The continued strength of the iron ore price is surprising, given the collapse of oil, which traders have recently been willing to pay buyers for if they’ll agree to offload full tankers.

Oil and iron ore are the two most basic commodities of industrial economies and, through much of their history, their prices have moved in tandem along with the underlying health of global industrial production.

But iron ore has been holding comfortably above US$80 a tonne throughout the Covid-19 crisis, delivering a continuing run of fabulous profits to Australia’s big miners, BHP, Rio Tinto and Fortescue, which can all dig it up at a cost of less than US$15 a tonne.

The current price is about 35% higher than the federal government expected when it cast its mid-year budget outlook last December.

The short explanation for iron ore’s strength is China. China buys almost three-quarters of all seaborne iron ore and is the dominant influence on prices. China is seen to have emerged from the public health crisis and there’s an expectation the government will respond to lingering weakness in its economy with public spending on infrastructure that will boost steel demand.

By contrast, China accounts for only around 14% of the global oil market, which has abruptly contracted. The International Energy Agency estimates oil demand globally will be down 6% this year, equivalent to subtracting India’s entire consumption.

With the Covid-19 crisis still acute across the major Western economies, it is too soon to know what the global economy will look like on the other side of it.

It may be that once social-distancing restrictions are eased, everyone will go back to eating at restaurants and then, once travel is allowed, resume their long-delayed holidays and business trips. It will all pass like a bad dream. A pointer in that direction is that cruise ship operator Carnival, which in many ways epitomises the reputational damage from the Covid-19 crisis, is taking bookings for ships departing Sydney in August.

But a more pessimistic scenario of a long-lasting downturn in global demand cannot be discounted. Unemployment will remain high, banks will face large debt write-offs and will be reluctant to lend, and companies will defer investment decisions.

The backlash against globalisation that has been building since the 2008 financial crisis may intensify, with the renewal of hostilities between the United States and China and pressure on companies to repatriate their supply lines. The World Trade Organization has forecast a fall in trade this year of anywhere from 13% to 32%. The post-Covid-19 world could be more like it was in the 1930s, when trade halved as a share of global GDP.

The resilience of the Chinese economy and its demand for commodities would be severely tested. The modernisation and development of the Chinese economy over the past 30 years has been driven by globalisation and the rapid growth of world trade. China has had some success in reducing its dependence on exports and fostering domestic consumption, but trade still underpins its manufacturing industry and it looks troubled.

In the first three months of the year, China’s exports to the US were down by 25% and its sales to the European Union were down 16%. Bigger falls are likely in the second quarter.

To some extent, the strength of the iron ore price relative to oil is a function of the leads and lags in the respective supply chains. Oil storage is limited and, if the producing nations keep pumping it at a faster rate than consumers are using it, the available space fills to the brim. The oil market is at that point.

By contrast, China’s manufacturers, construction companies, traders and producers all keep stocks of steel, and prices have been supported by buyers adding to inventories in anticipation of a revival in economic demand. The latest readings on Chinese industrial production for April show that, while businesses are slowly getting back to work, the loss of export markets is reducing overall output.

As is well understood, China’s appetite for Australian commodities has underwritten our prosperity for the past 16 years. The resource sector now accounts for almost a quarter of all business capital stock, double its share in 2004 when the great boom began.

This has made Australia the pre-eminent supplier of mineral and energy resources to the world. The high cost of Australian labour has been more than offset by the world-beating efficiency of our resource companies, by the intrinsic quality of the reserves they exploit and by the strength of Australian governance. Those attributes have been rewarded with prices that have been higher for longer than at any point in Australia’s history.

An economic variable that has a big impact on living standards is the ‘terms of trade’, or the prices we receive for our exports versus the prices we pay for our imports.

During the technology boom of the late 1990s, the prevailing wisdom was that Australia had backed the wrong horse: the technology we imported would go up in value while the resources we exported would go down. As treasurer, Peter Costello was advised to subsidise the construction of an Australian microchip plant to shift the balance.

But the China-led resource boom meant that the average price for Australia’s exports since 2004 has been about 60% higher relative to the average cost of imports than was the case over the preceding 20 years. This has helped to sustain strong growth in living standards in Australia despite relatively poor productivity.

The long-term history—and there’s good data going back to the 1870s—is that booms in the terms of trade are followed by busts. Export prices drop well below their long-term average (relative to import prices) before returning to it.

