Last chance for the climate transition

Achieving zero emissions by 2050 would require unprecedented global co-operation

Martin Wolf

Earth on fire
© James Ferguson

At the World Economic Forum in Davos this year, two people stood out: Greta Thunberg, the 17-year-old Swedish climate activist, and Donald Trump, the US president. In their messages on climate change, these two could not have been more opposed: panic, confronted with indifference.

But one thing they share is that they are not hypocrites: Ms Thunberg does not pretend we are doing anything relevant; Mr Trump does not pretend he cares. Most participants in the climate debate, however, pretend to care, pretend to act, or both. If anything is to be done, this must change.

Ours remains what it has been since the early 19th century: a fossil-fuel civilisation. There have been two energy revolutions in human history: the agricultural revolution, which exploited far more incident sunlight; and the industrial revolution, which exploited fossilised sunlight. Now we must return to incident sunlight — solar energy and wind — along with nuclear power, while maintaining our high standards of living.

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The point of this latest energy revolution, however, is not to raise our standard of living directly, but to preserve the only home we know in the state to which life is now adapted. It is to avoid an irreversible experiment with the climate of our planet. So far, however, despite decades of talk, trends in emissions remain in the wrong direction.

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What is to be done? Discussions last week at the Oslo Energy Forum clarified things for me.

My principal conclusion was that a transformation from our current energy system to a different one is the only option. Some suggest we should halt growth as well. But this would not only be impossible, it would also not be nearly enough.

Over the past three decades CO2 emissions per unit of global output have been falling at a little below 2 per cent a year. If this were to continue and world output were to stagnate, global emissions would fall by 40 per cent by 2050 — far too little. Relying on actual reductions in output, in order to cut emissions by, say, 95 per cent, by 2050, would require a fall in world output of roughly 90 per cent, bringing global output per head back to 1870 levels.

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The conclusions are simple. We will not stop relying on fossil fuels by choosing universal impoverishment. But we also cannot stop using them soon enough, at our present glacial rate of reduction in emissions per unit of output. So we must massively accelerate technological progress away from burning fossil fuels.

We must move beyond them almost completely. If we do achieve that, the size of our economy ceases to be the issue: however big it becomes, it ceases to emit greenhouse gases. But note: to achieve this by 2050, the rate of reduction of emissions per unit of output needs to jump massively.

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Is this achievable? From a technological point of view, it appears so. So, at least, argues the Energy Transitions Commission in a number of important reports. The essential ideas are simple. The core of the new energy system is electricity generated by renewable means (solar and wind) and nuclear power.

This needs to be backed up by a variety of storage systems (batteries, hydroelectricity, hydrogen and natural gas, with carbon capture and storage). Reductions in costs have already been large enough and technological progress rapid enough to make this transition feasible, at manageable cost.

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This would, however, be a revolution. A zero-carbon economy would require about four to five times as much electricity as our present one, all from non-carbon-emitting sources. In running such an economy, hydrogen (much of it produced by electrolysis) would play an essential role. Hydrogen consumption might jump 11-fold by 2050.

In many sectors, the costs of decarbonisation are (or soon will be) competitive. Yet in some, they will not be. There will need to be incentives and regulations to force the shift. In order to avoid merely moving production, in its most emissions-intensive forms, elsewhere, it will be essential to impose offsetting taxes on imports from jurisdictions that refuse to support the needed changes.

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Suppose that a transition towards a global zero-emissions economy by 2050 is indeed technically feasible. That does not mean it is likely to happen as a result of purely economic forces. This is so for two main reasons. The first is that the cost advantages of the decarbonised alternatives are, in many areas, at best modest. These are not (at least not yet) close to being dominant technologies in all relevant areas. The second is that there is always huge inertia in making shifts to new technologies, especially in areas where familiar methods and systems are to be replaced by entirely new ones. We know very well how to run a fossil-fuel economy reliably and at vast scale. A reliable, entirely renewable energy-economy is an unfamiliar beast.

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A global systems transition of this scale will not happen by itself. It will require large-scale policy interventions, via a mixture of regulation, incentives and government-supported research and development. It will require global co-operation and clear recognition of the very different positions — in terms of past behaviour, present responsibility and future needs — of the countries of the world. It will take changes in finance and accounting. It will, in short, take a historic global effort of a kind we have never seen before to avoid a danger that still seems remote to the vast bulk of human beings.

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This does need to be done. But will it be? Ms Thunberg fears our inaction. Mr Trump is one of the reasons why she is right to do so. We have so much to do and so little time.

If we are to succeed in halting climate change, we have to change course now.

BlackRock’s black box: the technology hub of modern finance

Used by rival fund managers, the reach of the Aladdin platform raises possible conflicts of interest

Richard Henderson in New York and Owen Walker in London

© Bloomberg

As toxic mortgage-backed securities tore through the financial system more than a decade ago, the US government turned to Larry Fink, one of their earliest pioneers, for help. Mr Fink made a fortune packaging mortgages together and selling off slices of the combined pools in the 1980s before founding BlackRock, which today stands as the world’s largest asset manager.

