Global Developments and Analysis: Weekly Monitor, 27 July - 02 August 2020

Economic

Biggest problem facing world economy is not inflation or deflation, but low growth

The economic contraction caused by the coronavirus pandemic is staggering. From a public health point of view, it has been necessary to restrict access to certain sectors and services to help slow the spread of the virus. But, because those sectors should not bear so much of the burden, fiscal measures have been deployed for reasons of fairness. Still, as the pandemic recedes and the economy reopens, we cannot expect demand to increase sufficiently to offset the initial contraction. In economic terms, the initial loss itself is not "recoverable" because the time itself is forgone. Unlike textbook fiscal policy, where economic fluctuations smooth out over time, governments cannot recoup foregone tax revenue. Thus, exiting from the current policy blueprint would trigger a sharp drop in economic activity while sticking with it would likely lower growth. Click here to read.... [2]

Covid Supercharges Federal Reserve as Backup Lender to the World

The Fed has long resisted becoming the world’s backup lender. But it shed reservations after the pandemic went global. The massive commitment was among the Fed’s most significant—and least noticed—expansions of power yet. It eased a global dollar shortage, helped halt a deep market selloff and continues to support global markets today. It established the Fed as global guarantor of dollar funding, cementing the U.S. currency’s role as the global financial system’s underpinning. The value of the dollar has tumbled in recent weeks against other currencies as investors grow more troubled about the economic outlook and difficulty containing the coronavirus. Still, it is trading near levels recorded before the pandemic hit this year and above its long-term average on a trade-weighted basis, said Mark Sobel, a former U.S. Treasury Department official now at the Official Monetary and Financial Institutions Forum, a London-based think tank. Click here to read.... [3]

Coastal flooding could hit 20% of world GDP by 2100 - study

Failure to rein in climate change and bolster sea defences could jeopardize up to a fifth of the world’s economic output by the end of the century, as flooding threatens coastal countries worldwide, according to a study released on July 30. From Bangladesh and India to Australia and even Britain, rising sea levels already are leading to more frequent and extreme flood events. With climate change causing polar ice to melt and ocean waters to expand, economists have sought for years to put a figure on the future potential damage. Flood events that have typically occurred once in 100 years “could occur as frequently as once in 10 years” for much of the world, said the authors of the report, including researchers at the universities of Amsterdam, Melbourne and the Global Climate Forum. This worst-case scenario would cost the world up to 20% of its annual gross domestic product, given the impact on buildings and other infrastructure, they said. Click here to read.... [4]

Despite Official Reports, China Has Been Hoarding Iranian Crude Oil

A number of high-profile reports last week cited data released on 26 July by China’s General Administration of Customs (GAC) as clear evidence that China did not import any crude oil from Iran in June ‘for the first time since January 2007’. Specifically, from 1 June to 21 July (51 days), China imported at least 8.1 million barrels of crude oil – 158,823 barrels per day (bpd) - from Iran in a number of relatively direct ways, a senior oil and gas industry source who works closely with Iran’s Petroleum Ministry exclusively told OilPrice.com. This process involves shipping Iranian oil to somewhere within Malaysian (or Indonesian) maritime boundaries, changing the vessel registration documents relating to its origin and ownership, and to the provenance of the crude oil cargo, and then continuing the voyage on to China. A sign that this has been going on for many months, at least, appears in the official Chinese GAC crude oil import figures that show that for the January-June period of this year there was an 81.2 percent increase in China’s imports of crude oil from Malaysia, compared to the same period last year. Click here to read.... [5]

China turns inward amid external risks

China has sent its clearest signal yet that it will throw more policy weight and coordination to further prop up its economy with a massive consumer market and robust industrial prowess to cope with fast evolving external risks, as top policymakers start to draft a key document that would set the tone for economic and social development for at least the next five years. A meeting of the Political Bureau of the Communist Party of China (CPC) Central Committee on July 30, the top decision-making body, reaffirmed that China will form a new development pattern centred on "internal circulation," which should also be better supplemented by the "external circulation," according to a statement released after the meeting. The meeting attended by top leaders concluded that while China remains in "a period of strategic opportunity for development," it also faces a "protracted war" with "long- and medium-term" challenges and risks, the Xinhua News Agency reported. Click here to read.... [6]

Russia locks onto Southeast Asia to boost arms sales

Lyudmila Vorobieva, Moscow's ambassador to Jakarta, expressed high hopes this month for Indonesian purchases of Russian Sukhoi Su-35 fighter jets. Indonesia is slated to make half its payment for the Su-35 jets with exports of palm oil, rubber, and other products. Russia and Vietnam also affirmed military cooperation at a virtual meeting of high-ranking defence officials July 3. Moscow has exported submarines and other equipment to Vietnam in the past, as well as tanks to Laos in January. Russia produced 28% of the arms in value terms procured by members of the Association of Southeast Asian Nations between 2010 and 2019, the Stockholm International Peace Research Institute reports, up from 24% between 2000 and 2009. In contrast, the U.S. sank to 18% from 23%. China's share more than doubled between the two decades, but it still trails far behind Russia at roughly 8%.Click here to read.... [7]