Reserve Bank of Australia analysis of terms of trade booms and busts over the past 150 years shows that downturns are associated with weak per capita income growth and high unemployment and that it’s typically around five years before income growth recovers.

While the future is in flux, policymakers should be considering this as one of the potential outcomes from the crisis.

One point that should be made is that a sustained fall in iron ore prices would not be accompanied by a reduction in China’s demand for Australian supplies, which have the lowest production costs. In any commodity, prices will only fall as the highest cost producers are knocked out of the market. In iron ore, the highest cost producers are China’s own.

If China’s demand falls, it will be China’s iron ore mines that are rendered uneconomic and forced to close, while its dependence on seaborne trade will increase.

As the novel coronavirus has spread from its original epicentre of Wuhan into a global pandemic, China’s ruling communist party is pushing a new narrative.

After some initial missteps by local officials, this narrative goes, the central government took charge and defeated the virus with tough, resolute measures. Western countries are now suffering because of their lax response and the inferiority of their cacophonous democratic systems compared with China’s one-party model. Other countries should learn from China’s success, and the Middle Kingdom is now generously sending expertise and badly needed equipment to the hardest hit places. China’s healthcare workers are heroes. And by the way, the virus may actually have originated with the US military, not in China.

It’s a message being slavishly promoted in the party-controlled state media, parroted by Chinese diplomats around the world, and perhaps even believed by a significant percentage of Chinese citizens subjected to decades of brainwashing by relentless propaganda and an education and indoctrination system that extols the virtues of party rule.

But around the world, this narrative is being met with derision and outright hostility.

The alternative narrative, gaining increasing currency, is that China’s central leadership in Beijing knew early on about the severity and extent of the mysterious new virus in Wuhan and lied to the world in a massive cover-up. In those early crucial days, China barred experts from the World Health Organization and the US Centers for Disease Control and Prevention. President Xi Jinping received a grim assessment on 14 January about the Wuhan virus becoming a pandemic, according to reporting by the Associated Press, but the public was not warned until a week later. The late January lockdown of Wuhan came far too late, after more than half the city’s 11 million residents were allowed to leave for the Lunar New Year holiday.

Even now, according to this view, China’s leaders continue to lie and to obfuscate. Many believe China’s death toll from Covid-19 is far higher than the country is willing to admit, and that people with virus symptoms are simply no longer being tested. Most new infections are being blamed on ‘imported’ cases from abroad, even though the vast majority are Chinese nationals returning home from overseas.

The deliberate implication is that foreigners are now carrying the virus, stoking Chinese nationalism, xenophobia and racism, evidenced by the sickening scenes of Africans in Guangzhou being forced from their apartments or locked into forced quarantine. Some restaurants, including McDonald’s, displayed signs saying black people would not be allowed inside.

The coronavirus controversy, and Chinese diplomats’ ham-handed triumphalist tone, now threaten to disrupt the world’s relationship with China for years to come, long after the immediate crisis has abated. The country’s carefully cultivated global image, backed by huge infrastructure projects like its Belt and Road Initiative, will take a heavy blow.

Leaders of countries long friendly to China because of economic concerns—and willing to turn a blind eye to its atrocious human rights record and abuses like holding a million Muslim Uyghurs in concentration camps—are demanding Beijing be held to account.

Australia’s foreign minister, Marise Payne, called for an independent investigation into the Chinese origins of the virus and how it spread. German Chancellor Angela Merkel and French President Emmanuel Macron called on China to be transparent about the virus.

In the US, President Donald Trump, already embroiled in a trade war with China, hinted the virus may have been spread purposefully while calling for a probe. ‘If it was a mistake, a mistake is a mistake. But if they were knowingly responsible, yeah, then, sure, there should be consequences’, Trump said. He had earlier announced a suspension of US funds to the WHO pending an investigation of its dealing with the early stages of the outbreak, when officials praised China’s response and advised against travel restrictions.

In Africa, Obiageli ‘Oby’ Ezekwesili, a former vice president for Africa for the World Bank and a former Nigerian cabinet minister, wrote an op-ed in the Washington Post demanding China pay compensation to African countries for the virus, including a complete write-off of US$140 billion in debt. ‘China should demonstrate world leadership by acknowledging its failure to be transparent on Covid-19’, she wrote.