As the crisis deepened, Mr Fink spoke to Hank Paulson, US Treasury secretary, more often than some chief executives of the big Wall Street banks, in brief, urgent calls. He offered the Treasury and Federal Reserve a powerful tool to gauge risk in the assets at the centre of the havoc. The arrangement would net BlackRock tens of millions of dollars in government contracts, awarded largely without a tender process, put it at the forefront of the fintech revolution and cement Mr Fink’s standing at the intersection of politics and finance.

At the heart of this exchange was Aladdin, BlackRock’s vast technology platform. The system links investors to the markets, ensures portfolios hold the right assets and measures risk in the world’s stocks, bonds and derivatives, currencies and private equity.

Aladdin’s influence has surged since the financial crisis. Today, it acts as the central nervous system for many of the largest players in the investment management industry — and, as the Financial Times has discovered, for several huge non-financial companies.
WASHINGTON, DC - FEBRUARY 03: U.S. President Donald Trump (C) greets Wal-Mart Stores CEO Doug McMillon (L) and BlackRock CEO Larry Fink at the beginning of a policy forum in the State Dining Room at the White House February 3, 2017 in Washington, DC. Leaders from the automotive and manufacturing industries, the financial and retail services and other powerful global businesses were invited to the meeting with Trump, his advisors and family. (Photo by Chip Somodevilla/Getty Images)
At the intersection of politics and finance: BlackRock chief executive Larry Fink, right, meets US president Donald Trump © Chip Somodevilla/Getty

Vanguard and State Street Global Advisors, the largest fund managers after BlackRock, are users, as are half the top 10 insurers by assets, as well as Japan’s $1.5tn government pension fund, the world’s largest. Apple, Microsoft and Google’s parent firm, Alphabet — the three biggest US public companies — all rely on the system to steward hundreds of billions of dollars in their corporate treasury investment portfolios.

Yet the true reach of Aladdin is unknown outside of BlackRock. The New York-based manager last revealed exactly how much of the world’s assets sit on the system in February 2017, when they reached $20tn. BlackRock told the FT that total assets do not reflect how clients use the system. One former employee says the figure is no longer disclosed because of the negative attention the enormous sums attracted. In the past three years, Aladdin has added scores of new clients, the stock market has gained a third in value and the bond market is 13 per cent larger.

Today, $21.6tn sits on the platform from just a third of its 240 clients, according to public documents verified with the companies and first-hand accounts. That figure alone is equivalent to 10 per cent of the world’s stocks and bonds.

“Aladdin has become a mainstay of the marketplace,” says Peter Kraus, chief executive of Aperture Investors and former head of AllianceBernstein, the $600bn investment group. “It has a huge historic client base.”

Aladdin has fuelled BlackRock’s all-conquering rise by tightening its links with customers and diversifying its revenues. But the platform’s success has opened up new challenges. Competitors are fast developing rival platforms that are taking some of its business. The system’s scale — unparalleled for technology offered by a fund manager — has also created possible conflicts of interest. Most of all, its importance as a fintech hub has raised the prospect of a regulatory backlash.

The world’s most powerful risk management system threatens to become a liability for its owner.

BlackRock has long outshined its peers

After the financial crisis, a US regulatory push sought to label certain large banks and insurers as systemically important. Asset managers were expected to be included in this list, but the larger companies lobbied hard to avoid the decision. They were ultimately successful, based on one single argument — investors who entrust fund managers with their assets technically hold them with one of a small group of specialist banks, so the assets are never on fund managers’ balance sheets.

Platforms like Aladdin were not factored into this decision, but as markets and investing become more reliant on technology the role of these systems could play a role in future decisions.

“Regulators will have to confront this issue as technology becomes more important and intertwined with the investment process,” says Monica Summerville, director of fintech research for Tabb Group, a consultancy. “They are going to have to take a stand.”

Aladdin’s sprawling influence has prompted fears that it, or BlackRock, could act as a chokepoint if either faced a shock — a cyber attack, a rogue line of code or a sudden crisis for the company — destabilising the financial system.

In January, the Financial Conduct Authority, the UK regulator, said the failure of a large portfolio and risk system, like Aladdin, “could cause serious consumer harm” or even “damage market integrity”.

“The industry is becoming reliant on a small number of players such as Aladdin,” says Jon Little, former head of BNY Mellon’s international asset management business. “Yet [regulators] seem reluctant to regulate or intervene to supervise these key service providers directly.”

