COVID-19 International Developments: Daily Scan, May 12, 2020
Prerna Gandhi, Associate Fellow, VIF
Economic
Investment between U.S. and China Falls as Tensions, Coronavirus Take Toll

Investment between the U.S. and China is off to a weak start in 2020 and could worsen, according to a report published on May 11 that tallies a continuing slide in a once-vibrant business relationship due to “political friction, regulatory tightening and market dynamics.” Priorities for American businesses are shifting away from China, where they have invested a cumulative $282 billion. China’s $5 billion of foreign direct investment into the U.S. last year was the lowest since the global financial crisis a decade ago, while $14 billion in American investment into China marked a small year-over-year increase but mostly reflected continuing investment plans, New York-based Rhodium Group LLC said in an annual report. Chinese venture-capital investment into the U.S. slumped to $400 million in the first quarter of this year from $640 million in the year-earlier quarter, and was down from $1 billion in the same period in 2018, Rhodium said. It estimated $600 million in new U.S. venture capital flowed into China during the first quarter, half the quarterly average for last year and well down from the peak $4.9 billion for all of 2018.

Donald Trump says he is ‘not interested’ in China trade deal renegotiation

US President Donald Trump ruled out any renegotiation of a trade deal Washington and Beijing reached in January, arguing that Chinese negotiators would only want any changes to benefit their side. Asked at a White House briefing about a report that “China would like to reopen negotiations on the trade deal”, Trump said: “Not even a little bit, no. I’m not interested.” “China’s been taking advantage of the United States for many, many years, for decades, because we had people at this position right here where I’m standing, sitting right in that office the Oval Office, that allowed that to happen”. “Let’s see if they live up to the deal that they signed,” he added. The “phase one” trade deal that Washington and Beijing reached ended threatened tariffs on around US$155 billion worth of Chinese imports that were set to take effect at the end of 2019. It also halved tariffs to 7.5 per cent on another US$120 billion in goods. But it kept in place the 25 per cent import taxes on US$250 billion worth of Chinese products.

China urged to focus on domestic economy in next five-year plan to counter more hostile world

China’s will face an increasingly hostile world over the next five years, meaning its policy plan should be focused on its vast domestic market, home-grown technological innovation and improving its citizens’ welfare, according to recommendations in a new paper. The report by the Chinese Academy of Social Sciences (CASS), a think tank affiliated with the State Council, foresees the next five years presenting “major changes unseen in a century” for China, as “the strategic game between superpowers has intensified, while international systems and orders are reshuffled”. “The disadvantages of economic globalisation have increasingly stood out. Populism has risen as the global economy weakens, while countries are divided as imbalances expand. The old multilateral [trading] system is under pressure,” read the paper, part of a wave of preliminary studies offering advice ahead of China’s 14th five-year plan, a blueprint for economic and social development.

Pakistan request opens door for Belt and Road project debt relief

Pakistan's plea last month to China for Belt and Road Initiative debt relief has opened the floodgates for other participating countries to make similar appeals as the impact of the coronavirus slams friendly economies with traditionally close ties to Beijing. Islamabad sought the extension of a debt repayment period on $30 billion in loans for the China-Pakistan Economic Corridor, or CPEC, the flagship project in the massive BRI infrastructure-building program. China agreeing could save Pakistan around $500 million in annual cash flow. Mohan Malik, a professor of strategic studies at the National Defence College of the United Arab Emirates, said that from Beijing's perspective, Pakistan is not only an important ally, but the CPEC is also too significant to be allowed to fail. "Should Pakistan's economy go under without a financial rescue package, it would deal a major blow to President Xi Jinping's signature initiative," he told Nikkei Asian Review, referring to the BRI.

Shippers turn to Belt and Road trains to beat coronavirus shutdowns

With few international flights operating and many cargo ships knocked off course by the coronavirus pandemic, businesses sending goods between Asia and Europe have turned in desperation to trains linked to China's Belt and Road project. "These days, many European customers are exploring rail freight on the New Silk Road as an alternative and attractive transport mode," Tim Scharwath, chief executive of global freight forwarding at German logistics operator DHL, told the Nikkei Asian Review. "We are seeing a strong increase in volumes in both directions." Until recently, trains that arrived in Europe with nearly every freight car in use might head back east with dozens empty. But the relative cheapness and dependability of train services are now too compelling to ignore. Freight rates for the trains have held steady at around 24 cents per kilogram, according to supply chain consultancy Asia Pacific Connex in Perth, Australia. By comparison, net prices to send cargo by plane from Frankfurt Airport to China, averaged 3 Euros ($3.24) per kg in early March, though rates had slid back to 0.94 euro/kg by last week, according to Hong Kong air cargo data service TAC Index.

