COVID-19 International Developments: Daily Scan, May 18, 2020
Prerna Gandhi, Associate Fellow, VIF
Huawei ban sets up game of chicken between world's biggest economies

Trump's rhetoric on Beijing has turned increasingly aggressive in recent weeks as the coronavirus outbreak worsened in the U.S., but the Commerce Department's new rule, announced on May 15, is first major economic measure against China after the two countries inked the first part of a trade deal in January. Any foreign chipmakers producing chips from designs by Huawei and its affiliates with the use of American design tools or equipment will have to apply for a license from the U.S. Commerce Department, the department said on its website. "Based on what I know, if the U.S. further blocks key technology supply to Huawei, China will activate the 'unreliable entity list', restrict or investigate U.S. companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes," Hu Xijin, editor-in-chief at the Chinese Communist Party-affiliated Global Times said. But China could be "shooting itself in the foot by retaliating against U.S. companies in an effort to show how tough it is," Wendy Cutler, a former U.S. trade negotiator and vice president at New York-based Asia Society Policy Institute.Such targeting "could result in further driving U.S. companies out of China at a time they are needed to help contribute to China's economic recovery," Cutler said.

Coronavirus: Could China’s rural land reform plan unleash a new round of economic growth?

Chinese reformers are urging the government to push forward with a long-awaited rural land reform plan they argue will unleash growth, as the coronavirus pandemic and disputes with major trading partners reshape the economic environment. Some observers believe land reform will provide the world’s second largest economy with a boost in the way that housing privatisation did in 1998 and China’s ascension into the World Trade Organisation did in 2001. China has maintained tight control over land since public ownership began in the 1950s. Over the past three decades, local governments have used their powers to seize rural land deemed necessary for industrial projects and property development. But there are signs that the county’s rigid rural land rules may be easing. China began rolling out a new land management law from January and the State Council, the government cabinet, pledged in April to deepen market-oriented reform, including for land management. Although about 60 per cent of Chinese lived in cities and towns last year, only 44 per cent were legal residents because of the hukou household registration system, which divides the population into rural and urban citizens and has long been criticised for dragging on economic growth.

Dollar liquidity measures leave some countries out in the cold

The broadest-ever effort to pump dollars into the global economy has bypassed some major emerging markets, leaving them struggling to get their hands on the liquidity they need, according to analysts. Countries need dollars to cover current account deficits, repay external borrowing and to provide liquidity to their banking systems. Many states are struggling with a toxic brew of portfolio outflows, falling hard-currency export revenues and collapsing tourism industries. Among the countries that may struggle to access dollars, Turkey faces one of the toughest repayment schedules, with $22.7bn of dollar-denominated sovereign and corporate bonds and loans repayable this year, according to data from the Institute of International Finance. Argentina has $20.8bn of dollar debt due over the same period, with Indonesia due to repay $16.7bn, Nigeria $8.4bn, South Africa $8.3bn and Colombia $6.9bn, IIF data show. While the Fed’s swap lines are only available to a small number of emerging countries, its repo lines are in theory available to all. But in practice they are only of much use to countries with a large stockpile of foreign reserves that has been invested in US Treasuries.

Fed Chairman Powell: Recovery may begin by summer, will likely be slow

Federal Reserve Chair Jerome Powell expressed optimism on May 17 that the U.S. economy can begin to recover from a devastating recession in the second half of the year, assuming the coronavirus doesn't erupt in a second wave. But he suggested that a full recovery won't likely be possible before the arrival of a vaccine. In an interview with CBS's "60 Minutes," Powell noted that the economy was fundamentally healthy before the virus struck suddenly and forced widespread business shutdowns and tens of millions of layoffs. Once the outbreak has been contained, he said, the economy should be able to rebound "substantially." Powell offered an overall positive message while warning that it would take much longer for the economy to regain its health than it took for it to collapse with stunning speed. "In the long run, and even in the medium run," the chairman said, "you wouldn't want to bet against the American economy. This economy will recover. And that means people will go back to work. Unemployment will get back down. We'll get through this."