Robert Goldstein, chief operating officer of BlackRock Financial Management Inc., speaks during the Bridge Forum conference in San Francisco, California, U.S., on Wednesday, April 17, 2019. The event brings together leaders in finance and technology from Asia and Silicon Valley to connect and share insights. Photographer: David Paul Morris/Bloomberg
Rob Goldstein, chief operating officer for BlackRock, says Aladdin’s risk tools are designed to support, rather than replace, portfolio managers © David Paul Morris/Bloomberg

Though Aladdin does not tell asset managers what to buy or sell, some argue that if a large portion of global assets respond to the warnings that Aladdin gives off, trillions of dollars will react to events — such as the outbreak of a pandemic or war in the Middle East — in the same way, causing dangerous herding behaviour. The more investment managers and asset owners rely on Aladdin to gauge risk, the less responsible they become for their portfolio decisions.

This concern was highlighted by the Los Angeles County Employees’ Retirement Association, the $58bn US pension fund, in January. It cited the potential for “groupthink” as one reason it declined Aladdin’s risk capabilities.

“Anything close to an oligopoly in risk management would be especially dangerous if there were any weakness in the system,” says Jim McCaughan, former chief executive of Principal Global Investors, the $476bn fund manager.

Aladdin’s critical role within high-profile companies also makes it a prime target for cyber crime. Ryan Dodd, a former fund manager and founder of risk consultant Cyberhedge, says BlackRock and Aladdin are enticing targets for hackers, including those backed by nation states. “They provide a master key to unlock credentials of thousands of other high-value targets, such as the users of Aladdin,” he says.

BlackRock's tech revenue near $1bn

These risks are compounded by Aladdin’s complexity. Moving on and off the system can take years, because it often entails replacing a range of different systems and users have to contort the way they operate to fit Aladdin’s model. One recent client whose business transitioned to Aladdin over three years likened the process to “changing a tyre while speeding round a racetrack”.

Rob Goldstein, chief operating officer for BlackRock, says Aladdin’s risk tools are designed to support, rather than replace, portfolio managers, adding that rival platforms offer an alternative, negating the idea the financial system was overly reliant on Aladdin.

“Even though it’s a critical piece of infrastructure, there are many critical pieces of infrastructures that clients have in their inner workings,” Mr Goldstein says. “We live in an incredibly competitive environment.”

The scale of BlackRock’s dominance in both the investment industry and in providing its plumbing has led to potential conflicts of interest. As the world’s biggest asset manager, BlackRock is among the top shareholders of most listed companies globally, including many Aladdin clients.

BlackRock is the largest shareholder of Santander, for example, whose asset management unit joined the platform last year, and a major shareholder of HSBC and Credit Suisse, other recent clients. This has drawn concern from rivals that BlackRock’s influence over the companies as a major investor has helped convince them to choose Aladdin, an idea BlackRock rejects.

In some cases, the potential conflicts are multi-layered. BlackRock is the third-largest shareholder in Apple, giving it clout over the tech company’s shareholder votes, while Sue Wagner, a co-founder of the fund manager, is a board member of both companies.

Ms Wagner is also on the board of Swiss Re, another Aladdin client whose former vice-chairman, Mathis Cabiallavetta, is a BlackRock board member. Mark Wilson, former chief executive of Aviva, which uses Aladdin, accepted a seat on BlackRock’s board in 2018 while in his former role. This decision angered the UK insurer’s shareholders who worried it created a conflict of interest, as Aviva’s investment arm competes with BlackRock. He left Aviva six months later and remains on BlackRock’s board.

The State Street Financial Center building located at One Lincoln Street in the Financial District of Boston, Massachusetts on Monday, October 15, 2012. Completed in 2003, it stands 503 feet tall, and is the 15th tallest building in Boston.
State Street bought Charles River, an Aladdin competitor popular with fund managers, for $2.6bn in 2018

Aladdin — which stands for asset, liability, debt and derivative investment network — began as a simple ledger for bond portfolios shortly after BlackRock was founded in 1988. As it grew, BlackRock extended its use for certain clients. The first was General Electric, which in 1994 was selling Kidder Peabody, the beleaguered brokerage, but was unsure how to price the assets on its balance sheet. A series of similar one-off arrangements eventually led BlackRock to offer Aladdin as a product in 2000.

“When we did Kidder Peabody, it was an X-ray machine,” says Mr Goldstein. “When we had the opportunity to work on the most recent [financial] crisis, it was an MRI machine.”

The system has expanded rapidly. BlackRock’s 2015 deal to acquire FutureAdvisor spawned an offshoot of the platform for financial advisers today used by Morgan Stanley and UBS.

BlackRock also offers a version of Aladdin for custody banks, including BNY Mellon, that safeguard assets managed by fund groups like BlackRock. Last year, BlackRock acquired eFront, a private equity tech platform, for $1.3bn, extending Aladdin’s reach into less liquid assets.

Powerful trends have buffeted Aladdin’s rise. Investing has become more electronic and reliant on big data. As the tools that process the information have become more complex, investors, fund managers and insurers have turned to larger platforms such as Aladdin to replace multiple specialised systems. 
BlackRock, Tech revenue as % of firm-wide revenue

Aladdin’s growth is reflected on BlackRock’s balance sheet. Technology revenue, dominated by Aladdin, hit $974m last year, just 7 per cent of the company’s total, but among the firm’s fastest growing areas. Analysts at Morgan Stanley predict this revenue will more than double in the next six years.

