COVID-19 International Developments: Daily Scan, May 22, 2020
Prerna Gandhi, Associate Fellow, VIF
Strategic
Two Sessions 2020: China increases defence spending by 6.6 per cent but sets no GDP target, focuses on Hong Kong national security law

Beijing has announced an increase of 6.6 per cent in its military spending, but did not set a target for gross domestic product (GDP) growth for 2020 as the National People’s Congress, China’s most important annual political event, got underway in Beijing on May 22. This year’s growth in defence spending marked a continuous expansion over two decades in the 21st century. However, the rate of increase this year is the lowest in 20 years. It came after the 6.8 per cent shrinkage in GDP in the first quarter of 2020 – the first contraction since quarterly records began in 1992 – after an extensive shutdown to contain the coronavirus outbreak. The government set an urban unemployment rate target of around 6 per cent, compared to 5.5 per cent last year. Consumer-price indextarget was set at 3.5 per cent, versus 3 per cent last year. According to the government’s work report, a new target for urban job creation was set at 9 million, versus 11 million last year. Premier Li Keqiang said a sound legal system and enforcement mechanism for safeguarding national security in Hong Kong should be established and separatist activities seeking Taiwan’s independence should be resolutely rejected.

China Plans New National-Security Laws for Hong Kong

Beijing’s lawmakers will review a resolution to set up and improve legal and enforcement mechanisms for national security in Hong Kong, with consideration to “new circumstances and needs,” a spokesman for the legislature said at a briefing on May 21, without elaborating. President Trump said details on Beijing’s plans aren’t yet known and promised to “address that issue very strongly” if China proceeds. The surprise move would override Hong Kong’s system of self-governance and reflects growing frustrations within China’s leadership over the long-running and at times violent unrest that began last summer and has often targeted the Communist Party and other symbols of Chinese rule. China had pledged to keep Hong Kong’s “capitalist system and way of life” unchanged for 50 years under a “one country, two systems” principle agreed to with the U.K.That same agreement yielded a mini-constitution for Hong Kong, known as the Basic Law, which took effect in 1997 and required the city to enact its own national-security legislation. An attempt to do so in 2003 was abandoned after half a million people took to the street in protest. Local authorities haven’t put forward any similar bills since.

Trump to withdraw US from Open Skies treaty

The US will pull out of the Open Skies treaty, a major international defence accord that allows nations to fly over each other’s territory, the second time in the space of 12 months that the Trump administration has withdrawn from a global arms control deal. Donald Trump said the US would exit the treaty until Russia adhered to its terms. “So I think what’s going to happen is we’re going to pull out and they’re going to come back and want to make a deal,” he told reporters on May 21. “We’ve had a very good relationship lately with Russia.” The treaty, which came into force in 2002 and involves 35 countries, allows Russia and most NATO members to conduct surveillance flights over each other’s territories to verify troop and arms deployments. It was signed in an effort to increase trust between the western military alliance and Moscow after the end of the Cold War. The US has long complained about what it says is Russia’s refusal to allow flights over its heavily militarised Baltic Sea exclave of Kaliningrad, as well as along Russia’s border with Georgia, and over military exercises. A notice of intention to leave the treaty starts a six-month notice period leading to withdrawal.

U.S. Plans New Arms Talks Aimed at Limiting Russian, Chinese and U.S. Nuclear Warheads

President Trump’s new arms-control negotiator is planning to meet with his Russian counterpart soon to discuss a new U.S. proposal for a far-reaching accord to limit all Russian, Chinese and U.S. nuclear warheads, U.S. officials disclosed May 21. The talks will mark the first time the Trump administration has opened negotiations on an agreement to replace the New START accord, which covers Russian and U.S. long-range nuclear arms and is due to expire in February. Marshall Billingslea, who took up his post last month as Mr. Trump’s senior envoy on arms control, will launch the new talks with Sergei Ryabkov, the deputy Russian foreign minister. They have been working to finalize the agenda for the meeting, which is likely to take place in Vienna. China, which has with a much smaller nuclear arsenal than the U.S. and Russia, has repeatedly said it won’t be party to a three-way nuclear accord. Beijing has no history of allowing intrusive arms-control verification on its territory. A Chinese Foreign Ministry spokesman said in January that Beijing had “no intention to participate” in three-way arms talks. Mr.Billingslea, however, has told the Russians that they need to help bring China to the negotiating table. The U.S. plans to use diplomatic—and possibly economic leverage, some officials’ hint—to insist that Beijing participate, U.S. officials said.

