COVID-19 International Developments: Daily Scan, May 21, 2020
Prerna Gandhi, Associate Fellow, VIF
Economic
Coronavirus stimulus inflation risk depends on politics, not economics

What shifts a society from being in the column of present-day Japan or the U.S. to being in the column with Argentina of the 1980s or Weimar Germany of the 1920s with respect to inflation vulnerability? The main factor seems to be social division and breakdown of government ability to make decisions. It is not the overspending or the deficits per se which provoke the currency runs and (hyper) inflation. The money printing must translate into credit growth in the economy; and the credit growth must translate into effective nominal demand.On the currency side, people must overcome their bias toward holding domestic assets, which varies according to country and period, e.g. 1980s Argentina against 2000s Japan. Thus, it is not a numerical financial calculation of what is or is not sustainable debt, because what is sustainable -- for rich countries with domestic currency financing of debt -- depends upon how much faith people have in the taxation power of the government. This is why Italy or Greece got into trouble in a way that other Europeans did not a decade ago, even though some other countries had similar debt levels.

Fed considers giving clearer guidance on crisis policy

Federal Reserve officials debated ways to give clearer guidance on the future path of US monetary policy, including a stronger pledge to keep interest rates close to zero until the economic recovery reached certain milestones, according to minutes of last month’s meeting of central bank policymakers. “While participants agreed that the current stance of monetary policy remained appropriate, they noted that the committee could, at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions,” according to the minutes. “Such explicit forms of forward guidance could help ensure that the public’s expectations regarding the future conduct of monetary policy continued to reflect the committee’s intentions.” Fed officials also discussed the need to provide “further clarity” on the central bank’s asset purchases programme aimed at supporting the markets for government debt and so-called agency mortgage-backed securities. Investors have called on the central bank to move beyond giving guidance on a week-to-week basis, and instead announce a more long-term schedule.

Coronavirus wrecks South Asian migrant livelihoods in Middle East

There are at least 900,000 South Asians who are stranded overseas awaiting repatriation, mostly migrant workers in the Middle East. Migrants have long sought work in the energy-rich region, drawn by the prospect of better pay and a lack of opportunity at home. Offering their services as construction workers, domestic helpers, cooks, nurses, doctors -- their remittances help their families fend off poverty and keep their home countries' public finances afloat. According to a World Bank report published in late April, India was the top recipient of worker remittances in South Asia last year, at $83.1 billion, followed by Pakistan ($22.5 billion), Bangladesh ($18.3 billion), Nepal ($8.1 billion), and Sri Lanka ($6.7 billion). But the report forecasts total remittances to South Asia will decline 22% to $109 billion this year, compared with growth of 6.1% in 2019, owing to the global economic slowdown brought on by the coronavirus outbreak and a drop in oil prices. Among South Asian countries, Nepal may suffer the most. Remittances from its 1.5 million overseas workers are the country's biggest source of foreign exchange and worth a quarter of its gross domestic product.

Chinese Companies Could Be Forced to Give Up U.S. Listings under Senate Bill

Chinese companies could be forced to give up their listings on American stock exchanges under legislation approved by the Senate on May 20. The bill, which was passed unanimously, addresses investor-protection concerns that have lingered for years but gained political traction as tension between the U.S. and China grew. Companies that sell shares publicly in the U.S. are legally required to be audited by firms that are inspected by the Public Company Accounting Oversight Board, an audit watchdog. The PCAOB and the Securities and Exchange Commission have long tried to negotiate with China for access to the audit records. Those efforts have largely failed, while regulators have been unwilling to kick the companies off the New York Stock Exchange or the Nasdaq Stock Market. The legislation approved by the Senate would require the SEC to prohibit trading in any shares where the company’s auditor hasn’t faced a PCAOB inspection for three consecutive years. It also would require the companies to disclose whether they are owned or controlled by a governmental entity. Chinese companies have raised over $66 billion through U.S. initial public offerings since 1997, according to data from S&P Global Market Intelligence.

China has new US$1.4 trillion plan to seize the world’s tech crown from the US

In the master plan backed by President Xi Jinping himself, China will invest an estimated 10 trillion yuan (US$1.4 trillion) over six years to 2025, calling on urban governments and private hi-tech giants like Huawei Technologies to help lay 5G wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance. The tech investment push is part of a fiscal package waiting to be signed off by China’s legislature, the National People’s Congress, which convenes this week. The government is expected to announce infrastructure funding of as much as US$563 billion this year, against the backdrop of the country’s worst economic performance since the Mao era. “China’s new stimulus plan will likely lead to a consolidation of industrial internet providers, and could lead to the emergence of some larger companies able to compete with global leaders, such as GE and Siemens,” said Nannan Kou, head of research at Bloomberg NEF, in a report.

