COVID-19 International Developments: Daily Scan, May 29, 2020
Prerna Gandhi, Associate Fellow, VIF
IMF says pandemic may skew economic data and cause them to be less accurate

The coronavirus pandemic “has disrupted the production of many key statistics,” the International Monetary Fund said in a blog post this week. The IMF explained that lockdown measures in many countries to contain the virus has hampered physical visits to stores to survey retail prices, while businesses that have to temporarily shut may not have the resources to respond to questionnaires about production and investment plans. “Without reliable data, policymakers cannot assess how badly the pandemic is hurting people and the economy, nor can they properly monitor the recovery,” the blog post read. The blog post comes at a time when many countries are releasing data on gross domestic product for the first three months of the year — when the coronavirus started to spread globally. GDP is a broad measure of the size of an economy and is widely watched indicator by governments, central banks and investors. The IMF said there are ways to overcome those challenges, including using alternative sources of information. For example, missing retail prices due to store closures could be replaced with online prices, it explained.

Could American banks get caught in the middle of US-China rift over Hong Kong?

A gateway for capital flowing in and out of mainland China, Hong Kong has for decades also served as a lucrative regional hub for America’s biggest banks operating in Asia. The US was Hong Kong’s second-largest trading partner after mainland China, according to Hong Kong’s Trade and Industry Department. American banks accounted for 5 per cent of the banking sector in the city in 2019, with about US$166 billion in total assets, according to the Hong Kong Monetary Authority, the city’s de facto central bank. For US banks, Hong Kong has been a significant hub for corporate and investment banking, both inside and outside mainland China, and, increasingly, wealth management, as China has grown wealthier. Last year, American banks played key roles in some of the biggest listings in the city. Hong Kong has led global fundraising for seven of the past 11 years. American banks accounted for 19 per cent of investment banking fees booked in Hong Kong last year, or about US$309.8 million, according to data provider Refinitiv. Overall, investment banks earned US$1.63 billion in fees last year.

Debt relief plans for world's poor countries inch forward

Plans for debt relief for the world’s poorest countries inched forward on May 28 as private creditors laid out a blueprint for their involvement, though it received immediate criticism for not going far enough. The proposal shepherded by the Institute of International Finance said creditors would grant debt breaks on a case-by-case and voluntary basis this year, after concluding a one-size-fits-all approach would have been “practically impossible.” It was the culmination of work involving more than 100 top money managers after the Group of 20 economies had called on the private sector to match their recent Debt Service Suspension Initiative (DSSI) to help 77 low-income countries.The G20 proposal and the IIF plan cover only to the end of the year, and with no cure for coronavirus expected in the coming months, it may not be enough. The IIF’s plan included coordination with the International Monetary Fund, World Bank, Paris Club, United Nations Economic Commission for Africa, and more than a dozen finance and development ministers representing DSSI-eligible countries.

China Loosens Business Travel From Korea and Germany, Pressuring Other Countries

Beijing has allowed roughly 500 German managers and their families to return on two chartered Lufthansa flights this week. The first group is slated to leave Frankfurt for Tianjin tomorrow. A second flight from Frankfurt to Shanghai is planned for June 3. The flights, which follow a limited resumption of business travel between South Korea and China earlier this month, show China’s eagerness to restart its economy and reintegrate itself into the global economy. Following its “fast-track” program with Seoul, China is finalizing a similar arrangement for resuming essential travel with Singapore, and an agreement may be announced as soon as this week, according to people with knowledge of the matter. While much of the world’s economy remains hobbled by health restrictions, companies are attempting to rebuild supply chains, boost sales and increase employee productivity. Those that can achieve that fastest are likely to emerge with a competitive edge. On the other hand, the American Chamber of Commerce in China has been lobbying Chinese and U.S. officials to get its members’ staff back. “It is a real problem for companies,” said Jake Parker, senior vice president at the U.S.-China Business Council, whose membership includes American firms with a presence in China. “A lot of the executives are having real problems getting back.”

