ANALYSIS: The news that the lockdown will continue – another week for Aucklanders and at least four days for everyone else – should not come as a surprise. The Government’s goal is elimination and there was clearly a risk the virus could have been carried to the South Island, or anywhere else for that matter.
If anything, the question has to be why in the days immediately after the index case emerged last Tuesday the whole country wasn’t just given 14 days. It's good that the Government is looking to liberalise as soon as possible, but doing a few days at a time and keeping people on edge is curious.
New Zealand’s hermit kingdom has understandably become inwardly-focussed around the basic questions such as when can my life get back to normal? This was the case even before this latest lockdown. Borders are closed, the threat of lockdowns constantly looms and house prices are skyrocketing for those that own one.
All this considered, most people won’t have heard of a new phrase that came out of China this week: “common prosperity”. Sounds very Chinese Communist Party, but what does it actually mean? Well, China’s de-facto emperor Xi Jinping has mounted a new crackdown on China’s super wealthy and is now planning to redistribute more wealth.
Instead of China's powerful central financial and economic affairs commission focussing exclusively on growth as a priority, it now appears to have turned its attention more explicitly to redistribution, continuing a 10 month push to generally increase state direction over the Chinese economy. The CCP has also be ramping up the pressure on publicly listed Chinese firms such as Tencent and Alibaba.
It has financial markets spooked, because it all likelihood it will slow the Chinese economy and all others who ride on the dragon’s tail.
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It is a good reminder that when this lockdown is over and the immediacy of making ends meet, keeping businesses and households running, the world will have continued to move as New Zealand stood still.
Since the global financial crisis, China has basically held up global consumption by pumping massive stimulus into its economy and continuing to pursue growth. In no small part the legitimacy of the Chinese Communist Party has derived from its ability to consistently deliver higher standards for its people. It has been very successful at buying off or suppressing the many groups in society that traditionally agitate against political suppression and dictatorships: students, intellectuals and so on.
But there has been a clear trend for years of Xi retreating back into the party’s comfort zone: control, interference and keeping the party secure atop the apparatus of state.
It reveals the full range on contradictions of the “Communism with Chinese characteristics” model: a market economy with a Leninist party structure running the show.
A few years ago China was meant to be on course to slowly change from primarily being an investment-led economy – ie the state pumping money into infrastructure, housing and so on – in favour of a more consumption-led economy, the path of most advance economies.
The problem with that is, if an economy is more consumption-led, it effectively relies on the democratising power of billions of consumer decisions. That fundamentally sits uncomfortably with a communist dictatorship: if it is not the state, but the citizens who are effectively directing growth, the state loses control. What might be next? That set of reforms were quietly shelved.
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At the same time as the China news, Australia’s iron ore price – which is driven from demand out of China, has dropped by more than US$100 per tonne since mid-May. It now fetches US$130.
This could have significant consequences for New Zealand. Iron ore is the key price in the Australian economy. It is the thing that pays taxes for a lot of Australia’s social welfare system, consumer spending, and it sloshes through the entire economy.
New Zealand is effectively double-exposed to China, our largest trading partner: directly and through Australia, our second largest trading partner. A China slowing China won’t import so much and prices will fall.
New Zealand is exposed. This doesn't mean any sort of impending economic calamity. But what it does mean is that our commodity prices could be more challenged and that the comparative economic golden weather we’ve been having could be near an end.
And in the meantime, while we’ve been struggling to get the population vaccinated and appear reticent to open up even after vaccination, the economic pressures have continued to build. There are labour shortages up and down the country: firms can’t get plant installed, farmers this year will struggle to get shearers and supply chains remain crunched. And the whole party is kept going by house price inflation making lots of people feel richer while entrenching intergenerational inequality.
Just a sobering reminder that the world continues to turn while we desperately try to get back to work, and normality. The elimination strategy might have been very successful in some respects. But going forward, we have to ask what success really looks like.