Mr Fink has said he wants a third of BlackRock revenue to come from technology by 2022.

This includes money from Aladdin but also fees from funds that clients select on the platform.

The company offers discounts to institutions that invest in BlackRock funds and sign up to Aladdin.

Aladdin’s income, locked up in steady, multiyear contracts, diversifies BlackRock’s income away from the fees it charges on assets, which dip during a market downturn.

Apple, Microsoft and Google — the three biggest US public companies — all rely on Aladdin to steward hundreds of billions of dollars in their corporate treasury investment portfolios

“It’s the tech subscription model that investors love,” says Kyle Sanders, an analyst at Edward Jones. “It’s not sensitive to the market.”

Aladdin’s dominance has attracted heightened competition. State Street, which runs $3tn of assets, bought Charles River, a popular platform for fund managers, for $2.6bn in 2018. It has since signed up four new clients, including Lazard Asset Management.

Dimension, a platform from Copenhagen-based SimCorp, has also won a series of US clients, including the World Bank, and has a stable of European users, such as the investment units of Axa and UBS.

In January, MSCI, an analytics provider, paid $190m for a minority stake in Burgiss Group, which specialises in private asset data. The deal is a direct response to Aladdin’s push beyond stocks and bonds.

So far, BlackRock has conceded little ground to competitors, despite some offering cheaper and more flexible terms. Just one big client has publicly defected so far, the Italian fund house Pioneer when it was bought by Amundi, the €1.6tn French manager.

“We chose to have complete control of our software,” says Yves Perrier, chief executive of Amundi, Europe’s biggest investment group. “I don’t want to be dependent on a competitor.”

Fink vs Ranieri: Wall Street rivalry was genesis for risk platform

In 1986, Larry Fink led the mortgage department of First Boston, a large investment bank, and was on track to become its chief executive. Then, he lost $100m and was soon pushed out. Mr Fink had joined a decade earlier as a graduate trainee and rose rapidly. He generated hundreds of millions of dollars in part by selling mortgage-backed securities, but then made a fateful error. He misjudged a fall in interest rates, which allow mortgages to be repaid quicker, reducing their value to investors.

The tale has become an origin story for Mr Fink’s second act at BlackRock and the genesis of its risk platform, Aladdin. But he leaves out one crucial detail.

The scale of the loss was driven by his desire to beat his counterpart at Salomon Brothers, Lewis Ranieri. Mr Ranieri was later immortalised as a “big swinging dick” by Michael Lewis in Liar’s Poker, and was aggressively selling mortgage-backed securities. As the rivalry deepened, Mr Fink issued more than First Boston could sell, ending up with a large inventory on its balance sheet that would lose value when rates fell.

For Mr Fink the episode proved the need for a portfolio management tool like Aladdin to assess risk. It also reveals the competitive drive behind Mr Fink and the group of First Boston colleagues who left to found BlackRock, many who remain today.

“These are dynamite business people,” says one former First Boston colleague. “They can smell blood up the river.”

Here Comes The Torrent Of Free Money

Calling the world’s governments unprepared for Covid-19 is to laughably understate the case.

They apparently hadn’t even considered the possibility of a pandemic shutting down the global economy, and had zero contingency plans for dealing with either the physical or financial impact.

Now they’re making it up as they go along.

Among the offers currently on the table:

Japan is providing loans to businesses hit by the sudden evaporation of travel, sports and trade.

The US raised its repo market funding and proposed small business loans and tax relief.

Europe held interest rates steady while boosting QE modestly.

Australia is giving low-income citizens stipends of $750.

The markets, not surprisingly, are appalled by the modesty of these plans and are melting down.

Pretty much everything that can be sold is being sold.

Which means today will see a flurry of conference calls in which the ECB, BoJ, Fed and their elected officials try to hammer out a coordinated shock-and-awe policy to keep the patient from bleeding out.

In a hyper-financialized world, the only remaining tools are variants of easy money, so that’s what is coming. But since “easy” may not do it, expect the money to be free this time. Forget about the loans the US and Japan have mentioned and look instead to Europe (more financial asset purchases) and Australia (direct payments).

The Bank of Japan is already a big buyer of equities, for instance. But the Fed will soon be the biggest. Here are former Fed chair Janet Yellen’s thoughts on the subject:

Janet Yellen Suggests Strengthening The ‘Fed Put’
In a speech in Hong Kong this week, former Fed chair Janet Yellen stated that “global central banks don’t have adequate crisis tools.”  
According to that logic, she believes that launching additional multi-trillion dollar rounds of quantitative easing and cutting interest rates into negative territory – two aggressive and controversial monetary tools that are currently available – are simply not enough. 
Yellen’s comments this week echo comments that she made in September 2016 when she was still Fed chair: 
The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday. 
The Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.” 
“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said.
As for direct payments to citizens, businessman/presidential candidate Andrew Yang generated a surprising amount of buzz in the Democrat primary by proposing a $1,000 per month payment to every American adult.