South Korean Blue House says it is still early to respond to Trump's new geoeconomic strategy

Cheong Wa Dae has no "conclusive" position on U.S. President Donald Trump administration's stated push for the Economic Prosperity Network, an official said May 22, reflecting Seoul's cautious approach toward the sensitive issue apparently involving China. The initiative is understood to be "still in a planning stage" as part of various ideas on the economic sector from a global perspective, the official said. "So, we have no conclusive answer to share with you," he said on the customary condition of anonymity. The United States is accelerating efforts to sideline China from global supply chains amid deepening rifts between the two sides over the COVID-19 pandemic. At the center of the campaign is the envisioned network called an alliance of "trusted partners”. The U.S. has not formally named them, but it indicated that South Korea is among targeted ones. Secretary of State Mike Pompeo said the U.S. is "working closely with Vietnam, South Korea, New Zealand, Australia and India." The seven countries recently launched vice-ministerial discussions on the coronavirus response.

Arab League slams Iran for interference in regional issues

The Arab League condemned Iran’s continued interference in the internal affairs of Arab countries — both directly and through its proxies — which it said posed a risk to regional security and stability. It denounced Tehran’s constant aggressive behaviour and provocative media activities, pointing in particular to the recent press appearance of a senior official from the Iranian Revolutionary Guard Corps, during which flags and banners of a number of militias as well as armed movements sponsored, financed, and backed by Iran, were displayed. The organization emphasized the need for Iran’s relations with Arab countries to be based on respecting the principles of international law, including those of good neighbourliness, state sovereignty, and refraining from the use of force or threats in any form. League officials also called for the cessation of provocative acts that aimed to undermine confidence and regional security and stability, especially amid the current global humanitarian crisis caused by the coronavirus disease (COVID-19) outbreak. Meanwhile, there were also reactions to international calls for an inquiry into the killing of protesters by Iranian security forces during nationwide demonstrations six months ago over a hike in petrol prices.

Trump’s Swing-State Tour Takes Him to Michigan

President Trump used a visit May 21 to Michigan to promote ventilator production and push for reopening the country, while also making a pitch for political support in a battleground state during a fraught moment. In a state that has seen heavy losses from the virus, Mr. Trump also said it was time for the U.S. to reopen, saying: “A permanent lockdown is not a strategy for a healthy state or a healthy country.” During the roundtable discussion, he said Democratic governors “think its good politics to keep closed, but what are they doing, they’re hurting themselves and they’re hurting the state.” He further added safe reopening can be achieved at factories with social distancing and temperature checks. Mr. Trump is embarking on high-profile travel while his likely Democratic opponent, former Vice President Joe Biden, has been largely confined to holding events from his Delaware home. The Trump campaign believes that the president’s messages on trade and China will resonate with Michigan voters. It has recently has begun airing negative ads against Mr. Biden, arguing he has been soft on China. The Biden campaign has countered, arguing that Mr. Trump failed to hold Chinese President Xi Jinping accountable over the coronavirus pandemic, which originated in China.

Olympics official sees 'real problems' in holding Games in 2021

John Coates, the International Olympic Committee's pointman for Tokyo 2020, indicated that officials would start deciding in October if and how the pandemic-hit Games could go ahead in July 2021. He told a roundtable organised by Australian media giant News Corp that Japanese Prime Minister Shinzo Abe has been clear the Tokyo Olympics could not be delayed a second time. "We can't postpone it again and we have to assume that there won't be a vaccine or, if there is a vaccine, it won't be sufficient to share around the world," he said. Without the safety net of a widely available vaccine, there could be enormous challenges in screening tens of thousands of people from all corners of the world, he said. "We've got real problems because we've got athletes having to come from 206 different nations," said Coates. Coates said if there are signs the pandemic is contained, even if not eradicated, by October, officials will start preparing "the different scenarios by which the sport could take place". "Do we quarantine the Olympic village? Do all athletes when they get there go into quarantine? Do we restrict having spectators at the venues? Do we separate the athletes from the mixed zone where the media are?"