This came after several African foreign ministers summoned the Chinese ambassadors in their countries to decry the inhumane treatment meted out to black Africans in Guangzhou, something that prompted a tough video rebuke to Xi from a former African Union ambassador to the US and a warning from the State Department to black Americans to avoid Guangzhou.

China has spent decades and billions of dollars developing its ties with Africa, and the hard work of that dollar diplomacy now seems upended by a virus.

Meanwhile in the US, the state of Missouri filed the first lawsuit in federal court against the Chinese government, accusing Beijing’s leaders of an ‘appalling campaign of deceit, concealment, misfeasance, and inaction’ over the coronavirus and claiming Chinese officials are ‘responsible for the enormous death, suffering, and economic losses they inflicted on the world’. Two Republican members of Congress have introduced legislation making it easier for private American citizens to file suits against China for deaths and economic hardship unleashed by the virus.

All of this comes without any evidence so far that the virus may have accidentally emerged from a virology laboratory in Wuhan, a suspicion initially embraced by conspiracy theorists.

Chinese officials have deflected the finger-pointing, blaming others for trying to ‘politicise’ the crisis and insisting that Covid-19 is a scientific and medical issue best left to the experts.

Beyond the blame game, the coronavirus crisis is likely to reorder global supply chains to China’s detriment. When China first began its lockdowns in January, multinationals—from South Korean car companies to American toy makers—were forced to halt or delay production because they relied on crucial components or parts from mainland Chinese factories. Many will not want to again be caught so dependent.

Countries worldwide now will become more cautious about allowing China to be their chief supplier of medical equipment like facemasks and pharmaceuticals. In the past, globalisation’s mantra was ‘build it where it’s cheapest’, and most often that was China. But post-Covid-19, for crucial medical supplies, the new motto is likely to be, ‘make it at home’.

There is little doubt the world is set for a reordering whenever the pandemic finally fades. China would like it to be one on its own terms, in the absence of American global leadership, where the country’s leaders can showcase the superiority of their authoritarian model.

But what seems more likely is a new world order with China increasingly cast as an international pariah, a regime that placed its own pride and prestige over transparency about a pending pandemic. The communist party’s cover-ups, suppression of information and dissemination of disinformation will likely have cost hundreds of thousands of lives and plunged the world into a colossal global recession. And its xenophobia and racism have been laid bare.

The virus will eventually be contained, either through a vaccine or more widespread infection that eventually builds herd immunity. But in the world’s post-pandemic relations with China, it will no longer be business as usual.

Beijing is declaring success in its control of Covid-19. It’s a funny kind of success, though, because on closer examination it looks more like what Australia, Taiwan, South Korea and New Zealand are doing now.

What we would call ‘lockdown’ is still in place across much of the country.

In a country of 1.4 billion people, the Chinese government’s reported number of Covid-19 cases is 83,403, a figure which has pretty much flatlined since late February. That’s less than 0.006% of the Chinese population.

If you believe these official figures, then 99.994% of China’s population is still at risk of infection (not counting under-reported and unknown asymptomatic cases).

In comparison, Australia’s 6,462 cases make up 0.026% of our population, so 99.974% of our population is still at risk of infection. Our prime minister and chief medical officer are looking at ways to open some things up very slowly, but they’re not about to reopen the economy based on these figures. They can’t unless they want a pandemic that overwhelms our health system.

In China too, without a vaccine or way to control the spread of the virus other than tight physical lockdowns, the epidemic will simply accelerate through other parts of the country.

This pandemic started with a single infection in a wet market in Wuhan. It could get out of control again if just one infected individual slipped through Beijing’s control measures. Asymptomatic cases mean this is very likely to happen if controls are really lifted in meaningful ways.

So, any idea that the Chinese Communist Party has triumphed over Covid-19 is sadly wrong.

The only way China can get chunks of its economy back to business is by maintaining constraints on people’s movement or by sacrificing people’s health and lives in pursuit of production. That second path would mean tolerating outbreaks and the deaths they bring, which would be a cynical move demonstrating that the regime valued power and perceived success over the lives of its people.

Chinese officials were told by the party that in the ‘people’s war’ against Covid-19, rising infection numbers in their province or city would be a sign of failure. Since then, the official numbers across the country have fallen remarkably, with many areas now reporting no new cases.

Some of this is driven by ruthless suppression measures that are what we all know now as social distancing—although in China’s authoritarian system, that includes security personnel in hazmat suits whacking people with batons and dragging them into vans, as well as welding people into their apartments.