From his campaign page:

The Freedom Dividend, Defined 
In the next 12 years, 1 out of 3 American workers are at risk of losing their jobs to new technologies—and unlike with previous waves of automation, this time new jobs will not appear quickly enough in large enough numbers to make up for it.  
To avoid an unprecedented crisis, we’re going to have to find a new solution, unlike anything we’ve done before. It all begins with the Freedom Dividend, a universal basic income for all American adults, no strings attached – a foundation on which a stable, prosperous, and just society can be built.

There’s no need to debate the (glaring and potentially catastrophic) downsides of governments buying up the private sector and/or depositing trillions of dollars in random bank accounts.

Those risks are in the future and the crisis is at the door.

The more interesting question is: will these things work?

A pandemic, after all, is a physical rather than financial crisis, and it’s unclear how an extra thousand dollars a month or a modestly bigger stock portfolio will convince people to fly or book cruises or stand in line at Costco when such activities carry a potential death penalty.

But we’re apparently going to find out.

How China’s Incompetence Endangered the World

As the deadly coronavirus began to spread, Beijing wasted the most critical resource to fight it: trust.

Chinese President Xi Jinping inspects prevention and control work against the new coronavirus in Beijing on Feb. 10.
The novel coronavirus epidemic has reached a critical juncture. Steps taken over the next few days, particularly by Beijing’s leadership, will decide the fate of the virus and whether it spreads internationally to become a genuine pandemic. Time is short for the Chinese government to prevent a catastrophe.
Are China’s official reports, including claims that its control efforts are succeeding and the epidemic will soon peak, credible? Omens look bad. Once praised by the World Health Organization (WHO) and scientists worldwide for its quick, transparent response to the newly named COVID-19, China now faces international vilification and potential domestic unrest as it blunders through continued cover-ups, lies, and repression that have already failed to stop the virus and may well be fanning the flames of its spread.
Since the epidemic came to the world’s attention in early January it has been marked by startling moments when China’s health authorities announced dramatic surges in apparent cases of the disease, none more surprising than the sudden Feb. 12 adjustment that saw case numbers in Hubei province swell by 14,840 in a single day, pushing the national total to 59,804 cases.
The adjustment, according to government officials, was due to a widening definition of the disease for just one place, Hubei Province, while authorities continue to limit their COVID-19 case descriptions elsewhere in China by a prior approach, counting smaller numbers.
The pneumonia death last week of China’s real epidemic hero, the ophthalmologist Li Wenliang, has revealed the ugliest side of the Chinese Communist Party (CCP) and its terrible effort to rewrite the history of a seemingly out-of-control epidemic. Li treated patients in December in Wuhan, where the outbreak originated, who looked like SARS cases, he told colleagues on Dec. 30 via a doctors’ social media chatroom.
Days later, for the so-called crime of rumormongering, Li and seven other physicians were brought before China’s security police and compelled to sign a document admitting to “spreading lies.” For days, Wuhan authorities sought to stifle Li’s voice, but even after he caught the virus while treating his patients and was confined to an intensive care unit bed, he continued to sound epidemic alarms on the BBC World Service.
On Feb. 6, the once-robust 34-year-old physician died. Li’s death opened the gates of political rage across China, sparking an unprecedented outpouring of grief and outrage, denouncing the government cover-up.
Some China watchers have likened the coronavirus crisis for Chinese President Xi Jinping to the threat the Chernobyl nuclear meltdown in 1986 posed to Mikhail Gorbachev’s hold on the Soviet Union. Others have likened the young martyred physician’s brave truth-telling to the legendary “Tank Man,” an anonymous citizen who stood, grocery bags in hand, before a line of Chinese tanks, blocking their entry into Beijing’s Tiananmen Square and their use to quell the 1989 pro-democracy student protests.
As the China expert Bill Bishop wrote last week in his daily Sinocism newsletter, “The Party’s social contract with the people—ensuring the people’s well being and providing ever-increasing economic prosperity—is being stressed on a nationwide level in ways I don’t recall in the past several decades.” He added: “Last Friday I wrote that ‘this is as close to an existential crisis for Xi and the Party that I think we have seen since [the Tiananmen massacre of] 1989’, and I think it is even more so a week later.”
Just before I read Bishop’s assessment, I did a CBS News podcast with my former Council on Foreign Relations colleague Elizabeth Economy, one of the world’s top experts on Chinese politics. She, too, labeled Li’s death and apparent splits inside the CCP over how best to handle the epidemic as the most significant threat to his power Xi has faced and a critical test of the viability of the entire current leadership of the CCP.
No leader since Mao Zedong has consolidated as much power and control as Xi, which leaves China’s leader vulnerable to blame in times of catastrophe.
This is much more than inside-baseball Chinese politics. It matters deeply for businesses wondering how long the pain of China’s shutdown will last and for public health leaders worried about how they might handle the coronavirus should it spread inside their countries, states, or cities.
It has spilled over onto WHO Director-General Tedros Adhanom Ghebreyesus, who has faced sharp criticism—even a recall petition—for his meetings with Xi and other Chinese leaders and his apparent reluctance to declare the outbreak a global health emergency.
For his part, Xi disappeared from public view the day after his January 27 meeting the WHO’s Ghebreyesus, not to be seen again for twelve days, when he briefly strolled through the Chaoyang district of Beijing, wearing a medical mask.