U.S. Is Said to Plan to File Antitrust Charges against Google

The Justice Department is planning to file antitrust charges against Google as early as this summer, said two people with knowledge of the situation, in what would be one of the biggest antitrust actions by the United States since the late 1990s. The Justice Department is still investigating the internet company and has been making progress on its case, said the people, who spoke on the condition of anonymity because the details were confidential. The regulators are focused on Google’s dominance in the online advertising industry, and the case will also involve allegations that the company abused its dominant position in online search to harm competitors, the people said. State attorneys general are likely to file their own antitrust lawsuit against Google or join the Justice Department case sometime this year, said a person with knowledge of the state investigation. Taken together, such actions against Google, which controls around 90 percent of all web searches globally, would be one of the biggest antitrust cases in the United States since the 1990s when the Justice Department joined 20 states to sue Microsoft. The two sides reached a settlement in 2001.

A flood of bankruptcies must not overwhelm the recovery

The immediate concern for policymakers today must be to ensure that the system is not overwhelmed by a wave of corporate failures. Even if companies need to be restructured after the crisis has eased, the key for the moment must be to flatten the curve of bankruptcies. The risk otherwise is that the legal infrastructure, notably the courts, becomes swamped. Bankruptcy is an essential mechanism that allows free markets to work efficiently. Good bankruptcy procedures speed up the movement of capital and workers from activities that have become unviable to productive ones. As governments look at ways to wean companies off state support measures, it is vital that viable economic activity can continue. A flexible approach is important. Companies must have the breathing space to restructure the debts they took on to keep them alive during the crisis. This applies in particular to otherwise healthy businesses; the goal must be to eliminate debt overhangs without eliminating productive business activities along with them. Economies cannot afford to lose companies that have specific human and social capital which cannot easily be recreated.

Coronavirus upsets Japan 5G launch

A delayed ramp up of 5G may be a costly setback for the Japanese telecommunications industry, which is grappling with a maturing smartphone market and growing pressure from the government to cut prices. The country's top three carriers -- NTT Docomo, KDDI and SoftBank Corp -- rolled out 5G services in late March. But top executives were muted about the initial response to 5G in recent earnings calls. E-commerce group Rakuten added to the gloom on May 15 when it announced a three month delay on the launch of its 5G service, originally slated for June. The company had made a splash as Japan's fourth national carrier by rolling out 4G in early April. However, Rakuten has betted big on new virtual radio access network technology, which it has said costs far less than building conventional base stations. It launched commercially in April with a campaign offering the service for free to the first three million subscribers.Carriers already faced an uphill challenge in making the case to customers that the new technology is worth paying extra for.Still, some analysts remain hopeful. The biggest gauge of 5G demand in Japan will be the release of the iPhone, which is hugely popular in Japan and accounted for about half of smartphone shipments in 2019.

CNOOC: South China Sea "main battleground" for future oil and gas exploration

Chinese state-owned China National Offshore Oil Corporation (CNOOC) unveiled home-grown floating production storage and offloading vessel, known as an FPSO, that will help boost oil and gas exploration in the South China Sea. The 256-meter-long vessel, Hai Yang Shi You 119, is state-of-the-art oil and gas exploration, extraction and storage platform and the newest to join CNOOC's FPSO fleet, now reaching 17 units and has a world-leading total tonnage. The Hai Yang Shi You 119 can handle 21,000 cubic meters of crude oil and 540,000 cubic meters of natural gas per day and can withstand typhoons. CNOOC said the specialist vessel can be deployed under rough sea conditions in the South China Sea for a long time due to its advanced single point mooring system, the company said, adding there were only four such systems globally. Wang Dongjin, chairman of CNOOC, said the company will make South China Sea the "main battleground" for future oil and gas exploration and promote its seven-year action plan to boost production. As of the end of 2018, CNOOC had two large 10-million-ton oil and gas projects in the South China Sea, with their combined output accounting for one third of the company's total.