Economic
A Crisis That Has Blunted the Euro's Global Profile

The coronavirus crisis may have dealt a lethal blow to the idea that the euro could one day replace the dollar as the world’s preferred currency, by exposing euro zone frailties and cementing the U.S. Fed’s role as global lender of last resort. These months have highlighted - and possibly entrenched - the dollar’s dominance of global commerce, investment, borrowing and central bank reserve savings, not least because of the differing U.S. and European responses to the crisis. This week’s proposals for a European Union recovery fund financed by jointly issued debt may burnish the euro’s international role if it leads to more cohesion within the bloc. But economists say that even if the proposal makes it past a late-May EU meeting, squabbling, whether over budget spending or the issuance of corona bonds to aid poorer states has re-ignited fears that the euro could even break up. Already in recent years the euro’s share in global finance has shrunk - International Monetary Fund data shows its weight in allocated central bank reserves at around 20%, down from nearly 26% in 2010, though negative European Central Bank interest rates are partly to blame. The dollar, meanwhile, has a 61% share.

Beijing Scraps GDP Target, a Bad Sign for World Reliant on China Growth

China broke with more than a quarter-century of tradition by eschewing an economic growth target for 2020, a stark acknowledgment of the challenges facing the world’s second-largest economy as it grapples with uncertainties around the coronavirus pandemic. The unusual move—it’s the first time a formal target has been omitted since the practice began in 1994—suggests Beijing’s leaders aren’t eager to unleash a large-scale stimulus after China’s sharpest contraction in four decades. It foreshadows more economic pain for a world that has become increasingly reliant on China as an engine of growth. The implicit acknowledgment of sharply slower growth for 2020 marks a climbdown for leader Xi Jinping during a year when he was set to proclaim the end of absolute poverty in the country and double the economy’s size from a decade earlier—political goals meant to burnish his standing ahead of next year’s centennial of the Chinese Communist Party’s founding. Economists had said China needed to grow its economy by at least 5.5% to fulfil the mission of doubling the economy’s overall size—a target that now appears to be out of reach in the absence of a broader reframing of the goals.

World Bank approves record $500 million to battle locust swarms

The World Bank on May 21 approved a record $500 million in grants and low-interest loans to help countries in Africa and the Middle East fight swarms of desert locusts that are eating their way across vast swaths of crops and rangelands. Four of the hardest-hit countries - Djibouti, Ethiopia, Kenya and Uganda - will receive $160 million immediately, Holger Kray, a senior World Bank official, told Reuters. He said Yemen, Somalia and other affected countries could tap funds as needed. Locust swarms have infested 23 countries across East Africa, the Middle East and South Asia, the biggest outbreak in 70 years, the World Bank said. It threatens food supplies in East Africa where nearly 23 million people are facing food shortages. In Kenya, the locusts are eating in one day the amount of food consumed by all Kenyans in two days, Kray said. The new World Bank program will help farmers, herders and rural households by providing fertilizer and seeds for new crops, and cash transfers to pay for food for people and livestock. It will also fund investments to strengthen surveillance and early warning systems to make the region more resilient over the medium- to longer-term, Kray said.

Major economies reopen but traffic still 60%: Google data

Countries around the world have begun easing lockdowns as the spread of the coronavirus slows, but economic revival plans are being stymied by many residents' continued reluctance to risk venturing out. Smartphone location data from Google shows that mobility in 17 major economies stood at 64% of the pre-pandemic baseline as of May 13, based on a seven-day moving average. This does not include China and Russia, for which no data is available. While this is higher than the roughly 50% level in mid-April, when global limits on movement were strictest, it suggests that daily life will not return to normal for some time. Mobility has rebounded significantly in some European cities. Berlin, which allowed restaurants and large stores to reopen in early May, is starting to regain some of its old hustle and bustle. The Google data shows trips to workplaces, which had fallen to half of pre-pandemic levels, recovering to 67% as of May 13. But restaurants still struggle to attract customers. Ridership on trains and buses is down to 32% of normal levels around Paris, where face masks are mandatory and riders at rush hour must carry documentation showing a legitimate need to travel. Authorities, aiming to limit passenger traffic to 15% of capacity as a precautionary measure, are encouraging workers to continue telecommuting.