Issues involving China’s industrial chain should not be ‘overly politicized’: Chinese Official

Issues involving China's industrial chain should not be "overly politicized" and foreign companies' supply chain decisions are based on economic rules rather than the will of an individual, Chinese officials said on May 20. The comments came after US lawmakers and officials reportedly crafted a proposal for a $25 billion "reshoring fund" to push US companies to move operations or key suppliers out of China. Miao Wei, China's industry and information technology minister (MIIT) noted at a press briefing of the State Council, China's cabinet, on May 20 that China has a complete industrial chain and a massive market, which makes it very attractive to foreign investors. About 40 percent of foreign companies plan to expand their investments in China in recent days, per a survey conducted by MIIT, according to Miao. "Those who disregard objective rules will face punishment by the rule," Miao said. He also warned that as there are few companies in the world that can independently supply products across the whole industrial chain, firms that chose to move their supply chains out of China would need to "double down efforts" if they want to re-enter the market.

EU presents 'Green Deal' farming plan to half pesticide use

The European Commission presented its plans for a more environmentally-friendly European Union agriculture and biodiversity policy on Wednesday. The new plans are part of Commission President Ursula von der Leyen's flagship European Green Deal policy. The Commission, the EU's executive, presented a "farm to fork" strategy to reduce the use of pesticides and antibiotics and improve fertilizers. Animal welfare is also to be improved and the fishing industry to be made more sustainable. The strategy, made up of 27 key actions, aims "to reconcile our food systems with our planet's health, to ensure food security and meet the aspirations of Europeans for healthy, equitable and eco-friendly food," EU Health and Food Safety Commissioner Stella Kyriakides said. The new agricultural policy has faced opposition from the center-right European People's Party (EPP), the largest in the EU legislature, who say the timing is bad for EU farmers. European Green Deal policies have taken a back seat as the bloc grapples with the effects of the coronavirus pandemic. Experts are expecting unprecedented levels of food waste this year as farms lack sufficient workers to complete harvests.

Google says it won't build AI tools for oil and gas drillers

Google says it will no longer build custom artificial intelligence tools for speeding up oil and gas extraction, separating itself from cloud computing rivals Microsoft and Amazon. A statement from the company on May 19 followed a Greenpeace report that documents how the three tech giants are using AI and computing power to help oil companies find and access oil and gas deposits in the U.S. and around the world. Google said it will honour all existing contracts with its customers, but didn't specify what companies. A Google cloud executive had earlier in May revealed the new policy during a video interview.Greenpeace's report says Microsoft appears to be leading the way with the most oil and contracts, "offering AI capabilities in all phases of oil production." Amazon's contracts are more focused on pipelines, shipping and fuel storage, according to the report. Their tools have been deployed to speed up shale extraction, especially from the Permian Basin of Texas and New Mexico.

Coronavirus Layoffs Remake Silicon Valley Job Market

The tech industry has been one of the most resilient sectors of the economy during the Covid-19-induced economic downturn. Microsoft Corp. and Amazon.com Inc. reported strong sales growth for the first quarter even as quarantining measures came into effect. But major layoffs at big companies including Uber and Airbnb Inc., as well as a host of smaller startups, have shaken any sense that the tech industry is insulated from the broader employment destruction—and, for many, undermined hope that jobs lost would be easily replaced. Tech start-ups have seen more than 56,000 layoffs since the coronavirus pandemic hit, according to Layoffs.fyi, a job-tracking site. Several tech companies that have avoided job cuts have publicly or quietly instituted hiring slowdowns. Among those easing off is Microsoft, which has temporarily frozen recruitment for some roles while continuing to hire in strategically important areas, according to a spokesman. Google, the search giant owned by Alphabet Inc., publicly announced last month a slowdown in hiring.

Strategic
US asks India to resist China ‘aggression’ at Himalayan border

The United States on May 20 accused China of employing border clashes with India to try to shift the status quo, and encouraged New Delhi to resist. Alice Wells, the top US diplomat for South Asia, drew parallels between the growing skirmishes in the Himalayas and Beijing’s years of increasing assertiveness in the dispute-rife South China Sea. “For anyone who was under any illusions that Chinese aggression was only rhetorical, I think they need to speak to India,” Wells told the Atlantic Council think tank. “If you look to the South China Sea, there’s a method here to Chinese operations, and it is that constant aggression, the constant attempt to shift the norms, to shift what is the status quo.“It has to be resisted,” said Wells, speaking as she retires from the State Department. Indian and Chinese troops have engaged in a growing number of brawls and other low-level clashes on their sprawling border, including a recent stand-off at the Nathu La Pass, which connects the Indian state of Sikkim and Chinese-ruled Tibet.