Mnuchin Supports Changes to Small-Business Aid Program

Treasury Secretary Steven Mnuchin said on May 11 that the government will look to make fixes to help restaurants and others participate in the $660 billion small-business aid program, a move that could help ease some of the criticism surrounding the program. The Paycheck Protection Program’s forgiveness requirements mandate borrowers spend 75% of the loan on worker salaries, and for the forgivable amount to be spent over an eight-week period. That has drawn objections from many business owners who say they need more money for rent and other overhead costs and from industries that remain mostly closed, as mandated by state regulations. The National Restaurant Association, for example, has suggested the period should begin at least three weeks after applicable state restaurant closures are lifted. Mr. Mnuchin signalled on May 11 that he would be open to some program tweaks.

Coronavirus pain will not be evenly spread across tech sector

Demand for some digital services has jumped as businesses and consumers adjust to the new realities of a world in lockdown. But many tech companies began grappling with a shift in the outlook for growth well before the health crisis that brought large parts of the global economy to a standstill. “The market has switched from growth at all costs to sustainable growth. Companies need to adjust quickly to the business environment,” Daniel Dines, chief executive officer of UiPath highlighted. The coronavirus shutdown has given this adjustment a new immediacy. If sustainability had already become the new goal for many growth companies, it has now been replaced by an even more urgent imperative: survival. “Digital transformation has become a top priority for every [business],” says Soma Somasegar, a managing director at Madrona Venture Group in Seattle, one of UiPath’s backers. Pointing to the kind of back-office automation UiPath enables, he adds: “For all the progress we’ve seen, we’re barely scratching the surface.” As software moves deeper into the business world, it is also acting as a wedge for companies trying to break into big industries that have been relatively immune to technological disruption in the past.

Covid-19 crisis has laid bare weaknesses in supply chains

For decades, a relentless focus on costs has led to supply chain concentration in low-cost countries, operating with just-in-time deliveries and tight inventories. This pandemic has highlighted that many companies were operating with insufficient buffers to absorb big disruptions. This realisation should drive change. Some companies have already moved supply chains from China to other parts of Asia. Moving closer to key customers by adding local or regional supply chains can create a less concentrated, better-balanced business. Having the capability to source products locally means shorter lead times and lower risks, but often higher costs. For some products, these increased costs may be passed on to customers. It seems anomalous that a monthly box of generic allergy medication is cheaper than a large bag of crisps. For other products, companies may have to accept lower profitability for lower risk. However, companies with pricing power and higher-than-average margins are best positioned for this shift.

Shell, Eni lead oil majors' climate ambitions but still fall short – investors

None of the big oil companies currently meet U.N. targets to limit global warming despite the most ambitious targets set by Royal Dutch Shell and Eni, investors managing $19 trillion said on May 12. The Transition Pathway Initiative (TPI), which represents the investors and is co-chaired by the Church of England Pensions Board, called on all oil and gas producers to set both intensity-based and absolute emissions reductions targets so that the industry adheres to a common standard on ‘net zero’ emissions. All European majors have committed to varying degrees of carbon reductions by 2050 to make their companies fit for a transition to a lower carbon economy. In marked contrast, U.S. oil giants lag far behind in terms of climate aims. Shell has pledged to bring down its overall carbon intensity by 65%, Eni by 55% and BP by 50% by 2050. Intensity targets mean that absolute emissions can rise with increasing production. Eni has also set itself a target to bring down its absolute emissions by 2050 by 80%.

Indian financial sentiment slides amid rise in coronavirus cases, poor earnings

Indian stocks slid on May 12 as coronavirus cases rose steadily at home and elsewhere, while a clutch of poor corporate earnings reports and the lack of an economic stimulus to aid small businesses further weighed on sentiment. India is expected to unveil a second stimulus package soon, aimed at medium- and small-sized companies battered by the coronavirus, but its timing remains unclear and the government is yet to make any announcement. Most small-scale businesses may perish without timely government support, a CARE Ratings study said on May 11, adding that the employment of up to 30 million manufacturing workers was under stress. “In case the stimulus is not up to the market’s expectation, we could see some more correction,” said Rusmik Oza, head of fundamental research at Kotak Securities in Mumbai. “It’s a sell-on-rise market right now and it is not going to sustain at higher levels,” Oza said, adding that investors were looking to conserve cash and stick to defensive stocks.

