COVID-19 International Developments: Daily Scan, May 4, 2020
Prerna Gandhi, Associate Fellow, VIF
Economic
Emerging market currencies mark biggest falls in 5 years

The MSCI Emerging Market Currency Index, which tracks overall movements of emerging market currencies, dropped 6% in the January-March period this year; the steepest quarterly fall since 2015 when China badly shook global financial markets with the devaluation of the Renminbi. S & P Global Rating, a leading U.S. credit rating agency, has downgraded its credit ratings for 15 nations since January, citing their financial weakness. In addition, some 10 countries are exposed to the risk of further downgrades. The number of credit rating downgrades in 2020 might turn out to be the highest since the European debt crisis of 2011. If the creditworthiness of a country is damaged by a cut in its ratings, its debt repayment capacity will be questioned; this could lead to a rise in interest rates and a depreciation of government bonds. Drops in the value of emerging economies' currencies increase the burden of their dollar-denominated debt. Although financial markets appear to have regained stability thanks to the massive supply of liquidity by the U.S., Japanese and European central banks, there are concerns that emerging economies will become a new flash point of instability.

TPP countries defy protectionist trend to maintain supply chains

As many countries tighten restrictions on exports of vital products in response to the coronavirus pandemic, members of the Trans-Pacific Partnership regional trade pact are going against the tide of protectionism with agreements to facilitate free trade. On May 01, Singapore, Australia, New Zealand and Canada, along with non-TPP member South Korea, agreed to set common guidelines for essential cross-border travel to minimize trouble with customs procedures. These would clarify points such as giving priority to travellers from countries where the outbreak is subsiding, for example. Japan will make a fresh attempt to expand the Trans-Pacific Partnership trade pact to include more Asian economies, such as Thailand, Taiwan, Indonesia and the Philippines, after the new coronavirus exposed the risks of supply chains overly dependent on China.Negotiations will officially begin in August, when the 11 existing members -- Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam -- hold a ministerial meeting in Mexico.

Oil’s Crash Prompts Record Push to Store Fuel at Sea

The cost to ship gasoline, diesel and jet fuel around the world has soared to record highs, as traders look to dodge the commodity price crash by stashing refined oil at sea. Charter prices for vessels that transport refined oil products have tripled since the start of March, according to the Baltic Clean Tanker Index, a gauge of freight rates along 11 shipping routes. The index, calculated daily from estimates submitted by shipbrokers, hit its highest level on record early last week before slipping in recent days.

Stimulus-driven inflation is the least of Asia's problems

Generations of economists have been taught if too much money is put into circulation, it will chase too few goods that are available leading to runaway monetary inflation. Such fears are utterly unfounded as inflation, is still about the relative balance of what is purchased and what is supplied. The money printed needs to stoke demand, above what economies can supply, for the process to lead to sustained inflation. Higher costs for some medical and food items currently, amount to a relative shift in prices, rather than the sustained increase in the broader price level that inflation is all about. In a case like this pandemic, it is better to err on the side of doing too much than to risk doing too little. It would be relatively easy for central banks and legislators to withdraw the extra money from circulation and shrink expenditure, or simply not deliver the remainder of what had been so generously promised.On the other hand, if we have underestimated the economic consequence of the whole affair, weakening financial systems and rising unemployment would leave growth impaired for years to come, with all the dire social and uncomfortable political consequences that this entails.

After coronavirus, Beijing won't be economic saviour

It was certainly unusual that the central bank released the results of a poll that had been done last October. It showed that the Chinese had high levels of private debt even before the coronavirus crisis, meaning the bank has less leeway than previously thought. Around half of the 30,000 Chinese households polled are in debt, with an average level of debt of $72,000 (€65,000), two thirds of which are down to mortgages. It means that 60% of private household assets are invested in property; a mere one-fifth is cash investments. The main political implication of this poll is that by publishing it now the central bank may well have intended to hint that the government's measures so far may not suffice to boost the economy after coronavirus. According to Swiss bank UBS, Beijing has enacted a stimulus program worth 4% of GDP, compared with a package equivalent to 10% of GDP after the world financial crisis. Unlike governments in Europe, the US and Japan, who have launched comprehensive stimulus plans, Beijing is going for a scattergun approach to get the economy back on track.

