Briefly discusses how a post-SARS-2 world will look like in terms of manufacturing

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The Fallout of SARS Cov-2
Shantanu Basu
Across the world, political leaders are hiding their long-term short-sightedness in
condemning a whole nation - China - for creating and propagating the SARS CoV-2 virus.
Indians are no exception. I too am no exception, but with a difference. The Chinese govt's
greatest fault lay in suppressing outflow of information of the pandemic till local
whistleblowers pulled the plug and, predictably and tragically, paid with their lives for their
indiscretion. The act of the Chinese govt was nothing short of criminal as the ongoing global
death tally and dip into economic recession becomes increasingly apparent with each passing
hour. There is no reason for the affected nations not to take China to the International
Criminal Court and file claims for unprecedented damages against the Chinese govt. in their
respective countries. It is indeed the saddest chapter in the history of successive Chinese
Communist Party (CCP) regimes that have devoted themselves to the eradication of poverty,
hunger, homelessness, illiteracy, ill-health, hugely expanded domestic, R&D and financial
infrastructure in China, that made China the envy of the world. Most of my friends would
echo my viewpoint.
Yet, it is most unfair to typecast the Chinese people as virus creators and propagators. The
common people suffered 85-100 million deaths/killings in the last seven decades under
successive brutal CCP governments. Yet it is a tribute that these did not kill their
entrepreneurial spirit when Deng Xiao Ping onwards, the Chinese economy opened up.
However, in the creation of wealth, the CCP and its principal arm of repression, the PLA,
hijacked a large part, indirectly creating institutions like Alibaba, buying out the South China
Morning Post and promoting Huawei, the largest manufacturer of mobile telephony
equipment and the most cost-effective 5G network creator, all world-class companies. This
created a whole new class of uber-rich globe-trotting and investing Chinese that bought
unprecedented quantity of assets overseas. The Chinese govt.'s share of the profits for its
state-owned companies invested mainly in US Treasury Bonds. However, over the last 15-18
months, the Chinese govt. has been offloading their share of US bonds to third countries, as
the threat of US sanctions worries them.
In turn, these profits fuelled ambitions of global greatness that reflect today in
megalomaniacal projects like OBOR & CPEC and giant Chinese investments across the
globe, under the Xi Jingping regime, matched by even higher levels of suppression of dissent
via wholesale anti-corruption executions and the like. Fuelling such vaulting political
ambitions were lowly-paid Chinese workers that worked long hours without much safety and
welfare nets. Prosperity began with mass assembly of low technology items like travel bags.
With capital generated, China's state-owned enterprises and private entrepreneurs moved up
the technology ladder, although dependence on high technology from the West remains even
today. A booming low-cost export market created huge wealth and, in under a decade or so,
Chinese banks had accumulated enough money to take the first 4-5 places in the Forbes list of
the largest ten banks in the world in 2019. The boom in the domestic economy caused local
bourses to become hyperactive often returning unbelievable figures of returns to the common
Chinese investor that staked all their savings in them aside from the huge reserves financial
institutions created for themselves.
However, vaulting political ambitions that fuelled China's prosperity and formidable
industrial strength that today produces 20% of the world's manufacturing output, may also be
the cause for the gradual unravelling of the Chinese dream. For one, several billion dollars of