Businesses swallow ‘bitter medicine’ of Hong Kong security law

Several executives working in professional services in Hong Kong, including law firms, global and Chinese-owned banks, have said that they will stomach the new law — which critics fear could severely curb civil liberties in the financial centre — if it returns calm to the city. The change of heart comes after the city’s global image was transformed from a safe and flourishing centre to business to one of masked protesters and streets cloaked in tear gas. The sentiment among some finance professionals has stuck, despite the threat that the US will remove Hong Kong’s special trade status that distinguishes it from mainland China. Hong Kong acts as a platform for moving capital in and out of China, with large state-owned Chinese banks rubbing shoulders with big western banks such as Citi and Goldman Sachs. One top executive at a state-owned bank said the city would no longer be useful to Beijing without an intervention such as the national security law. “People are making bombs. These are serious threats to our staff,” the person said. “If things continue like this, can anyone do business here anymore?”

Capital Flight Fears Grow Alongside Hong Kong Political Turmoil

The change in the aggregate balance of interbank liquidity -- bank funds held with the Hong Kong Monetary Authority -- is among the most visible indicators of fund-flow pressures. Recent intervention by the HKMA to defend the local dollar’s peg to the greenback has helped. A rapid withdrawal of deposits or reversal of portfolio flows would drain confidence in Hong Kong’s economy, though there’s little sign in the data of a sharp decline. Unlike mainland China -- where the capital account is tightly controlled -- Hong Kong allows money to flow unrestricted. Sustained periods of outflows have occurred during previous bouts of stress such as the global financial crisis and SARS epidemic, and when the Federal Reserve was raising interest rates. A lot will depend on how the security law is enforced -- a heavy-handed approach could prompt money to flow out of the city. For now, Hong Kong’s role as a source of capital, strong rule of law, ease of doing business and educated labour force are factors too powerful for China to discard. There’s no one measure that shows how capital is moving in and out of Hong Kong and certainly trends in the currency, stocks and property markets can be skewed by other factors. Instead, analysts rely on a variety of metrics to determine capital flows.

Restaurants Say Socially Distant Dining Rooms Could Wipe Out Business

Restaurants that built their businesses on keeping seats full are trying to figure out how to run at a fraction of that capacity. Of the 30 states that have allowed restaurants state wide to resume serving customers indoors, 15 have limited capacity to 25% or 50%, according to market-research firm Gordon Haskett. The rest are mandating social distancing that have the effect of reducing capacity, or have yet to release guidance. Even as restaurants reopen, many Americans say they don’t feel comfortable going out to eat yet. A survey of 2,500 U.S. consumers this month found that three-quarters planned to avoid restaurants or dine out less frequently, according to Wall Street firm Cowen. Independent restaurants face even greater challenges than sit-down chains because they tend to have less room to cordon off customers and fewer seats to remove. Many owners say their restaurants won’t survive if they can’t fill their seats. Some say they don’t think customers will pay to eat in restaurants with empty tables and bars with fewer stools. “You walk in and it feels like a tomb,” said Ray Washburne, co-owner of Texas-based M Crowd Restaurant Group Inc. and a member of a White House task force of business leaders advising the administration on reopening the economy.

China’s top cobalt producer halts buying from Congo miners

Huayou Cobalt, one of the top global suppliers of the metal used in batteries for electric cars and mobile devices, has faced growing scrutiny in recent years over human rights violations in the DRC, which accounts for more than two-thirds of global output. In December it was named alongside technology companies including Apple, Dell and Microsoft in a US class-action lawsuit filed on behalf of families of children killed or injured while mining cobalt in the central African nation. Huayou has said it has cut child labour out of its supply chain and is working to help formalise small-scale mining in the Congo through efforts to improve safety and better trace cobalt. But pressure from the company’s customers following the lawsuit has led it to stop buying from so-called artisanal miners altogether, according to people familiar with the matter. Shanghai-listed Huayou is a key supplier to the electric vehicle industry, providing cobalt to battery makers LG Chem of South Korea and CATL of China, as well as Chinese carmaker BYD and Germany’s Volkswagen. Most of the DRC’s cobalt is shipped to China to be refined and processed. Up to 20 per cent of its output comes from individual miners, who dig for the metal by hand without safety protection.