China's state-owned giants say farewell to Hong Kong listings

Once viewed as a haven with access to foreign capital and marketplace discipline, Hong Kong's stock exchange is seeing a growing number of China's hulking state-owned companies delist units there so they can focus on taking leading roles on the mainland. A listing comes with additional costs for audits and disclosures. The trend appears to be fuelled by the government's push to bolster China's industrial base. The government's focus on state-owned companies has only increased as the coronavirus squeezes the economy. "State-owned enterprises will be the main force behind reopening businesses," Xi said last month. Eight companies have finalized plans to delist in Hong Kong in the January-March quarter, according to U.S. research company Dealogic, up from two a year earlier. Together they will be buying a record $7.5 billion worth of stock back from the market. Many are focusing on other priorities as well. Restructuring or spinning off a business is easier when it has been taken private, according to Kerwin Clayton, co-head of M&A for the Asia Pacific at JP Morgan Chase.

Battered global tourism industry makes reopening plans

Six months ago, the global tourism industry was celebrating a record year for travel. Now, it's decimated and facing a recovery that could take years. Tourism Economics, a data and consulting firm, predicts global travel demand won't resume its normal pace until 2023. Last week, Hilton, Marriott and Airbnb all announced enhanced cleaning procedures worldwide to ease travellers’ minds. At Universal Studios in Orlando, Florida, multiple teams are working on scenarios, including putting more space between riders on roller coasters, said John Sprouls, the resort's chief administrative officer, at a recent virtual event for tourism officials. Wynn Resorts CEO Matt Maddox said his company may sanitize dice between users, put fewer seats at blackjack tables and idle slot machines between players at its casinos in Las Vegas, Boston and Macau. Alexandre de Juniac, CEO of the International Air Transport Association, the leading airline trade group, said carriers need to fill at least 70% of seats to break even on most flights. If they're required to block or remove many seats, they will either stop flying or raise prices 50%, he said. That will delay recovery for places like Israel, which sees almost all of its tourists arrive by air.

EU puts positive spin on coronavirus rescue package disunity

The European Union summit was concise, but also short on solutions. The COVID-19 economic stimulus package is on its way — what form it will take is unclear. Angela Merkel's announcement the Germans would show solidarity and pay considerably more into the joint EU budget have raised hopes tremendously. But she was careful not to mention any figures. Now the EU Commission has to perform a political miracle in a few short weeks and draw up an EU budget that will serve as the basis for the huge rescue package. Commission President Ursula von der Leyen has already hinted that EU states will have to pay twice as much as before into this joint budget. Instead of €150 billion ($161 billion) it will be €300 billion for two or three years. She then wants to leverage this capital stock with loans of €1 trillion.It is unclear whether this money will then be passed on as a loan to the countries damaged by coronavirus or handed to them as a grant. Von der Leyen has a "mix" in mind. There is no choice but to work together. No EU country would stand a chance alone.

New Zealand and Australia consider coronavirus 'travel bubble'

New Zealand and Australia are discussing the potential creation of a "travel bubble" between the two countries, sources said on May 4, even as Australia reported its highest number of coronavirus cases in two weeks. New Zealand Prime Minister Jacinda Ardern will take part in a meeting of Australia's emergency coronavirus Cabinet on May 5, the Australian government said stoking speculation that two-way travel could be permitted in the near future. "The idea of a bubble with Australia was floated two weeks ago, and this is an example of the sort of action that could happen within it, while always ensuring the protection of public health," New Zealand Foreign Minister Winston Peters said in a statement. "Officials in both countries are considering all aspects of the trans-Tasman concept, and planning how this could happen more broadly," Peters added. The prospect of two-way travel was first proposed by Peters, though Ardern in April insisted it was a "long-term goal" and would need to include other Pacific countries.