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Chinese bank funds are tied down in overseas projects, nearly all of which have run into local
resistance. The stock market has substantially tanked, taking investors' funds with it,
reducing many investors to penury and prompting the Chinese govt. to pump in $300 billion
into the bourses about 12-15 months ago. Organized labour demand for higher wages has
caused MNCs to move manufacturing bases to nearby Bangladesh, Kampuchea, Vietnam,
Laos and Indonesia. Social tensions too are on the rise with minorities resenting Han
domination. Sensitive Xinjiang is in severe ferment even as the CCP tries to use brute force
to suppress Muslim discontent by sending millions to re-education camps. Needless to add,
GDP growth has stalled, even marginally declined in the last 2-3 years.
SARS CoV-2 will redraw the outlines of China's ambitions and reach. For one,
manufacturing industry in the West, the worst affected countries, would, per force, have to
look at replicating the Chinese model of economy of scale combined with lower costs such as
in employee benefits, quality assurance, health insurance cover, overtime payments, residual
union activity, ease of doing business including tax and other breaks and land for overseas
manufacturers to set up manufacturing in the West while encouraging lower warehousing,
shipping and insurance costs by state subsidy, etc. After all, affordability of Chinese products
was the greatest attraction for Western politicians as the giant range of products that could be
flexibly customised for individual markets and clients that catered to slim citizen pockets.
Unless the West is able to adopt such tough measures, there is no point in cursing China for
allegedly spreading SARS Cov-2, that may be more fiction than fact. Western politicians can
hardly ignore the political mileage they can gain by way of popular demand for innumerable
job opportunities and higher wages for their residents, refurbishing creaking infrastructure
and adding to them, widening of a state-funded affordable health care, education and nearly
bankrupt social security systems - a type of nouveau socialism, to use a false equivalence. All
these are fully in the realm of the possible given the huge revenue and resultant profits the
West would earn by replicating the Chinese model on its soil. Trump's 'Make America Great
Again' could come true in the coming decade.
Second, the West would have to look at relocating its manufacturing bases to other cost-
effective countries in south, east and south-east Asia. Authoritarian systems in many of these
countries are notoriously corrupt and inherently unstable and investing in them is not free
from business risk. It is here that India is the West's best and safest area of operation.
However, it has innumerable drawbacks by way of broken infrastructure, education and
public health systems, multiple layers of clearances from state and Central governments to set
up business, availability of land, poor enforcement of contracts and patents and quality of
local R&D, corrupt quality assurance systems, sinking financial institutions, huge corruption
among ruling elites at multiple levels throughout the life cycle of a project, hopeless
dependence on imported POL, and myriad more. Yet it is not as if any of these are
insurmountable if the political leadership is sagacious and determined (one to the exclusion
of the other will be self-defeating). If the Chinese model were replicated in India too by local
and overseas manufacturers, our manufacturing industry would not have to run away from
any free trade agreement (as they did in Kuala Lumpur in 2019) since they would become
cost-effective, hence highly competitive. India stands to hugely gain by way of innumerable
new jobs and higher wages that will raise investment and credit also; a positive fallout could
be resolution of all NPAs by full discharge of liabilities. A spike in the domestic bourses
would enable companies manufacturing in India to raise capital for capex from across the
western world and encourage investment in financial assets without too much risk of
uncertainty. What democracy can achieve in India, an authoritarian regime could achieve just
the opposite is a warning Indians cannot afford to lose sight.

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Third, declining fuel costs that primarily owe to huge creation of alternate energy in the West
and production of shale oil in US and Canada is a blessing for non-oil producers across the
world. Ongoing repatriation of investments in emerging economies to the West will make
credit invariably cheaper for Western manufacturing and services and reduce cost of
manufacturing substantially. As Western industrial capacities increase, so will their bourses
rise, making it easier for Western companies to raise capital for capex and residual investors
to move to financial assets from other sources. In due course, unparalleled wealth could cause
a return to a debt-free gold standard for a bonus.
Fourth, SARS CoV-2 has the potential of establishing large-scale manufacturing hubs in the
new democracies of Central Europe who today earn a large part of their revenue as
remittances from their unskilled and semi-skilled residents employed in the farms and other
relatively low-paying occupations across Europe. With large addition to manufacturing
capacities in the West, social tensions that have arisen from mass migration could stand
alleviated with greater and more equitable economic growth. No positive outcome can be
expected if the fruits of such enterprise do not percolate equitable to the indigent. That holds
true of India, one of the world's top three laggards in iniquitous growth. Giving people jobs
and better wages will keep them contented and gainfully occupied and cause political
stability over an extended period, like in the US from 1918-29 and again from 1945-65 and
1990-2008 in the US.
Last, but not the least, hitherto suppressed demand across the globe would be alleviated by
substantially higher disposable incomes in the hands of citizens and far higher revenues for
governments. However, the demand for goods and services from eight billion people that
inhabit Planet earth is unlikely to be fulfilled by manufacturing in the West alone.
Manufacturing need to expand into newer and more politically stable areas of the world with
quality and price of Western-made products. Tariff and non-tariff barriers would necessarily
have to become a thing of the past, if the world is to emerge from its dependence on a single
country for a fifth of its manufactured output.
Yet China's seminal role in inculcating its model across the globe must be given due credit.
The huge bouquet of goods and services at affordable prices emanating from China holds
many a hard lesson for the world. China, the world's second largest economy can hardly be
ignored. (1661 words)
The author is a senior public policy analyst and commentator