Buffet, Bezos and Blackrock Are Betting Big On This $30 Trillion Mega-Trend

Big money is shifting its capital to companies that are smart enough to figure out how to mitigate risks related to sustainability and climate crises, and still turn a profit. Not only will a company’s pandemic response be a major determinant of how they are graded in the future, but so will their response to every conceivable crisis the future may have in store, from climate change to another pandemic and everything in between. Even before COVID-19, sustainable funds were outperforming their conventional counterparts throughout 2019. The pandemic simply proved up the trend. Between 2016 and 2109, impact investing grew 34%. Since then, the surge has been “skyward” according to Nigel Green, CEO of the de Vere Group. Sustainable investments also wildly outperformed conventional in Q1 2020, and the world’s biggest hedge funds are betting trillions that this is the new path to profit. What’s changed is this: Under investor pressure, enough companies are beginning to figure out how to make sustainability profitable because lack of sustainability isn’t turning out to be the cash cow they thought it was. If you can’t monetize it, then your $100 billion valuation dreams will never be realized. Again, ask Uber.

How Long Until Hydrogen Is Competitive At The Pump?

Hydrogen might have a way to break through one of the barriers that keeps it from reaching mass-scale adoption for fuel cell electric cars and trucks. Hydrogen fuelling stations that have been installed in the US, Europe, Japan, and South Korea, have been quite limited in available fuel pumps — and the supply of hydrogen. The National Renewable Energy Laboratory estimates that hydrogen fuel prices may fall to the $10 to $8 per kg range in the 2020 to 2025 period, according to CaFCP. The California agency sees hydrogen needing to come down to that price range to become competitive with gasoline and diesel. One of the real challenges will be getting enough hydrogen to the fuelling station to meet maximum demand. Another hurdle to clear — the actual source of the hydrogen — will be gaining much attention as the world's largest green hydrogen plant makes its way to Lancaster, Calif. The production plant just north of Los Angeles will use plastics and recycled paper as a feedstock — waste that would otherwise go to a landfill. It has to be gasified at temperatures of 7,000 degrees Fahrenheit before being converted into hydrogen. SGH2 Energy Global, which is part of the Solena Group, has been in charge of the project. It’s been selling the technology on the carbon emissions and cost fronts.

Direct-selling helps Indian farmers swerve food waste under lockdown

The Vegetables Growers Association of India estimates that 30% of ready-to-harvest crops have been left to rot during the lockdown. That's compared to around 5 to 10% typically wasted on Indian farms, according to Sudha Narayanan, an economist at the Indira Gandhi Institute of Development Research. But some farmers — and consumers — have found ways to save their crops and keep supplies flowing. Ruchit Garg, who heads an agricultural finance company, launched the Harvesting Farmer Network Twitter handle on April 12, after he saw farmers dumping fresh fruit and vegetables on the roadside. It has since been used to list more than 1,600 tons of fresh produce from thousands of farmers. Each Tweet gives a farmer's name and contact number, crop, quantity and location. Initiatives are coming from consumers, too. Less than a week into lockdown, the Residents Welfare Association of Sarjapur in Bengaluru was contacted by local farmers struggling to sell their produce. It gauged interest from its members, helped the farmers get police permission to transport, and the next day the farmers were delivering tomatoes, potatoes, eggplants and leafy vegetables to Sarjapur apartment buildings. Still, direct-selling is more challenging for some farmers than others, and location is key factor.