Strategic
China firmly opposes US support for Taiwan's participation in UN

The US UN mission has gravely interfered with China's internal affairs by openly supporting Taiwan's participation in the United Nations, said a spokesperson of the permanent mission of China to the UN. "In a tweet on May 1, the US mission to the United Nations gave open support to the Taiwan region for participating in the UN. This is a serious violation of Resolution 2758 of the UN General Assembly (UNGA), the three joint communiqués between China and the United States and China's sovereignty and territorial integrity. It gravely interferes with China's internal affairs and deeply hurts the feelings of the 1.4 billion Chinese people," said the spokesperson. "The Chinese mission hereby expresses strong indignation and firm opposition," the spokesperson noted. “Resolution 2758 of the UNGA has restored the lawful seat of the People's Republic of China at the UN and affirmed the one-China principle at the organization, which has been strictly observed across the UN system and widely respected by UN member states," the spokesperson added.

Behind the bluster, Beijing is really cracking the whip on pro-establishment lawmakers

Since 1997, Hong Kong and Macau Affairs Office (HKMAO) and the Liaison Office of the Central People’s Government, for the most part, taken a hands-off approach and exercised restraint, at least when it came to making public statements. When they became increasingly assertive following the Occupy movement, it was clearly Beijing’s way of pushing back. In 2015, Zhang Xiaoming, then director of the liaison office, caused quite the stir when he said that the chief executive of Hong Kong has a special legal status that transcends all three branches of government. What is written on the wall is Beijing’s growing impatience not with the pro-democracy camp, but with the pro-establishment camp. The pan-democrats’ tactics lost their shock appeal years ago. Instead, the pro-establishment camp’s performance is the reason why Beijing has been making its presence felt and visibly exercising its authority in Hong Kong. The pro-establishment camp has not really been able to counter any of the pan-democrats’ moves since the Occupy movement, which drew comments from those who had traditionally tried to keep their distance from Hong Kong politics.

US chief diplomat Pompeo backs coronavirus Wuhan lab claims

US Secretary of State Mike Pompeo said on May 03, there is substantial evidence that the coronavirus pandemic originated in a laboratory in Wuhan, China."There is enormous evidence that this is where it began," said Pompeo on US broadcaster ABC's This Week show, referring to the Wuhan Institute of Virology (WIV). But while being highly critical of China's handling of the pandemic outbreak, the US chief diplomat declined to say whether he thought the virus had been intentionally released. "I think the whole world can see [it] now; Remember, China has a history of infecting the world and running substandard laboratories," Pompeo added. Concerns are growing about a possible Chinese cover-up, boosted by revelations from a new 15-page dossier compiled by Five Eyes intelligence agencies of the US, Australia, NZ, Canada and the UK. Germany's Foreign Minister Heiko Maas on May 03 called for China to provide an explanation for the origins of the virus: "It is in the whole world's interest that the precise origin of the virus is clarified," he said in comments to Funke Mediengruppe – Germany's third-largest newspaper and magazine publisher.

China hid details of outbreak to hoard medical supplies, DHS report says

The Chinese government likely withheld information about the severity of the coronavirus outbreak so it would have time to hoard medical supplies, according to an intelligence report from the US Department of Homeland Security. The report says that in January, before sharing full details on the novel coronavirus outbreak with the World Health Organisation (WHO), Beijing dramatically increased its imports and decreased its exports of medical supplies. In January, according to the report, China increased its imports of surgical face masks by 278 per cent, surgical gowns by 72 per cent and surgical gloves by 32 per cent. Meanwhile, it slashed its global exports of a host of medical products: surgical gloves by 48 per cent, surgical gowns by 71 per cent, face masks by 48 per cent, medical ventilators by 45 per cent, incubator kits by 56 per cent, thermometers by 53 per cent, and cotton balls and swabs by 58 per cent. The US Department of Homeland Security did not immediately respond to a request for comment.