Silicon Valley’s Next Big Office Idea: Work from Anywhere

Silicon Valley, the stretch of small cities and office parks south of San Francisco, is a metonym for the entire tech industry, famous for Apple’s $5 billion spaceship-shaped headquarters, Inc.’s 61-story tower in the heart of San Francisco, and, Inc.’s giant, tree-filled glass spheres in Seattle. But two months into the lockdown, some tech companies say the changes brought by social distancing will have lasting impact on how their industry works and recruits. Tech companies are experimenting with virtual ways to hold the conferences and product launches that are central to their efforts to build loyalty and excitement among developers and customers. Some executives see advantages in the shift to remote work, such as accelerating tech companies’ efforts to spread their workforces beyond as soaring property prices and cost-of-living have made it ever harder to find enough talent. However, maintaining the level of communication and camaraderie that enables innovation and product development will be a challenge if significant number of staff remains remote. In part, the future of tech work depends on the function of the teams involved. Those who deal hands-on with hardware, for example, will find remote work harder to pull off.

Pandemic Review Still in Balance as China, U.S. Weigh Response

More than 100 countries, led by the European Union and Australia, have backed a resolution to independently review the global response to the coronavirus pandemic and the question of whether the World Health Organization acted to the best of its limited powers to contain the disease. It isn’t clear if the resolution, to be considered at a WHO summit likely on May 19, will be blocked by the Trump administration, which has pushed for an inquiry much more squarely targeted at China. The inquiry shows the large number of countries trying to find a middle course between the two geopolitical rivals, with many governments in agreement that the WHO lacked the powers to challenge early reassurances from China, and was reluctant to publicly criticize one of its most powerful members. For more than a month, European governments have been working on a resolution that would study the response to the pandemic’s spread. Previous versions of the resolution delicately avoided any focus on the role of China—the EU’s second-largest trading partner—and were opposed by the U.S. This weekend, European officials said they were cautiously optimistic that the latest version wouldn’t be blocked by China or the U.S., although discussions were ongoing.

Navarro ties Obama, Biden and China together in coronavirus attack

White House adviser Peter Navarro came out swinging against former President Barack Obama, former vice-president Joe Biden and China in a vigorous defence of the Trump administration’s handling of the coronavirus crisis. On May 17, Navarro started off by calling Obama’s administration a “kumbaya of incompetence”. “As far as I'm concerned, his administration was a kumbaya of incompetence in which we saw millions of manufacturing jobs go off to China.” President Donald Trump, he went on to say, has built the “most beautiful economy in modern history” – unemployment rates were at 3.5 per cent before the pandemic more than quadrupled that – though China “did take that down in about 30 days”. While saying that he did not believe China deliberately unleashed Covid-19 on the world, Navarro pointed to FBI warnings that the Chinese government is hacking intellectual property, saying it was part of its effort to steal vaccines. “And what would they do with it? It wouldn't be a benign experience. They’d use that vaccine to profiteer and hold the world hostage. So yes, I do blame the Chinese.” Trump is the only one to “stand up to China,” Navarro asserted, unlike Democratic rival Biden who’s “got 40 years of sucking up” to that government.

China’s Coronavirus Response Faces New Critics: Chinese Stuck Abroad

China’s ruling Communist Party faces a new chorus of criticism from abroad over its handling of the coronavirus pandemic. This time, it comes from a source that is hard to brush aside: angry Chinese citizens stuck overseas. A drastic reduction in flights to China has left Chinese passport holders around the world either trapped without a way home, or fighting with stranded compatriots over a limited number of tickets. Desperate, many overseas Chinese have flooded embassy hotlines, posted irate messages on social media and staged protests abroad in hopes that their government will intervene to solve a situation they blame it for creating.More than 85% of China’s 1.6 million overseas students remained abroad as of April 2, a Ministry of Education official said at a press conference last month. An additional 744,000 Chinese citizens were living in other countries as contract workers as of the end of March, according to Ministry of Commerce statistics. Since 2011, when the government was widely criticized on Chinese social media for being too slow to protect Chinese companies and workers that fell under attack during the Libyan civil war, the party’s performance in protecting citizens abroad has served a measure of its legitimacy.