World leaders react to China’s controversial national security bill in Hong Kong

China on May 28 approved a controversial proposal to impose a national security law for Hong Kong, reigniting concerns over the financial hub’s diminishing freedoms. China’s new security law for Hong Kong is said to effectively bypass Hong Kong’s legislature, raising concerns over whether it is a breach of the Chinese city’s autonomy. In a joint statement from the US, UK, Australia and Canada, the four countries expressed their “deep concern” regarding Beijing’s proposed law. “Hong Kong has flourished as a bastion of freedom. The international community has a significant and long-standing stake in Hong Kong’s prosperity and stability,” it said. “Hong Kong’s autonomy must not be undermined,” Germany’s Foreign Minister Heiko Mass said in a statement, adding that it was an opinion shared by the European Union. Taiwan’s president Tsai Ing-wen pledged support for Hong Kong immediately after Beijing proposed the law last week. She said Taiwan “stands with the people of Hong Kong,” and pledged “necessary assistance” to those who need help. Even before the bill was passed, Japan’s foreign ministry issued a statement saying: “Japan is seriously concerned” about China’s decision toward Hong Kong.

UK opens door to citizenship for 300,000 HK residents

The UK government has opened a path to citizenship for more than 300,000 Hong Kong residents in a bold riposte to China's security crackdown on its former colony. Dominic Raab, foreign secretary, has pledged to extend visa rights for British National (Overseas) passport holders and facilitate their path to British citizenship unless Beijing rows back from plans to impose national security laws on Hong Kong. The offer is a striking move from a government that is committed to restricting immigration and shut the door to free entry to the UK for EU citizens after voting through its Brexit deal last year. It came after China formally approved a plan to impose national security legislation on Hong Kong, following increasing frustration in Beijing at the city’s failure to clamp down on pro-democracy protests. About 315,000 people hold valid BNO passports, a document issued to Hong Kong residents born before the handover of the territory from UK to Chinese sovereignty in 1997. Those residents who registered for BNO status before the handover have the right to consular assistance but they are not British citizens and only have the right to come to the UK for six months.

Russia to Expand Influence in Iraq’s Oil Heartland

With Rosneft having effectively taken control of Kurdistan’s oil and gas sector in northern Iraq through the deal done in November 2017, Russia had been looking to leverage this presence into a similarly powerful position in the south of the country. In particular, Moscow had sought to strike new oil and gas field exploration and development deals with Baghdad as part of Russia’s role in intermediating in the perennial dispute between Kurdistan and the south on the budget disbursements for oil deal. These ambitions were put on hold as Russia did not want to be associated with the increasingly overt anti-American militancy in southern Iraq that resulted in a number of strikes against U.S. military installations. Last week, though, Russia signalled that its intentions in southern Iraq are back on track, as Moscow’s ambassador to Baghdad, Maxim Maksimov, stated that: “Russian companies are willing to mobilise significant funds and have submitted an investment tender for the al-Mansouriya gas field in Diyala.” There has also been the relatively recent signing of a preliminary contract between Russia’s Stroytransgaz and Iraq’s Oil Ministry to develop the hitherto virtually unknown Block 17 in Iraq’s lawless wasteland Anbar province.

Russia pulls China closer with ties in space exploration and energy

Russia is beefing up its strategic partnership with China by embarking on ambitious projects in areas such as space exploration, resource development and military support. Among the high-profile and high-cost projects include the construction of a moon base and a second pipeline to transport Russian natural gas to China. The two space technology powerhouses are discussing plans to pool resources for collaborative lunar operations, according to an article by RIA Novosti that quoted a source in the Russian space and rocket sector. A bilateral group is working on lunar cooperation plans, including drawing up blueprints for a shared base and separate bases, according to RIA. If China and Russia team up to launch a lunar mission, they would effectively be throwing down the gauntlet to the U.S., which has been working on its Artemis program to land humans on the moon again by 2024. In the military sphere, Russia is supporting China's efforts to build an early warning system to detect missile attacks from enemies. Russian President Vladimir Putin said it will be a "purely defensive" system, stressing that Moscow is not seeking a military alliance with Beijing.