Trump relaunches campaign with US vaccine promise by end of year, vision of ‘incredible’ future

President Donald Trump re-launched his election campaign May 3 with a live television event inside the iconic Lincoln Memorial, promising an early coronavirus vaccine and urging Americans to put the pandemic behind them to embrace an “incredible” future. With the two-hour long Fox News “town hall,” Trump sought to wrap himself in the mantle of America’s arguably greatest president – and to persuade a nation battered by death and mass unemployment to look ahead. “We’re going to have an incredible following year,” he said. Saying Americans should start going back to beaches this summer and recommending that shuttered schools need to reopen in September, Trump forecast good news on the hunt for a vaccine. “We are very confident that we’re going to have a vaccine... by the end of the year,” he said, admitting he was getting ahead of his own advisors with the prediction. “I’ll say what I think,” he said. The businessman Republican is doing poorly in most polls ahead of the November presidential contest against Democratic challenger Joe Biden, who remains shuttered in his Delaware home. Trump faces criticism for his bruising, divisive style during a time of national calamity. He is also accused by some of botching the early response to the Covid-19 virus.

Faced with 20,000 dead, US care homes seek shield from lawsuits

Faced with 20,000 coronavirus deaths and counting, the nation's nursing homes are pushing back against a potential flood of lawsuits with a sweeping lobbying effort to get states to grant them emergency protection from claims of inadequate care. At least 15 states have enacted laws or governors' orders that explicitly or apparently provide nursing homes and long-term care facilities some protection from lawsuits arising from the crisis. And in the case of New York, which leads the nation in deaths in such facilities, a lobbying group wrote the first draft of a measure that apparently makes it the only state with specific protection from both civil lawsuits and criminal prosecution. Watchdogs, patient advocates and lawyers argue that immunity orders are misguided. At a time when the crisis is laying bare such chronic industry problems as staffing shortages and poor infection control, they say legal liability is the last safety net to keep facilities accountable. They also contend nursing homes are taking advantage of the crisis to protect their bottom lines. Almost 70% of the nation's more than 15,000 nursing homes are run by for-profit companies, and hundreds have been bought and sold in recent years by private-equity firms.

Turkey ‘will run out of dollars by July’, economists warn

Turkey is burning through its reserves of foreign currency in a futile attempt to prop up the collapsing lira, and may run out of US dollars by July, economists told Arab News on May 02. President Recep Tayyip Erdogan is also facing a double economic challenge from the coronavirus pandemic — the soaring cost of lockdowns and movement restrictions to curb the spread of the virus, and the fact that COVID-19 will prevent the usual summer tourist boom. The Turkish lira has lost 14 percent of its value since January, and about 36 percent over the past two years. Last week it plunged past the psychologically significant level of seven to the US dollar. In response, Turkey’s central bank has supplied $32 billion in foreign reserves for state banks to support the lira in the first four months of this year, the same as the whole of last year. One foreign exchange trader estimated that the central bank’s reserves fell into negative territory last week, by $2 billion. “No country can withstand such rapid reserve losses for a long time,” the trader said. Analysts at TD Securities have estimated that Turkey may run out foreign currency reserves as early as July if the pressure on its currency keeps intensifying.

Asahi survey: 72% say no rush for Diet to revise Constitution

A large majority of voters do not share Prime Minister Shinzo Abe's zeal or urgency with revising the nation's Constitution, according to an Asahi Shimbun poll. The survey on the Constitution showed that while 72 percent believe that lawmakers do not need to accelerate debate on constitutional amendment, only 22 percent cited the need to do so. The annual survey was conducted ahead of May 3, Constitution Day, a national holiday. The post war Constitution, which went into force in 1947, has never been amended. The poll also showed the revision is not an urgent priority among respondents who support Abe’s ruling Liberal Democratic Party, with 64 percent saying there is no need and 32 percent citing a need. Among unaffiliated voters, 75 percent said Diet members do not need to rush the debate over constitutional amendment while 18 percent supported accelerating the discussion. Abe has proposed that pacifist Article 9 be amended to clearly state the existence of the Self-Defence Forces. He argues that this would end debate over the constitutionality of the SDF and allow SDF members to perform their duties with pride. Questionnaires were mailed to 3,000 voters nationwide from early March to mid-April. Valid responses were received from 2,053, 68 percent of the total.