EU state aid rules hinder tech bailouts, say industry groups

More than a dozen tech trade groups, including industry associations in France, Germany, the UK and Ireland, have together written to EU commissioner Margrethe Vestager calling for “more flexibility” in member states’ ability to provide “vital” support to lossmaking but innovative small businesses. National governments in several countries have offered schemes to support R&D or encourage venture capital investment. However, several of these programmes have hit roadblocks in Brussels owing to the EU’s determination that they fall foul of the “undertakings in difficulty” test — a part of European competition law designed to prevent member states from propping up failing businesses with state aid. The EU is seeking to avoid mass bankruptcies and a further increase in unemployment in the bloc through the relaxation of state aid rules in place to prevent unfair handouts to companies. Last month the EU implemented a so-called temporary framework that has led to state aid rules being relaxed to help ailing companies. EU officials have recently loosened rules further by allowing countries to inject equity and debt into businesses suffering as a result of the health emergency. But the tech community wants the EU to go further.

Special Operations look for a new role in Washington’s power struggle with Beijing

The elite US special operations forces are ill-equipped for high-tech warfare with China and Russia, experts warn, as the Trump administration pivots from the “war on terror” to a struggle with geopolitical rivals. A former SOF intelligence officer said the traditional culture of the troops had been changed by the demand for direct battle in counter-terrorism operations. He called for a return to their cold war roots. While some military analysts have suggested SOF should take on more of a supporting role and expand their psychological operations, others urge speedier development of new stealth weapons and cutting-edge technology. David Maxwell, a former Green Beret and military analyst, favours a shift towards political warfare. One such idea of his would involve a popular writer being commissioned to pen “the Taiwanese Tom Clancy” — fictionalised war stories based in Taiwan — intended to discourage Beijing from invading the self-governing island. He told a gathering of Pacific Special Forces operators in February that fictional losses could “tell the stories of the demise of Chinese soldiers who are the end of their parents’ bloodline”. He argued that Beijing’s former one-child policy could be weaponised to convince China that war would be too costly.

Netanyahu's new Israeli government approved, eyes West Bank annexations

Israel’s parliament approved on Sunday Prime Minister Benjamin Netanyahu’s new unity government, ending more than a year of political deadlock, but he still faces a trial starting next week for alleged corruption. His decision to share power with former rival, centrist Blue and White leader Benny Gantz opens the way for Netanyahu to proceed towards a pledged annexation of parts of the occupied West Bank, land that Palestinians seek for a state.After three inconclusive elections, the conservative Netanyahu will remain prime minister for 18 months before handing over to his new partner. Gantz, a former armed forces chief, will be Netanyahu’s defence minister and “alternate prime minister”, a new position that Netanyahu will hold when Gantz takes the helm. By assuming that “alternate” premiership once he hands over to Gantz, Netanyahu hopes to avoid having to resign under legal rules that allow a prime minister to remain in office even if charged with a crime. Israel’s longest-serving leader, Netanyahu, 70, first came to power in 1996 and has served three consecutive terms since 2009. He goes on trial on May 24 on charges of bribery, breach of trust and fraud, which he denies.

Jordan, Palestine ponder joint suspension of Israel agreements

Jordanian and Palestinian officials are considering taking simultaneous action including the suspension of their respective agreements with Israel as a reaction to any annexation of lands in the occupied territories. Ahmad Deek, director of the office of the Palestinian foreign minister, told Arab News that “we share the same goal and direction and we are certain that Jordanian and Palestinian cooperation will be the basis for further Arab harmonization to stop Israeli efforts,” he said. Deek praised the recent statements by King Abdullah to the German magazine Der Spiegel. “We are proud of the king’s position as articulated in the recent interview with the German magazine. It sent a clear message to the occupiers.” Najeeb Qadoumi, a member of the Palestinian National Council, said that all options are open. This includes the suspension of both the Jordan-Israeli 1984 Wadi Arab Treaty and the PLO-Israel 1993 Declaration of Principles. President Abbas said in his latest speech that if any lands were annexed, there would be no justification to keep the Oslo Accords and the PLO will be free from all its commitments. Annexation is dangerous to both Jordan and Palestine and a joint action will send a powerful message.”