UN delays crucial climate summit for a year, cites pandemic

The coronavirus pandemic has prompted the United Nations to delay until late 2021 a crucial climate summit that had been scheduled for Britain this year, officials said on May 28. This year's meeting, known as the COP26 summit, had been billed as the most important climate change summit since the 2015 talks that produced the Paris Agreement. Hundreds of world leaders had been expected to respond to public pressure for stronger global climate action by delivering pledges to slash greenhouse gas emissions more rapidly. The summit will be rescheduled to Nov. 1 to 12, 2021, the UN's climate body decided, dates proposed by the British government. Glasgow, Scotland will remain the host city, and there will first be a warm-up summit in Italy. British climate official Alok Sharma said the delay would give countries more time to rebuild economies with climate change prioritized. Negotiators from bloc of less developed countries also urged governments not to use the pandemic to delay stronger climate plans, but instead to boost renewable energy, conservation and other green measures as economies recover.

EU pledges to stay green in recovery from coronavirus

The European Commission pledged on May 28 to stay away from fossil-fuelled projects in its coronavirus recovery strategy, and to stick to its target of making Europe the first climate neutral continent by the mid-century, but environmental groups said they were unimpressed. To weather the deep recession triggered by the pandemic, Commission President Ursula von der Leyen has proposed a 1.85euro trillion ($2 trillion) package consisting of a revised long-term budget and a recovery fund, with 25% of the funding set aside for climate action. Frans Timmermans, the commission executive vice president in charge the European Green Dealconceded, however, that projects involving fossil fuels could sometimes be necessary, especially the use of natural gas to help move away from coal. The commission also wants to dedicate an extra 15 billion euros ($16.5 billion) to an agricultural fund supporting rural areas in their transition toward a greener model.

EU Took Big Step with Coronavirus-Recovery Proposal—Now Comes the Hard Part

Plans announced by European Union officials on May 27 to address the bloc’s coronavirus-triggered economic crisis have surprised longtime EU watchers with their speed and gutsiness. If member states get onboard, the program stands to chart a new path for the bloc. Central to the package is a proposal for the European Commission, the EU’s executive arm, to borrow hundreds of billions of euros from debt markets, a move that would set significant precedents and break longstanding taboos. While the commission has in the past issued bonds for tens of billions of euros, the new plan is an order of magnitude larger. If the commission does get deeper into the business of borrowing, and potentially also raising funds to support it, the shift would push the EU a large stride closer to a federal structure, rather than the looser political and trading alliance it primarily is now. Crossing that line faces opposition from both governments that fear being on the hook for other countries’ debt and from citizens across the bloc who don’t want to see a United States of Europe. Resentment over the EU’s increasingly federalist trends was a driving force behind Britain’s exit from the bloc earlier this year and has inspired anti-EU movements in France, Italy, Scandinavia and some newer EU countries in the east. But as a response to unprecedented crises, European coalescence around once-unthinkable proposals has won support from financial markets and political observers.

WHO Faces Pressure to Reform—With Expanded Powers

Days after President Trump said the U.S. would freeze funding for the World Health Organization last month, Australian Prime Minister Scott Morrison pushed for a revamp of the agency’s mandate to give it powers to investigate potential pandemics similar to weapons inspectors. The proposal spoke to the failure of efforts in recent decades to overhaul the WHO, even as the outbreaks of yellow fever, SARS, Ebola and now the new coronavirus sparked repeated calls from health experts for an expanded mandate for the agency. The hope is that the ability to send investigators to a country quickly to probe the source and scope of a public-health crisis would allow the organization to more speedily alert the world about a potential pandemic. Yet expanding the WHO’s powers would likely be protracted and tortuous. While most countries have benefited economically from globalization, they have been largely unwilling to cede sovereignty to international bodies to tame its risks. Some of the loudest voices advocating inspection powers for the WHO in China have previously opposed giving United Nations bodies such supranational powers over their own countries.