US plans satellite network to track hypersonic weapons of China and Russia

The United States plans to launch 150 satellites that can track hypersonic weapons in orbit in 2024, a move observers say is aimed at helping the Pentagon control assets in space and keep a close watch on Chinese and Russian activities. According to a draft request for proposals released by the Space Development Agency (SDA) last week, it is seeking a contractor to design and build eight satellites with infrared sensors to track hypersonic weapons, US online military tech publication C4ISRNET reported. Those satellites would be part of the agency’s initial group of 20 to be ready by 2022, the first step towards its goal of having hundreds of interconnected satellites operating in low-Earth orbit, the report said. It plans to add more advanced satellites in the following two years. SpaceX, the California-based private US aerospace manufacturer and space transport firm, plans to launch more than 42,000 satellites into orbit to create a wireless internet service called Starlink. That plan, filed with telecommunications authorities in January, is roughly triple the number of satellites put into orbit by anyone so far.

Trump suggests hosting G-7 summit in person in Washington area

U.S. President Donald Trump on May 20 suggested rescheduling the Group of Seven summit in the Washington area, after having cancelled an in-person meeting planned in June due to the coronavirus pandemic. "Now that our Country is 'Transitioning back to Greatness,' I am considering rescheduling the G-7, on the same or similar date, in Washington, D.C., at the legendary Camp David," he tweeted, as the country emerges from weeks of a pandemic-triggered shutdown. In March, the White House said the United States would hold a video conference instead of bringing together the G-7 leaders from June 10 to 12 at Camp David, the presidential retreat near the capital, so that countries could focus on the fight against the coronavirus. Trump said on Twitter that other G-7 members are "also beginning their COMEBACK," and that holding a summit in the U.S. capital area would be a "great sign to all" of "normalization."The other G-7 members are Britain, Canada, France, Germany, Italy and Japan, as well as the European Union.

China has much to lose from a Joe Biden presidency

Even before the Covid-19 pandemic, there was nothing that Mr Trump was not willing to say about China. With the economic boom gone, his way to ­re-election is to foment a sense of siege against the world outside America. As the Democrats’ White House nominee, Mr Biden cannot ignore President Donald Trump’s jibe that he is soft on China. But the more he answers in kind (Mr Trump “rolled over for the Chinese”, says one Biden advert) the more he boxes himself in. We are seeing two men counterbid each other into an ever harder line against Beijing. Whoever wins, don’t assume it can be relaxed. If there is to be another cold war, it should be fought with the subtlety of the first. The cold war was not just a missile race, then. It was a popularity contest. “Soft power” is the reflex term here, but it implies something fancy, when what we mean is the plainest common sense. A renewed commitment to NATO, less trade militancy, a pretence of seriousness on climate change: all could stop Europe, Australia and other American allies slipping out of Washington’s orbit through neglect.

Russia Suffers Double Hit from Oil Slump and Coronavirus

Russia has recorded 308,705 coronavirus cases, the world’s second-largest tally after the U.S., and 2,972 deaths as of May 20. Unemployment has doubled to 1.4 million since early April, and Mr. Putin has warned the worst has yet to come. The economy minister, Maxim Reshetnikov, has estimated the lockdown costs Russia’s economy $1.3 billion each day in lost output, while the country’s purchasing managers index, a key measure of economic activity, slumped in April to its lowest level since records began in 1997. Another problem is that lower oil prices have hit not only Russia’s budget and the value of the rouble—one of the world’s worst-performing currencies this year—but also the $165 billion National Wealth Fund. Lower prices mean smaller contributions to the fund and officials have been cautious about how they use it, given the uncertain outlook for oil prices. They have drawn down only $26 billion so far to provide for the pandemic response. The fallout is now threatening Mr. Putin’s long-term plans to strengthen Russia’s economy and buttress his own dwindling approval ratings through a $400 billion series of infrastructure projects such as new highways and high-speed rail lines. The government has said the scope of the National Projects, as they are known, will have to be adjusted, though insists they will go ahead.

Brazil faces international backlash over Amazon land reform bill

For decades, so-called land grabbers have claimed vast tracts of public terrain in Brazil, particularly in the sparsely populated Amazon rainforest. The land is typically cleared of its forest and then used to grow soy or raise cattle. Backed by the right wing Jair Bolsonaro administration, the proposal before Congress is aimed at “regularising” these land claims by offering the settlers a way to obtain legal deeds for their properties. Hamilton Mourão, Brazil’s vice-president who heads a newly created national council for the Amazon, has defended the bill, saying: “[If] we don’t know who owns the land, we cannot bring [anyone] to justice when they are doing illegal activities.” Critics, however, have argued it would legitimise illegal land seizures. “Should the measure pass, it would encourage further land grabbing and widespread deforestation which would jeopardise the survival of the Amazon and meeting the targets of the Paris Climate Change Agreement and undermine the rights of indigenous and traditional communities,” said the letter signed by European companies, including Sweden’s $50bn AP7 pension fund.