Strategic
Wuhan reports first coronavirus cluster since end of lockdown

The city of Wuhan, the epicentre of the novel coronavirus pandemic in China, has reported its first cluster of infections since a lockdown there was lifted a month ago, stoking concerns of a wider resurgence of the disease. Wuhan reported five new confirmed cases on May 11, all from the same residential compound. Mi Feng, a spokesman at the National Health Commission, said new infections in seven provinces were being traced. "In the past 14 days, seven provinces have reported new locally transmitted cases, with cases involving clusters continuing to increase," Mi told a media briefing. "We need to investigate and determine the origin of the infections and transmission routes." The north eastern province of Jilin, which on May 9 reported a cluster of infections in one of its cities, Shulan, reported three additional cases. Shulan has been marked a high-risk area, the only place in China currently with that designation. The confirmation of new infections in Wuhan comes after the government announced on May 8 that cinemas, museums and other venues would gradually be reopened - though restrictions including mandatory reservations and a limit on numbers of visitors would be in place. The financial hub of Shanghai has reopened some nightspots and Walt Disney Co reopened its Shanghai Disneyland park on May 11 to a reduced number of visitors.

The bill comes due for Saudi Arabia's oil price war

The kingdom's made twin announcements on May 11. The first involved austerity measures that shift the bulk of the burden of falling oil income squarely onto the shoulders of ordinary Saudis. The second announcement concerned oil output cuts of the voluntary variety - not those mandated by the recent agreement between the Saudi-led Organization of the Petroleum Exporting Countries (OPEC) and its allies. After ratings agency Moody's cut the kingdom's outlook from stable to negative earlier this month, Saudi finance minister Mohammed al-Jadaan warned of "painful" measures to come. The most crippling of which was the value-added tax, being hiked to 15 percent in July from its current level of five percent. "During past bouts of austerity, the government has relied on cuts to capital spending and refrained from hitting the pockets of households for fear of igniting social unrest," said Capital Economics senior emerging markets economist Jason Tuvey in a note to clients. "Despite comments last week from Mr. al-Jadaan that suggested households would be shielded once more, this latest package suggests otherwise." The austerity knife is also carving away funding for some projects that fall under the umbrella of the crown’s prince’s highly vaunted but hardly realised Vision 2030 - a blueprint for diversifying the kingdom's economy away from fossil fuels and creating sustainable jobs for its youthful workforce.

Coronavirus pandemic mires European Union’s market drive into China

Germany’s plan to spearhead European Union efforts, to gain more access to China’s markets, looks to be at risk of stalling as the Covid-19 pandemic upends economies. German Chancellor Angela Merkel planned to welcome Chinese President Xi Jinping to Leipzig in September for a first-of-a-kind summit with the 27 EU heads of state or government, plus the presidents of the EU Commission and Council. While some fear the economic turbulence has weakened the bloc in negotiating with Beijing over an investment protection agreement, a deal that the EU wants to level the investment field and create new markets for European companies in China, a source with direct knowledge described the ongoing EU-China talks on the deal as "intensive". "The key for the progress of negotiations would be about reaching an ambitious outcome on state-owned enterprises (SOEs), the disciplines for which have been a major focus for discussions on level-playing field," he said. "The EU insists that SOEs engaged in commercial activities should behave commercially – just like any other private business."

China risks being left out of new global economic order, Beijing’s former trade chief warns

China could face isolation from the global economic order post-coronavirus, warned Beijing’s former chief trade negotiator Long Yongtu, who shepherded the country into the World Trade Organisation in 2001. Long’s warning add to a chorus of influential domestic voices who are increasingly concerned about the geopolitical isolation that could stem from fallout from the pandemic. As more countries follow the United States in criticising China for its handling of the virus, doubts are growing as to whether Washington and its allies will try to exclude Beijing from a new international economic order, a theory being labelled by some Chinese experts as “de-sinicisation”. Such a process would pose a protracted economic and diplomatic challenge to China in the years ahead, even though it has effectively declared victory over the virus within its borders. “After the pandemic, there will be significant changes in international trade, investment and industrial chains. The epidemic has caused huge damage to globalisation,” Long added, urging Chinese companies to increase the pace of their international expansion.

Coronavirus risks pushing millions of Bangladeshis back into poverty

The country's $300 billion-plus economy depends precariously on garments and textiles, which account for almost 12% of gross domestic product and 84% of exported merchandise. The apparel sector, second in size only to China's, is now deeply troubled. "The impact of the pandemic has been apocalyptic," Rubana Huq, president of the Bangladesh Garment Manufacturers and Exporters Association, told the Nikkei Asian Review. Most western high-street retailers selling Bangladeshi apparel demand deferred payment of up to 180 days, while factories carry a raw material liability of nearly $2 billion. Foreign remittances, the second largest driver of the economy, are also threatened. Last year, over 10 million Bangladeshis working overseas sent home more than $18 billion -- about 6% of GDP. With the virus and collapsing oil prices, the World Bank expects remittances to fall back over 20% to about $14 billion this year. The International Monetary Fund has forecast that Bangladesh's GDP growth will plunge to 2% this fiscal year, its deepest dive in decades. The reduced growth and businesses damaged by the virus could push millions back into poverty.