Trump Signs Executive Order that limit the broad legal protection federal law provides online platforms

President Trump signed an executive order on May 28 seeking to limit the broad legal protection that federal law currently provides to social-media and other online platforms, a move that is expected to draw immediate court challenges. The order seeks to scale back sweeping legal protections that Washington established for online platforms in the 1990s, in the internet’s early days. Those protections were created by Congress in Section 230 of the 1996 Communications Decency Act.In a post late May 28, Twitter described the executive order as “a reactionary and politicized approach to a landmark law.” It said Section 230 protects innovation and freedom of expression, and that “attempts to unilaterally erode it threaten the future of online speech and Internet freedoms.” Facebook said that repealing or limiting section 230 would “restrict more speech online, not less” and “would penalize companies that choose to allow controversial speech and encourage platforms to censor anything that might offend anyone.” Google also criticized the executive order on May 28. “Undermining Section 230 in this way would hurt America’s economy and its global leadership on internet freedom,” a Google spokeswoman said in a statement. The company enforces its content policies without regard to political viewpoint, she said.

Taiwan plans to buy land-based Harpoon anti-ship missiles from US – military

Taiwan plans to buy land-based Boeing-made Harpoon anti-ship missiles as part of its military modernization scheme, its Defense Ministry said on May 28. Speaking in parliament, Deputy Defence Minister Chang Che-ping confirmed that Taiwan was planning to buy Harpoon missiles from the US to serve as a coastal defense cruise missile. If the US agrees to sell the Harpoons, Taiwan should receive them in 2023, Reuters quoted Chang as saying. The US government last week notified Congress of a possible sale of advanced torpedoes to Taiwan worth around $180 million, further souring already tense ties between itself and China. Beijing has denounced the Trump administration’s increased support for Taiwan.

Pompeo says Trump to act on Chinese students

The United States will take action to prevent alleged espionage by Chinese students, Secretary of State Mike Pompeo said on May 28, ahead of an expected announcement by President Donald Trump. Trump earlier said that he will hold a press conference on May 29 about China amid soaring tensions between the two powers, including over the status of Hong Kong and the COVID-19 pandemic. Asked about a report in The New York Times that Trump was considering throwing out thousands of graduate students, Pompeo said that Chinese students "shouldn't be here in our schools spying". "We have an obligation – a duty – to make sure that students that are coming here to study ... aren't acting on behalf of the Chinese Communist Party," Pompeo said.The New York Times said that the Trump administration was considering annulling visas for thousands of graduate students linked to China's military. The move would be certain to draw criticism from universities, which rely increasingly on tuition from foreign students – of which China and India are the largest sources – and have already been hit hard by the COVID-19 shutdown. "This isn't a red scare, this isn't racist. Chinese people are a great people," Pompeo said when asked about the concerns.

Where are people getting sick?

In order to get infected you need to get exposed to an infectious dose of the virus; based on infectious dose studies with other coronaviruses, it appears that only small doses may be needed for infection to take hold. Some experts estimate that as few as 1000 SARS-CoV2 infectious viral particles are all that will be needed. Please note, this still needs to be determined experimentally, but we can use that number to demonstrate how infection can occur. Infection could occur, through 1000 infectious viral particles you receive in one breath or from one eye-rub, or 100 viral particles inhaled with each breath over 10 breaths, or 10 viral particles with 100 breaths. Each of these situations can lead to an infection. Remember the formula: Successful Infection = Exposure to Virus x Time. The exposure to virus x time formula is the basis of contact tracing. Anyone you spend greater than 10 minutes with in a face-to-face situation is potentially infected. Anyone who shares a space with you (say an office) for an extended period is potentially infected. This is also why it is critical for people who are symptomatic to stay home. Your sneezes and your coughs expel so many viruses that you can infect a whole room of people.

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