Iran complains over US threat to Venezuela oil shipment

Iranian foreign minister Mohammad Javad Zarif wrote to the UN Secretary-General Antonio Guterres on May 17, warning against "America's movements in deploying its navy to the Caribbean.” Zarif complained that the US intention was to "intervene and create disruption in the transfer of Iran's fuel to Venezuela.” The Iranian deployment consists of five tankers carrying around $45.5million (€42 million) of gasoline and related products, as part of a wider deal between Iran and Venezuela. The US has imposed sanctions both nations' oil exports. At the same time, Iran's Deputy Foreign Minister Abbas Araqchi warned the Swiss ambassador to Tehran which represents US interests in Iran — against any US threat against the Iranian tankers. Meanwhile, Iran's Supreme Leader Ayatollah Ali Khamenei on May 17 renewed Iran's demand for US troops to be withdrawn from the Middle East. Khamenei said Americans' actions in Afghanistan, Iraq and Syria had led to them being hated, according to a transcript of a speech to students published on his website."The Americans won't stay in Iraq and Syria and will be expelled," Khamenei said.

Brazil: Coronavirus pandemic reaches dozens of Indigenous groups

The coronavirus pandemic has hit 38 Indigenous groups in Brazil, raising fears for populations that have a history of being decimated by outside diseases. "The virus is reaching indigenous territories across Brazil with frightening speed," the Brazilian Indigenous Peoples' Association (APIB) said in a statement on May 15. Also same day, Colombian President Ivan Duque said Brazil would send more troops to its border with Colombia in the Amazon rainforest to stem soaring COVID-19 infections there. The two countries will also share information about the pandemic and seek to coordinate health measures, the president said after ministers held bilateral talks on May 15.COVID-19 has killed more than 15,000 in Brazil and reported infections have surpassed those in Italy and Spain. Experts say with a lack of testing, these numbers could be much higher. But, President Jair Bolsonaro has repeatedly downplayed the risks of the disease and pushed to reopen the economy. Many people, including healthcare workers, feel they are being left on their own to battle the pandemic.

NIH, Nvidia Use Covid-19 Patient Data to Build Diagnostic System

The National Institutes of Health and semiconductor company Nvidia Corp. built an artificial intelligence system using images of patients with Covid-19 to detect the illness in lung scans. The NIH, the U.S. government’s premier health-research agency, and Nvidia said they developed a system based on a database of more than 3,000 CT images from the U.S., Italy, China and Japan. The data set included more than 2,000 images from confirmed Covid-19 cases. That amount of data and the diversity of the populations it represents help fuel the accuracy of the system, which NIH and Nvidia said is greater than 90%. AI companies have been rolling out systems that can detect Covid-19 in the lungs, with some touting accuracy rates of 90% or more. But researchers are sceptical those numbers can be achieved in the real world, partly because many systems were trained on hundreds or thousands of lung scans from patients who didn’t necessarily suffer from Covid-19. The NIH-Nvidia model has an image-detection algorithm that can isolate the lungs from other organs. That enables a second algorithm to scan the lungs for visual signs of Covid-19. That second algorithm was trained on CT scans confirmed to have Covid-19 and learned the visual patterns that are indicative of the illness.

Coronavirus Vaccine Front-Runners Emerge, Rollouts Weighed

Governments and drug makers are weighing how to roll out coronavirus vaccines, including reserving the first batches for health-care workers, as several shots race to early leads.Of more than 100 vaccines in development globally, at least eight have started testing in humans, including candidates from Moderna Inc. and Pfizer Inc. At the same time, pharmaceutical giants like Johnson & Johnson, AstraZeneca PLC and Sanofi are building capacity to make hundreds of millions of doses of their own or their partners’ vaccines. Once a vaccine is proved in clinical testing to work safely, drug makers expect the U.S. Food and Drug Administration would move quickly to permit its use, even if the agency doesn’t have all the evidence it typically collects before granting an approval. Public-health officials and vaccine experts hope more than one vaccine will cross the finish line, to boost the total number of doses available. “Ideally we’d want seven or eight billion doses the day after licensure, so we can vaccinate the whole world,” said Walter Orenstein, associate director of Emory University’s vaccine center in Atlanta. “The likelihood is we won’t have enough to vaccinate even the entire U.S. population” when a vaccine first becomes available, he said. The prospect of limited initial supplies has triggered manoeuvring over which countries get first dibs. Companies receiving U.S. federal grants, including J&J, Moderna and Sanofi, are expected to reserve some doses for Americans, according to industry officials.

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