Calls for 'China exit' mount as Japan reviews economic security

With the COVID-19 crisis making the economic security stakes clearer than ever, the government has begun to act. Japan's National Security Council established a dedicated economic team in April. A senior official from the Ministry of Economy, Trade and Industry was appointed to a new post within the council's leadership, giving the ministry representation in a body previously dominated by the foreign and defence ministries. The new team will lead the drafting of a basic strategy for economic security due out this year. It plans to designate pharmaceuticals and medical devices as strategic goods -- taking lessons from the mask shortage -- and include measures to promote domestic production and use of Japanese suppliers. But this is not its only focus. The Trump administration in late April tightened restrictions on exports to China of products with potential military applications, including semiconductor-manufacturing equipment and sensors. Given that part of the Japanese economic team's role is coordinating with American agencies, including the U.S. National Security Council, this measure could shape policy in Japan. "Stricter controls on chip exports could become a topic in the future," a Japanese government insider said.

Iran Leverages Oil to Court Other U.S. Rivals During Pandemic

Isolated in the midst of a global pandemic, Iran is using its sanctioned oil and energy expertise to garner favour and financial gain from two other nations shunned by the U.S.: Syria and Venezuela. In March, deliveries of Iranian crude to China—its biggest buyer—collapsed by 60%, compared with 15% for Saudi Arabia and Russia, according to Chinese customs data. Within weeks, Iran’s onshore tanks were, for the time ever, virtually full, according to satellite data analyzed by consulting firm Kayrros. According to shipping tracker TankerTrackers.com, Iran shipped 7.9 million barrels to Syria—or 255,000 barrels a day—in March. As a result, Syria’s two main terminals, Baniyas and Tartus, which were previously less than half full, are now respectively 70% and 90% full, according to Kayrros. According to tracking website FlightRadar24, Mahan Air, an IRGC-connected airline, completed at least 12 roundtrip flights between Tehran and Las Piedras, the airport closest to the Venezuelan refinery, between April 22 and May 6. In exchange for refining technologies, each of the flights left Venezuela loaded with gold and cash in euro and dollar denominations, according to a U.S. official and a Guards adviser.

Russia's Coronavirus Cases Surge Past 230K as Putin Eases National Lockdown

Russia confirmed 10,899 new coronavirus infections on May 12, bringing the country’s official number of cases to 232,243. Russia is now the third most-affected country in terms of infections and has the world's second-fastest rate of new infections behind the United States. The total death toll stands at 2,116. Officials attribute the increase to mass testing and detecting asymptomatic cases not always counted in other countries. President Vladimir Putin on May 11 said stay-at-home orders for most workers in Russia would be eased this week even as the country registered a record increase in new coronavirus infections. He said that Russia had used the self-isolation period to prepare its healthcare system, increasing the amount of hospital beds and saving "many thousands of lives." This "allows us to begin a gradual lifting of restrictions," he said. Last week Moscow Mayor Sergei Sobyanin announced an extension of a lockdown in the capital, where most cases are concentrated, to May 31. He also brought in a rule that people will have to wear masks and gloves in public transport and shops or face fines from May 12.

Medical
‘Risk Based’ Social Distancing Is Key to Reopening

The balancing act facing leaders is difficult enough but it’s aggravated by a dearth of essential information: Which social distancing measures offer acceptable trade-offs in terms of lives saved and economic costs incurred? This highlights the need for “risk based” social distancing that could potentially save lives at less cost to the economy. Epidemiological models assume that social distancing saves lives by reducing contacts between infected and susceptible people. But the frequency and risk of contact varies considerably between countries and even cities depending on the age, gender and health of the population, household structure, and commuting and work patterns. Not all models are granular enough to capture those distinctions. Even detailed models don’t have strong empirical foundations for their projected impacts. Henri Leleu, scientific director at Public Health Expertise, a French disease-modelling company, said it is easy to project the impact of a total lockdown. Some mitigation measures to date may have incurred steep costs for questionable benefit. While the benefits of closing schools aren’t clear, the costs are: educators and support staff have been furloughed, many parents can’t work because they are looking after children, and the mental health of students has suffered.

For Further Reading:

Image source: https://cdn.pixabay.com/photo/2020/03/27/04/33/coronavirus-4972480_960_720.jpg

Post new comment

The content of this field is kept private and will not be shown publicly.
8 + 8 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.
Contact Us