CNN QUEST MEANS BUSINESS
28 FEBRUARY 2020
SUBJECTS: Coronavirus, financial markets
JOURNALIST: Kevin, when you look at the market reaction – the Dow right now down almost 700 points or so – is that an overreaction? Do you think that’s a proportionate response given the actual risk here?
KEVIN RUDD, ASIA SOCIETY POLICY INSTITUTE PRESIDENT: Well having been Prime Minister of Australia during the global financial crisis I’ve seen some of these things before. Last week we had what I’d describe as irrational market exuberance. This week I think we have irrational market panic.
John Maynard Keynes warned us of the animal spirits – well I think the animals have been out to play today and yesterday and the last few days and some of them need to be put back in the zoo, in my view, behind a very strong enclosure. Because markets are supposed to be in the business of pricing risk and opportunity, and when I look at the objective set of risks –
JOURNALIST: This is more about the incertainty.
RUDD: That’s true.
JOURNALIST: So much is unknown.
RUDD: Yeah. And uncertainty is the key subset of risk here, what we don’t know as opposed to that which we do. If I go through the categories of risk here, what are they? One is what do we know about the virus and its transmission rate within China and beyond? Second is what’s the real objective impact on the number two economy in the world that is China? And number three the economic contagion, if you like, through global supply chains plus any indigenous problems which arise from a large outbreak within economies like Italy or economies like the United States if things were to go wrong here.
All I would say is in each of those categories of risk, the datapoints we have so far are very mixed. These are not all disastrous datapoints, they are mixed datapoints and hence my overall argument is that the animal spirits have just gone ‘aagh!’.
JOURNALIST: When you think about companies like Apple, companies like Nike talking about supply chain disruptions – Apple is saying they’re being hit twice, not just because of supply chain disruptions, and that’s significant, but also because they cater to a large Chinese market and demand within China is also, they’ve reopened half their stores, but demand within China for them is suffering as well. Do you think this will lead to perhaps the re-thinking of supply chains, the re-thinking of American companies so heavily interlinked with China? And if they do rethink that, what are some of the other countries in Asia that could benefit?
RUDD: Well they may well do that and, as you know, the top on the basis of the US economic tensions of the last two years, particularly in the trade war and the technology war there was already the beginnings of both discussion and action in those areas.
But on this coronavirus crisis, let me go back again to these questions of measurable risk. All I would say is, to take an example you’ve just raised, within China itself, how is demand going to go beyond the first quarter which will be a very bad quarter in Chinese growth. The data I pick up from Chinese corporates when I pick up the telephone and talk to CEOs is very mixed across the country. In western China, in Sichuan province – China has 100 million people out there – a chap I spoke to today, 100 per cent back to work. Someone I spoke to in Shenzhen, 20 per cent back to work. National average, 62 per cent back to work. More adversely affecting the service industry, which is more people-intensive. Manufacturing less so depending on where you are in the country. All I’m saying is this is a variegated risk and not a uniform, basically slide into oblivion.
So I think therefore when companies look at this and policymakers look at this, they need to actually have a slightly more calm approach to see that there are measurable downsides, there are appreciable emerging upsides in all of this and therefore there a more balanced approach is necessary.
JOURNALIST: You were Prime Minister of Australia. What do you make of the governmental response to this from various governments, the Italian government, the US government, the Chinese government?
RUDD: Well let me not comment on individual government responses, but let me look at it systemically. Part of the problem with risk as seen from a marketperspective is, shall I say, the market’s conclusion of the solidity and solidarity of intergovernmental responses to what is plainly a global challenge and potentially a global crisis.
So if I happened to be in office today, what would I be doing? I’d be on the phone to the President of the United States, as I was multiple times during the (global financial) crisis, to the other G20 heads of government saying ‘hey guys and girls, I think it’s time, given what markets are saying to us, that we convene the G20 health ministers, the G20 finance ministers and the G20 heads of government, so that we present clearly and in a concerted form that we are together on this as the world’s biggest economies, here is our combined healthstrategies for dealing with it and, by the way, if stimulus is necessary through monetary and fiscal policy intervention, here are our collective tools in the toolbox.
And that, in my recollection, in the March G20 summit of 2009 is what finally stabilised markets given mayhem of the previous six months or so. So I’d say to colleagues in the political process: it’s hard, you’re looking but through a glass dimly, there’s lots of fog of war here, but I think that would help stabilise.
JOURNALIST: A coordinated response. Alright, Kevin Rudd, thank you very much. I appreciate it.