The political crisis in China is prompting global concern about the reliability of epidemic data released by the Chinese government, the usefulness of Chinese guidance regarding how the virus is spread and who is at risk for death, and the measures best taken to protect health care workers from falling victim to the disease they are trying to treat. Since the first Dec. 30 announcement of a new disease in Wuhan, the CCP has woven a tapestry of narratives, primarily for domestic political purposes, aligning official case and death numbers with the storylines.

Meanwhile, the international health community, from WHO all the way down to academic statisticians and infectious diseases analysts, has tried to infer from the dubious official daily tallies just how dangerous the coronavirus disease may be for the rest of the world.

The bottom line is trust, which appears to be waning inside China and is increasingly unraveling across the public health world. An epidemic cannot be fought and won unless the bonds of trust between governments and people can survive the grief, confusions, emotions, and medical challenges of the battle. The Chinese government, in its negligence, has jeopardized those bonds, perhaps beyond all repair.

A security guard sits outside the closed Huanan Seafood Wholesale Market, which was linked to cases of coronavirus, in Wuhan, China, on Jan. 17.
A security guard sits outside the closed Huanan Seafood Wholesale Market, which was linked to cases of coronavirus, in Wuhan, China, on Jan. 17. Getty
Between early December and Jan. 19, the chief Chinese Communist Party narrative from local officials in Wuhan, the epicenter of the epidemic, was that a very small number of people connected to a local live fish and animal market had become infected with a new virus, causing a few to be hospitalized with pneumonia. Whatever the cause of the sicknesses, it was not SARS or anything like SARS. All released data conveniently suited that narrative. Anybody who, like the physician Li, hinted at facts that countered the narrative was suppressed.
After the official announcement of the new disease on New Year’s Eve, a second narrative took flight, which argued that shutting down the live animal market had effectively eliminated the spread of the disease, as there was no evidence of human-to-human spread of the virus. For two weeks, the official case numbers barely budged and even decreased to 41. The message to the Chinese people was that there was nothing to worry about, local police and health officials had stopped an outbreak, job well done—a scenario accepted by WHO.

Throughout those two vital weeks—time when aggressive control efforts might have stopped the outbreak—the virus was spreading completely independently from the animal market, as it had been since at least mid-December. Throughout December and early January, about half of the coronavirus cases in Wuhan were entirely independent of the animal market, and the epidemic was doubling in size weekly. Researchers at Imperial College London reckoned that 1,723 people in Wuhan were infected by Jan. 12.

As international anxiety, doubting the containment narrative, grew, and evidence of human-to-human transmission of the virus became undeniable, Xi took steps to flush out information. Around the same time, a high-level CCP committee posted a WeChat message (later deleted) that denounced functionaries and bureaucrats who might be suppressing epidemic information, warning, “Whoever deliberately delays or conceals reporting for the sake of their own interests will be forever nailed to history’s pillar of shame.”

Not surprisingly, the official narrative suddenly changed, as did the tally of cases and
deaths, quadrupling to 198 cases on Jan. 19. In the new narrative, the animal market was no longer mentioned, and Wuhan’s leaders poked fingers of blame at one another for pushing the prior story and put huge sections of the city of 11 million on lockdown. But with the Lunar New Year holidays approaching, and rampant fears of quarantine, millions of Wuhanese abandoned their city, fanning out to traditional family villages and other cities throughout China—many, unknowingly, taking the virus with them.

Drawing from its SARS 2003 playbook, the Chinese government put the entire nation on a range of lockdowns, with Wuhan cut off from the rest of the world physically and, as would increasingly be the case for dissident and critical voices, also from the virtual world.
Lunar New Year travel was discouraged; the holiday was lengthened nationwide to minimize the spread of the virus in schools and workplaces; and throughout Hubei province and neighboring regions, some 100 million people were encouraged to self-quarantine, staying inside their apartments and homes.

The virologist Guan Yi of the University of Hong Kong (HKU) warned that the containment strategy might fail and that a bigger outbreak was certain, which he said could conservatively be 10 times bigger than the SARS epidemic, meaning more than 8,000 cases.

Scientifically, the containment strategy rested on a crucial assumption: The virus could spread from one person to another only if the source had a fever. Temperature checkpoints were thus erected across the nation, along highways, at entrances to large buildings, at all points of transit, even in the hands of police patrolling urban streets hundreds of miles away from Wuhan. Trains, airplanes, buses, and highways were shut down entirely. By identifying every single person in China who was running a fever and placing them in quarantine, the virus would no longer spread, and soon the epidemic would be over.