Singapore minister says RCEP trade deal on track for year-end signing

The Regional Comprehensive Economic Partnership (RCEP) trade deal is still on track to be signed by the end of 2020, Singapore’s Minister of Trade and Industry Chan Chun Sing said on May 03. RCEP brings together the 10-member Association of Southeast Asian Nations (ASEAN), China, Japan, South Korea, Australia and New Zealand. The countries have made an offer to India, which pulled out of talks last November, to see if it is prepared to rejoin discussions. “If India is unable to rejoin the discussions in the coming month, then plans will continue to proceed with the legal scrubbing for the preparation for the signing at the end of the year,” Chan told reporters. “At this point in time we are still on track for the signing by the RCEP countries at the end of the year,” he added.

US spy plane spotted south of Taiwan in 14th flight since early April

A United States reconnaissance aircraft flew over the Bashi Channel separating south Taiwan from the Philippines on May 2, the 14th such appearance since the beginning of April. The Ministry of National Defense said it was monitoring all aircraft and shipping movements in the vicinity of the island nation. The plane flying off south Taiwan around 9 a.m. was an EP-3E Aries II signals intelligence aircraft. Its tasks include observation of enemy planes and collection of intelligence about radar and electronic warfare, CNA quoted a military expert as saying. Most of the 14 U.S. missions near Taiwan over the past month have been flown by EP-3E, RC-135U “Combat Sent” and RC-135W “Rivet Joint” surveillance aircraft. The flights are widely seen as a response to numerous incidents involving Chinese warplanes flying close to Taiwan airspace, despite the Wuhan coronavirus (COVID-19) pandemic gripping China and most of the world.

US Air Force sends B-1 bombers back to Guam on temporary deployment

Just a few weeks after the US Air Force ended its 16-year Continuous Bomber Presence in Guam; its B-1 bombers are back on the Pacific island. The temporary deployment program is designed to keep Washington's adversaries guessing about what US firepower will be where and when. The US Pacific Air Forces (PACAF) announced on May 01 that four of the B-1s, able to carry the largest weapon payloads in the US fleet, had arrived at Andersen Air Force Base on Guam to conduct training and "strategic deterrence missions" in the Indo-Pacific region. The B-1s, from Dyess Air Force Base in Texas, are being deployed under what the Air Force calls its bomber task force, a plan designed to move the massive warplanes to spots around the world to demonstrate "operational unpredictability," the service said in a statement. The Air Force did not specify how long the bombers will be on Guam.

Calls growing for discreet approach to NK intelligence

North Korean leader Kim Jong-un's dramatic return to public view from a nearly-three-week hiatus, and despite a barrage of rumors surrounding his health, shows that divulging unconfirmed rumours and reports should be kept to a minimum, according to security experts. Cheong Wa Dae added that the government has seen that the North Korean leader did not undergo surgery during his absence. Previously, local media here had reported that Kim had undergone cardiovascular surgery and was recuperating. Kim Dong-yub, a professor at the Institute for Far Eastern Studies of Kyungnam University, said, "Mass production of unconfirmed reports on Kim's health condition may have adversely affected inter-Korean relations and issues on the Korean Peninsula. Meanwhile, U.S. President Donald Trump welcomed Kim's return to the public eye, on May 02. "I, for one, am glad to see he is back, and well!" Trump said in a retweet of photos of Kim at the ribbon-cutting ceremony for the fertilizer plant.

Medical
Roche wins U.S. nod for COVID-19 antibody test, aims to boost output

Roche has won emergency approval from the U.S. Food and Drug Administration (FDA) for an antibody test to determine whether people have ever been infected with the coronavirus, the Swiss drug maker said on May 3. Thomas Schinecker, Roche’s head of diagnostics, said the company aims to more than double production of tests from about 50 million a month to significantly more than 100 million a month by the end of the year. Governments, businesses and individuals are seeking such blood tests to learn who may have had the disease, who may have some immunity and to potentially craft strategies to help end national lockdowns. Basel-based Roche, which also makes molecular tests to identify active COVID-19 infections, said its antibody test has a specificity rate exceeding 99.8% and sensitivity of 100%, meaning tests would show very few false positives and no false negatives.

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