Half a billion children miss out on education due to lockdowns, says UN

More than half a billion children have lost their access to education as a result of coronavirus lockdowns, according to estimates by the UN, largely due to a lack of internet access which has prevented them from attending school remotely. About 512m children under the age of 18 around the world cannot access education while school closures are in place, the UN estimated. Primary school children have been particularly badly affected by the reduction in access to education, according to the research; children of primary school age accounted for almost 70 per cent of the total number who were missing out on schooling. Almost 60 per cent of all primary-age children had lost access to education, the UN said. Over the course of this year, as lockdowns ease, the effective out-of-school rate for primary-age children is expected to drop back to 19.9 per cent, according to the UN, but this is still more than double the 8.2 per cent rate in 2019, and takes the data series back to levels not seen since the 1980s.

Argentina set for default as it wrangles with bondholders

Argentina extended the deadline on May 21 for an offer to restructure $65bn of foreign debt until June 2, which will tip the country into its ninth sovereign debt default on Friday. Investors and the Argentine government have already confirmed that talks will continue after May 22, when the 30-day grace period for previously missed payments lapses. But simmering tensions over the failure to reach a deal remain, and there is still the danger of chaotic fallout from a technical default. According to Siobhan Morden, head of Latin America fixed income at Amherst Pierpont, a securities firm, the government’s proposal suggests a recovery value of 39 cents on the dollar for the bonds issued after 2016, assuming that the new bonds trade at a yield of 10 per cent after the restructuring. The equivalent value is roughly 42 cents on the dollar for the so-called exchange bonds, which were previously restructured in 2005 and 2010. Those figures are some way adrift of the bondholders’ proposals, according to Ms Morden’s calculations. The exchange bondholder group is seeking an average recovery value of 58 cents on the dollar, on a similar basis.

UK seeks to end reliance on Chinese imports

In light of the coronavirus crisis, British PM Boris Johnson has told civil servants to draw up plans for how the UK can end its reliance on China for vital medical supplies and other key imports, according to a May 22 report from The Times newspaper. The initiative, codenamed 'Project Defend', includes plans to research the UK's biggest economic vulnerabilities to potentially hostile foreign governments. The project is part of a new, broad approach to national security spearheaded by Foreign Secretary Dominic Raab. Depending on the results of the review, the government could choose to "repatriate" key manufacturing capabilities such as pharmaceuticals, which would become part of a new national resilience framework. The review will also look at critical supply chains that rely on components from abroad to make finished products.The newspaper reported that two working groups had been created under the umbrella of Project Defend. A source told The Times that the goal was to diversify supply lines so that in the future the UK will not be dependent on individual countries for non-food essentials. Johnson told lawmakers he would also take efforts to protect Britain's technological base.

EU 'green' recovery to target buildings, clean power, hydrogen: draft

European Union plans for an environmentally-friendly economic recovery from the coronavirus pandemic will target building renovation, renewable energy and clean hydrogen fuel, according to a draft document seen by Reuters. The draft, due to be published on May 27, lays out how the European Commission plans to use low-carbon investments to battle the bloc’s virus-induced economic downturn. The Commission declined to comment on the draft, which may change before publication. The draft climate measures in the Commission recovery plan - which will be funded by the bloc’s long-term budget and a fresh EU recovery fund - aim to transform Europe’s building stock to curb energy use, cut consumers’ bills and quickly create jobs in construction. The Commission will earmark 91 billion euros each year in grants and loan guarantees for renovations like rooftop solar panels, insulation and renewable heating systems.Under the Commission proposal, the EU will tender 15GW of renewable energy capacity in the next two years, with expected investments of 25 billion euros. A 10 billion euro fund, administered by the European Investment Bank, will also offer loans to projects for renewable energy and clean hydrogen - a zero-carbon fuel produced using renewable power. Green hydrogen is seen as crucial to deliver the Commission’s target to decarbonise the EU economy by 2050, by replacing fossil fuels in polluting industrial processes.