U.S. has not cut Afghan security funds despite Pompeo vow of immediate slash – sources

The U.S. Defense Department has not withheld $1 billion in funding from Afghan security forces despite Secretary of State Mike Pompeo’s vow on March 23 to cut that sum “immediately”, five sources familiar with the matter said. The Pentagon has been reluctant to shave the funds announced by Pompeo and Defense Secretary Mark Esper has not provided guidance to his agency on how to carry it out, three sources told Reuters.A fourth source, a U.S. official, said while the Pentagon was concerned about the cut, Esper and senior department officials had signed off on Pompeo’s decision. Sources have told Reuters the $1 billion would come from a $4.2 billion Pentagon fund that underwrites about three quarters of the Afghan security forces’ annual budget. A U.S. defense official previously described “huge concern” within the Pentagon about slashing that funding, which chiefly covers salaries, food, fuel, equipment and infrastructure for Afghan troops and police. The main provisions of a pact between the US and Taliban - to which the Afghan government was not a party - involved a U.S. commitment to reduce its military footprint in Afghanistan to 8,600 by mid-July and, conditions permitting, to zero by May 2021.

Pakistan bans political party critical of China's Belt and Road

Pakistan's interior ministry early this month outlawed Jeay Sindh Qaumi Mahaz-Arisar (JSQM-A), a party based in the southern province of Sindh, along with two militant groups in the same province -- the Sindhudesh Liberation Army (SLA) and the Sindhudesh Revolutionary Army (SRA) -- citing "reasonable grounds" that the organizations have ties to terrorism. Since 2003, Pakistan has regularly banned a variety of organizations, including al-Qaeda-linked jihadi militants as well as secessionist insurgent groups. However, after the arrival of the China-Pakistan Economic Corridor, a flagship BRI project, the list of outlawed groups expanded to include ethnic and sectarian groups from the south western province of Balochistan and the northern region of Gilgit-Baltistan that pose threats to Chinese investment in the country. The number of outlawed groups has reached 76 with the latest additions from Sindh. The recent bans have been linked with an ongoing campaign -- both peaceful and violent -- against the CPEC-linked projects in Sindh that began in 2011 when China announced plans to build a new industrial city called Zulfikarabad along the lines of the Chinese city of Shenzhen. At that time, the province's ethnic Sindhi groups, including the JSQM-A, launched a peaceful campaign against the projects, accusing China of attempting to become a new colonial power.

Medical
Some scientists think banning mass gatherings may be enough to keep the pandemic in check

Some scientists looking for ways to prevent a return to exponential growth in coronavirus infections after lockdowns are lifted are zeroing in on a new approach: focus on avoiding super spreading events. The theory is that banning mass public events where hundreds of attendees can infect themselves in the space of a few hours, along with other measures such as wearing face masks, might slow the pace of the new coronavirus’s progression to a manageable level even as shops and factories reopen. Researchers believe that the explosive growth of coronavirus infections that overwhelmed hospitals in some countries was primarily driven by such events earlier this year—horse races in Britain, carnival festivities in the U.S. and Germany or a soccer match in Italy. A more surprising finding is that mass infections tend to be more serious than those contracted in other circumstances, perhaps because of sustained exposure to a larger amount of virus. Prof. Michael Small, who holds the Chair in Complex Engineering Systems at CSIRO, Australia’s national science agency, studied both coronavirus outbreaks and says the lesson is that authorities must curb all gatherings of more than 100 people. One remaining question mark regards schools. While no country where schools have reopened has so far reported a sharp increase in infections, some scientists fear schools could act as accelerators for the pandemic.

The Evidence on Kids and Covid

The Centers for Disease Control and Prevention reported last week that 15 children under age 15 in the U.S. have died of Covid-19 since February compared to about 200 who died of the flu and pneumonia. Children represent 0.02% of virus fatalities in the U.S., and very few have been hospitalized. A study in the Journal of the American Medical Association (JAMA) Pediatrics last week found that only 48 children between March 14 and April 3 were admitted to 14 pediatric intensive care units in the U.S., and 83% had an underlying condition. The most common was “a long-term dependence on technological support (including tracheostomy) associated with developmental delay and/or genetic anomalies,” the authors note. The fatality rate for children in ICUs was 5% compared to 50% to 62% for adults. One theory is that children have stronger “innate” immune response that allows them to quickly clear the virus without developing antibodies. Another is that the virus may not bind as easily to the ACE2 receptors in children’s nasal passages that are the cellular entry-way for invading the body. It’s also possible that children have cross-protection from earlier coronavirus-causing common colds.

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