Remember, though, that it was local officials in Wuhan who supressed early reporting of cases, so it’s not a shock to see under-reporting of cases, given the pressure from the top.

The CCP is also setting the scene to blame foreigners coming into China for any second wave of infections, rather than the more likely source—community transmission within China itself.

Under the headlines touting President Xi Jinping’s success, we see a different story. A spokesperson for Beijing’s municipal government has announced that ‘epidemic control and prevention will probably become a long-term normal’ in China’s capital.

Beijing has become a biohazard fortress protected against its own citizens and against foreigners flying in—as we saw in footage of a UK Sky News crew returning to Beijing recently.

And Chinese authorities are putting out guidance like ‘3 tips for restaurants’: develop new menus for individual diners, sell food and vegetables online, offer takeaway.

None of this sounds like the economy is back to anything like business as usual.

In Wuhan itself, success looks a long way away, despite the central government’s announcement of the end of the lockdown there, during a curated tour of senior leaders, all wearing masks.

Tall barriers surround many housing compounds. Some people in ‘epidemic free’ residential compounds are now being allowed to leave their homes for up to two hours a day. Schools and universities are still closed; masks, temperature checks and identity checks are mandatory; and the city is sprinkled with ‘front line prevention and control positions’. Some travel in and out of Hubei province will now be permitted, but with rigorous checks on a tightly controlled number of travellers.

The measures in place in Wuhan look tighter than those in Australia—and they’re almost certain to remain so until a vaccine can be developed and rolled out.

Why the propaganda and the pretence?

The CCP wants to create the picture that China is managing the epidemic better than anyone else.

That’s for two reasons, one domestic and one strategic.

Domestically, the party needs the Chinese people to believe that it’s doing a great job, to get past the nasty truth that party mismanagement and repression let the virus spiral out of control first in China and then globally. The party also needs to the Chinese people to believe that only its rule can protect them.

Strategically, Xi’s success narrative is all about contrasting China with the US: authoritarianism is good, democracy is bad and weak. If it can deceive the world with this false narrative, Beijing thinks it can gain global power and influence.

As with all narratives, there has to be at least a tenuous connection to reality; it is true that the US isn’t managing the epidemic well.

Unfortunately for the party’s narrative, however, there is a global best practice beacon of governance and Covid-19 control in North Asia—and it’s not on mainland China. It’s the democracy of Taiwan, which, with a population about the size of Australia’s, has 395 confirmed cases and 6 deaths.

Taiwan shows that global best practice for pandemic control doesn’t come from Xi’s authoritarian regime but from a true ‘democracy with Chinese characteristics’.

That’s a confronting truth that is just not reportable or even sayable in mainland China.

Other best practice countries are South Korea, New Zealand and Australia. And, like Taiwan, we’ve been able to get our populations’ cooperation without government thugs hitting them with batons or welding apartment doors shut.

That’s the narrative—and the truth—the world needs to hear, including the 1.4 billion Chinese citizens living under party rule.

The novel coronavirus first appeared in Wuhan, China, in December 2019. It spread throughout the nation in January, and then across the world. Now, there are over 1.2 million confirmed cases across more than 183 countries and regions.

The Chinese state’s slow response to the outbreak and its lack of transparency have led some to claim that Covid-19 will be China’s ‘Chernobyl moment’. These criticisms remain valid despite China’s later mobilisation to contain the virus’s spread, which was largely the result of work by medical professionals and a strong community response. The Chinese Communist Party’s ineffective command and control mechanisms and its uncompromising restrictions on information in the early stages of the crisis helped transform a localised epidemic into a global pandemic.

Chinese authorities only confirmed the outbreak three weeks after the first cases emerged in Wuhan. As the virus spread, the CCP’s crisis-response mechanisms slowly kicked into gear. On 20 January, President Xi Jinping convened a politburo meeting, which put China on an effective war footing. Wuhan and all major Chinese cities were locked down and the People’s Liberation Army assumed command over disease control efforts.

Shortly after the politburo met, an order was issued to the National Defence Mobilisation Department (NDMD) of the Central Military Commission to launch an emergency response to combat the epidemic. The order required the ‘national defence mobilisation system to assume command of garrison troops, military support forces, and local party committees and governments at all levels’.

