to a halt. Sixteen cities in China, with a combined population of more than 50 million people, are on lockdown, and people are prevented from leaving. Shops and restaurants in many cities are completely deserted, as people are afraid to leave their homes.

The only exception seems to be long lines where people camp out for hours to puchase protective face masks. They've been sold out everywhere, but Chinese officials have announced that prisoners are working day and night to make millions more face masks.

Tourism will be hit hard. Hong Kong, Taiwan, Singapore and the Philippines have stopped accepting visitors from China’s Hubei province, and Russia and Mongolia have closed their borders with China.

Many countries are imposing travel bans from China. On Saturday, Australia and the United States joined Israel, Vietnam, Italy, Philippines and Qatar to suspend flights from China. In the United States, the government has put about 200 US citizens repatriated from Wuhan under legal quarantine at March Air Reserve Base in Southern California. The group includes State Department personnel, family members, children and other Americans. It’s the first time such a policy has been used in the US since the 1960s, when a quarantine order was issued to stop the spread of smallpox.

Dangers of social unrest in China

The coronavirus crisis could cost China's economy $60 billion this quarter. There were already millions of people unemployed, and the coronavirus has forced many small businesses to close. Many economists are concerned about massive layoffs in March, because of loss of revenue in January and February, caused by a combination of the Lunar New Year holiday and coronavirus.

Many businesses and factories have had to close temporarily to prevent further spread of the disease. Where possible, people are being ordered to work at home, but for many that will not be possible.

As long as the number of new cases increases every day, then the end is not in sight. When the number of new cases peaks and starts to decrease, that will signal the beginning of the end of the pandemic. That's likely to occur as winter ends, around May or June in the northern hemisphere. It may strike the southern hemisphere after that.

Officials in China are hoping that the things will start to return to "normal" by March 1, but there's a possibility that nothing will change for two or three additional months.

This is exactly the kind of potential social unrest situation that the paranoid Chinese Communist Party (CCP) thugs fear the most. Most ordinary Chinese know that the CCP thugs are corrupt, incompetent, and violent, but there's a kind of contract between them. The people will keep quiet as long as there's plenty of employment and the livin' is easy. When that deal begins to fall apart, a full-scale rebellion becomes a possibility.

As I've written in the past, Hong Kong is on the fault line between northern and southern China. ( "22-Jun-19 World View -- Hong Kong protests show historic split between northern and southern China")

Southeast China was the starting point of the last two massive Chinese anti-government rebellions. Mao Zedong's Long March that led to the Communist revolution civil war (1934-49) started in the south. The massive Taiping Rebellion (1852-64), which was led by a Christian convert who believed he was the son of God and the younger brother of Jesus, began in the south and spread north.

The ethnic fault line between north and south is just as active today as it ever was, and China is overdue for a new north-south rebellion. So there's already massive unrest in Hong Kong, and now the country is on the verge of large-scale unemployment. China has had massive anti-government rebellions at regular intervales for millennia. It's now been 71 years since the end of the last rebellion, and so China is overdue for its next rebellion.

The CCP thugs are aware of this, and so the People's Bank of China (PBOC), the country's central bank, has promised to flood the financial markets with liquidity, and to increase spending in whatever sectors it can.

Whether that will work remains to be seen. China spent huge amounts of money to weather the financial crisis of ten years ago. China has been spending massive amounts of money in many countries with its Belt and Road Initiative (BRI). Even China has some limits on the amount of money it can spend.

Effects of Wuhan coronavirus on global stock markets

There's been a discussion in the Generational Dynamics forum in the last few days about whether this will be the trigger for a global financial crisis and stock market crash, since Wall Street stocks are in a huge bubble, bigger than 1929.

My response is that I don't think so. If you look back at previous panics -- the 1929 panic, the 1987 false panic, and the flash crash of a few years ago -- they were all completely unexpected. In other words, you can't "expect" a panic. A panic is, almost by definition, "unexpectable." Therefore, if a panic is now "expected," then it can't occur now. So there might be a 20% stock market correction, but not a full-scale financial panic.

However, another person has pointed out a flaw in my logic. Since the panic is "expected," then it can't happen. Therefore, it's "unexpected." Therefore it can happen. See how easy it is to tie yourself up in knots?

At any rate, people investing in the stock market should be very cautious these days. The stock market is in the biggest bubble in world history, and so really anything can happen.

John Xenakis is author of: "World View: War Between China and Japan: Why America Must Be Prepared" (Generational Theory Book Series, Book 2), June 2019, Paperback: 331 pages, with over 200 source references, $13.99 https://www.amazon.com/World-View-Between-Prepared-Generational/dp/1732738637/

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(Comments: For reader comments, questions and discussion, see the Generational Dynamics World View News thread of the Generational Dynamics forum. Comments may be posted anonymously.) (2-Feb-2020) Permanent Link
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Generational Dynamics Web Log for 2-Feb-2020 2-Feb-20 World View -- Wuhan coronavirus hits China's economy hard, threatens world economy

Investors nervous as China's stock market to reopen on Monday

Dangers of social unrest in China

Effects of Wuhan coronavirus on global stock markets

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