But by Feb. 3, there was evidence that people who had no fevers, only mild forms of coronavirus illness, could pass the virus to others.

And one such person might infect two—even four—other people. Not only could the virus spread through cough droplets, saliva, or nasal fluids, but feces also tested positive for contamination, raising the specter of oral/fecal transmission via handled, uncooked food. Worse, the duration of this mildly symptomatic, potentially infectious incubation period might be very long—up to 24 days.

Suddenly, the coronavirus didn’t look much like SARS, which had an incubation time of about three days and was only infectious from febrile individuals. No, this new virus looked more like influenza, which can be spread from a person with no symptoms to another via a handshake or shared airspace. But even then, the comparison fails because few people incubate flu for more than 24 hours, much less 24 days.

By late January, Wuhan was a ghost town, with hardly a person or vehicle to be seen, its entire population having either deserted the city or hunkered down in homebound quarantine. Yet the virus continued to claim new victims, and Xi warned the nation of its “accelerating spread.” As the containment narrative proved fallible, and cities beyond Wuhan began to experience the frightening spread of the disease, the CCP turned to another familiar playbook: elevating the police state.

Overnight, gymnasiums, sports arenas, hotels, university dormitories, convention centers, and other large facilities were transformed into holding centers in which thousands of beds were placed in long rows and food, toiletries, and regular fever checks were provided to the thousands of people placed under quarantine inside.
There was no question that these weren’t hospitals—many held within these makeshift quarantine facilities complained that they were never tested for infection but were warehoused and compelled to share shower and toilet facilities with hundreds of other, possibly infected, people.
Workers set up beds at an exhibition center that was converted into a hospital in preparation for coronavirus patients in Wuhan on Feb. 4.
Workers set up beds at an exhibition center that was converted into a hospital in preparation for coronavirus patients in Wuhan on Feb. 4. STR/AFP via Getty Images

As anxiety rose, Xi tried to shift blame, naming to head up the epidemic response and dispatching Premier Li Keqiang to Wuhan. Xi lashed out against “untruthful speech,” focusing on those who were using Weibo and other social media to cast doubts on the containment policy and bemoan their confinements. And he forwarded an added narrative, blaming the U.S. government for China’s plight.

On Jan. 30, the same day that WHO declared the epidemic a public health emergency of international concern, Secretary of State Mike Pompeo issued a travel advisory to Americans, warning against visiting China. During the first week of February, the restrictions placed on U.S. airlines, airports, Chinese immigrants, travelers reentering the United States, and trade in key goods between the nations mounted.

By Feb. 3, hospitals all over China were reporting shortages of test kits, forcing a large reduction in diagnosis and the reporting of cases. A medical academic and a member of the high-level expert team put together by the Chinese National Health Commission warned: “Early detection, early diagnosis, early isolation, and early treatment cannot be done in Wuhan at this time. I hope that the country will support Wuhan.”

That same day, the Standing Committee of the Political Bureau of the CCP Central Committee held a meeting, formulating a new narrative: that the epidemic was out of control because of poor management. The CCP would now lead a “people’s war” against the virus, clamping down even harder on quarantines and rumors.

The epidemic ought to be easy to control, given 80 percent of its victims were over 60 years of age, 75 percent had bodies weakened by some other health condition, and, curiously, very few were children and 66 percent were men, according to the new official datasets.

In a plea for patriotism, the CCP urged people to identify ailing neighbors and turn them into authorities. Eventually, in at least one town, payments were promised, equivalent to about a third of an average Chinese adult’s monthly income. The identified were removed—sometimes forcibly—from their homes and placed in makeshift field hospitals set up in schools and sports facilities. As international experts questioned whether the virus could be stopped, Beijing threw more resources to the warehousing of suspected cases and hospitalization of those with pneumonia. 
But by Feb. 5, the funeral parlors and crematoriums were reported to be having problems keeping up with the disposal of the dead in Wuhan. Though no data was provided to address the matter, Wuhan’s lockdown was endangering not only the lives of coronavirus-infected individuals but also those of thousands of people who required medications and occasional treatment for such things as HIV infection, kidney disease, diabetes, and hypertension. Hospitals no longer welcomed them, medicines were running out, yet there is no count of their numbers or deaths.