As ASPI’s Samantha Hoffman has noted, the NDMD ‘creates a political and technical capacity to better guarantee rapid, cohesive, and effective response to an emergency in compliance with the core leadership’s orders’. To that end, the NDMD has subordinate departments at the provincial level responsible for mobilising economic, political and scientific information and equipment and organising militia, transport readiness and air defence.

The CCP’s defence mobilisation system is based on the Maoist ‘people’s war’ doctrine, which relies on China’s size and people to defend the country from attack. The aim is to lure the aggressor deep into the battlefield, wear them down and then strike decisively. In this whole-of-society approach, civilians, militia and the PLA all play a part.

On 26 January, the World Health Organization reported 1,985 Covid-19 cases in China. One day later, premier Li Keqiang, by then in charge of containing the outbreak, visited Wuhan to inspect its disease control measures. On 2 February, Li and Wang Huning (a member of the politburo and one of the top leaders of the CCP) chaired a meeting of the Central Leading Small Group for Work to Counter the Coronavirus Infection Pneumonia Epidemic (新型冠状病毒感染肺炎疫情工作领导小组). Chinese authorities were starting to develop situational awareness as Covid-19 spread to all provinces.

The number of confirmed cases more than doubled from 11,821 on 1 February to 24,363 on 5 February. On 6 February, Chinese state media reported that Xi had referred to a ‘people’s war’ in a telephone call with Saudi Arabia’s King Salman. News of Xi’s declaration reached Western media, which had earlier noted his public absence. On 7 February, Li Wenliang—the doctor detained by police for alerting the public to the virus in November 2019—died of Covid-19, triggering significant public anger and frustration at the Chinese authorities.

The CCP attempted to neutralise this anger by having officials and public figures express sympathy for Li Wenliang on social media. As public discontent waned, Xi took a more prominent role in the national response. His visit to Beijing’s disease control centre was covered by state media outlets, indicating that his ‘people’s war’ declaration was intended to garner public support for his campaign.

The CCP’s next step was to shore up support within the PLA. On 11 February, the PLA’s official newspaper, the People’s Liberation Army Daily, ran an editorial explaining the urgency and achievability of the mission and followed that with numerous articles that sought to boost the PLA’s morale. The messaging was intended to ensure that the party had the military’s absolute cooperation.

China’s leadership took an early step by constructing the Huoshenshan Novel Coronavirus Specialist Hospital in Wuhan, modelled on the Xiaotangshan Hospital that was built to treat SARS in 2003. First to be mobilised were state-owned enterprises, which erected the hospital in 10 days starting on 23 January. Next, militia units installed medical equipment and beds while others disseminated propaganda via social media to publicise the hospital and other CCP initiatives between 25 January and 1 February.

When construction finished on 2 February, command of the hospital was transferred to the PLA. The Joint Logistics Support Force sent 950 medical workers and resources to support disease control measures. The PLA then deployed a further 450 personnel from its medical universities to treat patients.

Despite having clear processes, issues with command and control linger in the whole-of-society approach to national defence mobilisation. The CCP’s initial response was to suppress all information about the virus generated by the public or medical workers. Even if local officials had early warning of the severity of the threat, it’s likely that they were reluctant to pass on bad news to Xi Jinping. That could explain the three-week lag in the central government’s response. Incentive structures within the government make rapid response—a crucial element of effective crisis management—a hard task for the CCP.

There are also questions about Xi’s control over the PLA during the crisis. Shortly after PLA personnel were deployed to Huoshenshan Hospital, an article in the PLA Daily claimed that there had been no impact on military training, pointing to a series of exercises in the Taiwan Strait and elsewhere. Another article in the PLA Daily reassured personnel that combat power would not suffer, despite resources being allocated to disease control. The exercises and reports gave the impression that Xi was trying to placate the PLA. Weak civilian control over the military could prove a lingering vulnerability in China’s response to a future epidemic.

The deployment of state-owned enterprises, the militia and the PLA was a major test for the CCP’s mobilisation system. While it proved effective in the middle and later stages of the pandemic, the lack of transparency and poor command and control systems in the early stages heightened the risk to international public health to unacceptable levels.

Effective crisis management requires more than whole-of-society mobilisation. A senior WHO official, Michael Ryan, observed that Covid-19 ‘will get you if you don’t move quickly’. If there’s anything to learn from the CCP’s response, it’s that decisiveness, transparency and rapid response are crucial to effective disease control in a crisis.

It appears that Xi did too little before it was too late.