How to Keep Workers off the Job

According to a new economic working paper by University of Chicago, two-thirds of laid-off workers are making more unemployed. The Cares Act increased normal state unemployment benefits by $600 a week, which equates to a $15 per hour wage. Jobless payments vary by state, but most replace from a third to half of a worker’s prior earnings. The replacement rate is generally higher for low-income workers. Democrats claimed the additional $600 weekly lump sum was needed to replace 100% of the wages for the “average” worker. They also claimed it would be too technically difficult to tailor payments to ensure workers wouldn’t make more by not working. Republicans went along amid the rush to pass coronavirus relief, but the new University of Chicago study shows what a mistake that was. The result is that 68% of laid-off workers are now making more unemployed, and the average (median) replacement rate is 134%. One in five unemployed workers will make twice as much not working while the bottom 10%—generally part-timers—will collect three times more. The $600 weekly boost expires July 31, but Democrats are pushing to extend it through January. Senate Majority Leader Mitch McConnell on Wednesday said he’ll oppose this, and so should President Trump. The recovery will be slower if businesses can’t find workers.

Vietnam and Mekong peers pay economic price despite low virus tolls

Cambodia, Laos, Myanmar and Vietnam have detected far fewer coronavirus cases than their more advanced Southeast Asian neighbours, but their economies are taking a beating all the same, potentially forcing a rethink of their development models down the road. Analysts at Maybank Kim Eng expect the growth rate for the four Mekong countries collectively known as CLMV to be more than halved this year, to 3% from 6.9% in 2019. Some experts warn that these governments may require international assistance to weather the crisis, even though their virus infections number in the hundreds versus tens of thousands across the Association of Southeast Asian Nations bloc's five largest economies -- Singapore, Indonesia, Malaysia, the Philippines and Thailand."A sharp slowdown in major ASEAN trading partners, particularly Thailand, will weigh on CLMV's exports, especially for Myanmar and Laos," Maybank economists Linda Liu and Chua Hak Bin wrote in a recent report. CLMV "are very small economies, they depend quite significantly on exports of goods and services," CIMB Private Banking Economist Song Seng Wun told Nikkei. "So if we look at, say, the Cambodian clothing industry -- [it is] badly affected by the slump in demand in the rest of the world."

Medical
U.S. doctors call for remdesivir data to guide coronavirus treatment

U.S. doctors and others in the scientific community are calling for the release of data that convinced health regulators to authorize emergency use of Gilead Sciences Inc’s antiviral drug remdesivir to treat COVID-19, so they can direct limited supplies on the right patients. Vanda Pharmaceuticals Inc Chief Executive Mihael Polymeropoulos on May 20 published an open letter asking for a full download of the trial findings that led to emergency use authorization by the U.S. Food and Drug Administration. “What if the drug is best suited to people early in the infection cycle? If we give it to people with severe disease - out of natural compassion - we may have wasted the drug,” the CEO told Reuters. The FDA approved emergency use of remdesivir on May 1 based on preliminary results from a National Institute of Allergy and Infectious Diseases (NIAID) trial showing that the drug cut hospital stays by 31%, or about four days, compared with a placebo. No other details of the 1,063-patient trial have been released. The Institute said by email that a report on the trial will be published in a few weeks. Gilead has not said when.

How should I clean and store my face mask?

Cloth face masks worn during the coronavirus pandemic should be washed regularly, according to the U.S. Centers for Disease Control and Prevention. Public health experts recommend wearing a mask made from cotton fabric, such as T-shirts, or scarves and bandannas, when you are outside and unable to maintain social distancing from others. The covering should be washed daily after use, says Penni Watts, an assistant professor at the University of Alabama at Birmingham's School of Nursing. It is best to clean your mask in a washing machine or with soap and hot water. The mask should be dried completely. Dry it in a hot dryer, if possible. Watts advises storing the clean, dry mask in a new paper bag to keep it safe from germs. The CDC has urged people to use washable cloth coverings to ensure there are enough surgical and N95 masks for medical workers.

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