Blame China for the killer virus

The spread of a lethal disease shows the dangers of closed societies that cover up bad news

More than two thousand people are now suffering from severe acute respiratory syndrome (Sars), caused by a new strain of coronavirus. It begins with a high fever, chills, headaches, malaise, body aches and a dry cough, followed by breathing difficulties, and in more than 50 cases - including the doctor who first identified the virus - death. The disease started in China, and has spread to Hong Kong, east Asia, Europe and North America. It has spread so far and wide, and remained undetected for so long, because of the way China works.

Even though more than 800 cases have been detected in China, the foreign ministry said late last month: "This isn't a very serious disease." Yet shortly thereafter China issued new figures, registering a substantially higher number of cases.

China's domestic media haven't covered the crisis: officials prevented the flow of information in order to prevent panic, but also because they did not want the wider world to know, lest foreigners stop visiting or cancel investments.

For more than two decades, apologists have been telling the world that economic reforms have changed China. It is now ruled by technocrats who understand the 21st century, the Sinophiles say. If they are not elected, so what? But the Chinese leadership responds to successive crises exactly as the imperial mandarins, feudal warlords and Maoist officials did.

At heart, China remains a secretive, closed society. And complicating the picture is a unique cultural characteristic: as a proud, ancient civilisation, China must never lose face. The government must never appear to have lost control, which is why tanks and armoured divisions greeted students protesting peacefully in Tiananmen Square in 1989. For Chinese officials who believe their country has leapfrogged from third world status to superpowerdom, an outbreak of a disease such as Sars is a matter of shame - so they suppress the news, and hope it will go away.

Concealing inconvenient information is not new to China. In his path-breaking study of famines, Amartya Sen pointed out that people living in closed societies were worse off because leaders hid their shortcomings and did not act to rectify them. Sen compared the Bengal famine of the 1940s, the Indian famine of the 1960s and China's Great Leap Forward.

In the 1940s, colonial administrators diverted food production from Bengal to help the allied war effort, resulting in hundreds of thousands of deaths. India's home-grown rulers, however, responded differently to an emerging famine in the 1960s. New Delhi acted promptly, because that government was an elected one. India's open system allowed information to be disseminated quickly, compelling the government to act rapidly, in the hope of being re-elected.

During the same era, China's ill-conceived and ill-administered Great Leap Forward resulted in food shortages. The distribution system collapsed; millions died. But fearful officials did not inform Beijing, or sent false data. And if Beijing did receive an accurate account, it didn't like what it saw, or did not trust it, or simply did not care.

Sen's conclusion: democracies prevent famines because democratic governments must respond. Fewer Indians died in the 1960s, when it was a democracy, than in colonial India of the 1940s. But in China in the 1960s, millions died; and even today, the authoritarian regime still tries to hide embarrassing mortality figures.

Beijing's response to the Sars outbreak is remarkably similar to the way it respon-ded to the famine during the Mao era, and to the way it responds to concerns about China's shaky economic situation.

Attracted by a strong market, thousands of investors, big and small, have pumped billions of dollars into the country. But many have suffered because they have acted on partial, or even false information. There is the China the businessman sees: the glitzy high-rise towers along the Bund in Shanghai, and the sprawling industrial estates emerging on the buoyant east coast.

But the other China is a country where there is poverty and huge income disparity, and where diseases such as Sars and HIV are rising. In that China, of unfounded statistics and extrapolated spreadsheets, economic disasters are inevitable.

Business consultants have predicted that China's domestic debt bomb, largely a product of its failing state-owned enterprises (SOEs), will explode. Many inefficient SOEs, producing shoddy goods, provide cradle-to-grave services to millions of employees. Of the roughly 300,000 SOEs, three-quarters are in effect bankrupt. The government, however, claims that the number of money-losing firms fell by 22 per cent last year.

But that is because of an Enron-style accounting trick: the burden of supporting these firms was shifted to the banks. Approximately 40 per cent of the $1trn that these loans are worth may never be recovered. Bad loans now form about half of China's gross domestic product. And failing SOEs have created a vast pool of unemployed migrant workers moving from town to town, looking for work. Dealing with them is a major preoccupation for the Chinese state.

To succeed in China - the Singaporean academic Wee Chow Hou, a long-time observer of Chinese business practices, once told me - know-how is important, but know-who far more so. The Chinese refer to it as guanxi, or connections. You need connections to succeed in societies that are arbitrary and not transparent.

Opacity, thus, is at the heart of Chinese governance - not only over military secrets, but also information about economics, business and, as the Sars episode shows, the health system.