Across Hubei, hospitals were by the end of the first week of February running out of beds, respirators, and oxygen and pneumonia support equipment. As more cities saw their case numbers soar, they followed Wuhan’s lockdown and quarantine strategy. On Feb. 14, China’s National Health Commission finally acknowledged the toll COVID-19 was taking on healthcare
workers, saying 1,716 of them had been infected on the job, and six had died of the pneumonia disease.
A photo of the late ophthalmologist Li Wenliang rests among bouquets at the Houhu Branch of Wuhan Central Hospital on Feb. 7. A photo of the late ophthalmologist Li Wenliang rests among bouquets at the Houhu Branch of Wuhan Central Hospital on Feb. 7. STR/AFP via Getty Images

Then, on Feb. 6, Li Wenliang died of the coronavirus disease, sparking an outcry from across the nation, filled with undeniable rage. The government responded to the outpouring of grief and anger by censoring social media posting and blocking accounts. Cecilia Wang—a Shanghai-based reporter for the Economisttweeted in real time a scrubbing operation unfolding on Chinese social media, as comments about the government’s handling of the epidemic were erased from digital history.

On Feb. 8, it was reported that Xi had appointed his protégé Chen Yixin, a man with no medical or scientific background, as second in command of the team in charge of handling the epidemic crisis in Hubei. Chen’s expertise is law enforcement, and he heads China’s most powerful domestic security commission. As Chen swept into Wuhan, heads rolled among the preexisting Hubei and Wuhan epidemic leadership.

On Feb. 9, the official numbers showed a slowing in new case reports—a trend that would persist until the enormous Feb. 12 spike in numbers. During this three-day window, two new narratives emerged. First, that the epidemic had reached its peak. And second, that it was time for the nation to get back to work, restoring the Chinese economy.

But stability was hardly anywhere to be found across the country. In one of the hardest-hit cities in China, Huanggang, the local CCP leader said the municipality could test only 900 people a day. A citywide search identified 13,000 fever patients. Fatality rates, according to the Chinese Center for Disease Control and Prevention (CDC), varied across the nation, with 4 percent of those sick with the coronavirus disease dying in Wuhan and 5 percent of cases proving lethal in Tianmen. But it was difficult to ascribe credibility to those estimates because nobody really knew the baseline—how many people were infected. Not only were too few people getting tested, but the diagnostic kits were so difficult to execute properly that there was a false negative rate as high as 50 percent, meaning some labs were missing half of all infections.

As the makeshift quarantine facilities filled, questions arose about their safety, as people were stacked side by side and shared toilet facilities. There was clear evidence that the coronavirus disease could be spread via feces or the off-gassing from overused toilets and taxed plumbing.
On Feb. 10, Xi sacked two of Hubei’s top health officials, amid claims that the virus could sicken 5 percent of Wuhan’s population, or half a million people. Three days later, Hubei’s party secretary was replaced by a Xi loyalist.

A train attendant gestures support to medical staff as they leave for Wuhan in Nanchang, in China's Jiangxi province, on Feb. 13.
A train attendant gestures support to medical staff as they leave for Wuhan in Nanchang, in China’s Jiangxi province, on Feb. 13. STR/AFP via Getty Images

Wu Zunyou is the chief epidemiologist for China’s CDC, ultimately responsible for estimating and counting the toll of the coronavirus epidemic. On Feb. 13, he spoke with Howard Bauchner, the editor in chief of the Journal of the American Medical Association, defending the accuracy of China’s epidemic numbers. Admitting that diagnostic kits were in short supply and could be difficult to use, he nevertheless insisted that the epidemic was winding down. As more of the infected come to the end of their incubation periods, Wu argued, transmission will slow, and it will be clear that China’s control methods have, indeed, worked.
Robert Redfield, who heads the U.S. Centers for Disease Control and Prevention, told CNN this week that he was far less optimistic. “Right now we’re in an aggressive containment mode,” Redfield said. “We don’t know a lot about this virus. This virus is probably with us beyond this season, beyond this year, and I think eventually the virus will find a foothold and we will get community-based

In Geneva this week, some 400 top infectious diseases experts gathered to help WHO solve the many mysteries that still surround the virus. One of them was Hong Kong University’s Gabriel Leung, who does not think China’s strategy will succeed and fears that as schools reopen and millions of people return to Wuhan and other locked-down cities, the virus could, once again, surge. And it could spread far beyond China’s borders, possibly infecting more than 60 percent of the world population.

The new coronavirus could spread far beyond China’s borders, possibly infecting more than 60 percent of the world population.

Even if the coronavirus disease kills only 1 percent of its victims, 1 percent of 60 percent of 7 billion people is a staggering death toll, placing the coronavirus alongside the three biggest pandemics of human history—the 14th-century plague, the 1918 influenza, and the current HIV/AIDS toll.

I prefer to believe that humanity will contain the coronavirus to a far less horrible level for long enough to develop an effective vaccine. But this will require a massive effort over long stretches of time. Novel vaccines require years of research and testing.

Unfortunately, China is showing how all this can go wrong, making a crisis into a catastrophe. Xi’s government has provided the world with reams of data, but their credibility, or lack thereof, is inextricably bound to the CCP’s methods of governance, censorship, intimidation, and toadyism. The rest of the world is left to prognosticate and prepare without really knowing what havoc the coronavirus enemy is capable of wreaking.

Laurie Garrett is a former senior fellow for global health at the Council on Foreign Relations and a Pulitzer Prize winning science writer.