US warns against planting unsolicited seeds from China

The U.S. Department of Agriculture is warning Americans not to plant unsolicited packages of seeds that appear to be arriving from China. States stretching from Washington to Virginia have also told residents not to put the seeds in the ground, after they arrived in the mailboxes of people who did not order them. Officials said the seeds could grow invasive species that threaten crops or livestock. The USDA said on Tuesday it was collecting the seeds and would test them to determine if they were a concern to agriculture or the environment. The agency is working with states and the Department of Homeland Security's Customs and Border Protection to investigate the packages, according to a statement. Click here to read.... [8]

Billion Dollar Deals See Private Credit Step Out of the Shadows

In the world of private lending, the loans, by Wall Street standards, always skewed small. The typical borrower would be some mid-tier company that lacked access to bond and syndicated loan markets, and the typical deal size would be around $100 million. If a loan climbed to $500 million, it’d be celebrated as a mega-deal. But in a sign of how the pandemic is rapidly changing the shadow lending market, super-charging its emergence this past decade as a major source of credit for corporate America and putting it in direct competition with Wall Street, both the size of the borrowers and the size of the deals are swelling. In a transaction last week that epitomized this shift, Bombardier Inc., the Canadian plane and train maker, said it scored a loan that can be as much as $1 billion, the new benchmark for mega-deals in the market. “The trend was already there, Covid-19 just accelerated it,” said Marcel Schindler, a partner at Step Stone. “There is a change, the privatization of part of the market.” Click here to read.... [9]

Taliban push to control private companies, aid agencies in Afghanistan

The Taliban wants all private companies and aid organisations operating in Afghanistan to register with the hardline Islamists, officials from the group said. The order was issued last week and comes as the Afghan government and Taliban officials prepare to engage in intra-Afghan talks aimed at ending the fighting in the war-torn country. “We will not allow any agency to work against the interest of our beloved Afghanistan, Islam...so we want to register all of them to have information about their activities,” said the spokesman, Zabihullah Mujahid. Foreign aid forms the backbone of Afghanistan’s economy and over 2,200 NGOs operate in the country providing education, health and financial support to the poor. Click here to read.... [10]

Iran struggles to buy food in a world wary of touching its money

Iran, creaking under the impact of U.S. sanctions, a collapse in oil sales and a severe COVID-19 epidemic, is scrambling to buy food and medicine to avoid a supply crunch. But it’s a struggle. Despite such supplies being exempt from sanctions, banks and governments are reluctant to transfer or take Iranian money because they fear unwittingly breaching the complex U.S. restrictions, according to five trade and finance sources. An approved trade channel launched by the Swiss government, and backed by Washington - the Swiss Humanitarian Trade Agreement (SHTA) - went live in February after over a year of work to facilitate such Iranian purchases from Swiss companies. Yet Iran’s central bank (CBI) has been unable to transfer the billions of dollars worth of oil export cash it had built up between 2016 and 2018 to bank accounts working with the SHTA, the five sources with knowledge of the matter told Reuters. Click here to read.... [11]

British trade minister to meet top U.S. officials next week, USTR says

British Trade Minister Liz Truss will meet top U.S. officials in Washington in coming days to assess progress on reaching a free trade agreement between the two countries, a spokesman for the U.S. Trade Representative’s Office said on Aug 01. Truss is scheduled to meet U.S. Trade Representative Robert Lighthizer on Aug 2-3, his office said, confirming a Financial Times report. After leaving the European Union in January, Britain is keen to stand alone and has started a series of trade negotiations with other countries. A deal with the United States is seen as a priority. Truss has previously said there was no timetable set for Britain’s trade talks with the United States, adding that British negotiators had made “very good progress” despite conducting talks via video conference due to the coronavirus outbreak. Click here to read.... [12]

Virus drives shift away from coal except in China

The coronavirus pandemic has accelerated a global shift away from coal with the exception of China, which has expanded plans to build power stations using the fuel, data show. The first half of 2020 marked the first ever six-month decline in global coal power capacity, said Global Energy Monitor, a San Francisco-based non-governmental organisation. Authorities around the world commissioned 18.3 Gigawatts of capacity and retired 21.2GW, led by the closure of plants in Europe. South and south-east Asian nations have also curtailed plans to build plants, with Vietnam considering cancelling 9.5GW of planned coal power plants and Bangladesh discussing halting 16.3GW of additional plants. Christine Shearer, an analyst at Global Energy Monitor, said Covid-19 created an extra incentive to retire plants as power demand was lower and coal plants cost more to operate than those using renewable energy. Click here to read.... [13]

Strategic

The US-China rift is now about values: What started as a tariff war is becoming ideological

In this year of dashed hopes, few have been more significant than a US-China rapprochement. The two countries signed a Phase One trade agreement in January. President Donald Trump also praised Xi Jinping’s handling of the then-nascent coronavirus. The way seemed open for what cynics in Washington suggested was Mr Trump’s plan all along. He would claim eventual “victory” on trade, however spuriously, credit his tough line against Beijing and ride a grateful stock market to re-election. The US is in some ways catching up with China whose domestic rhetoric under Mr Xi has long been of an ideological clash with the west. To an extent, the US shift is welcome. It has led to the airing of subjects, such as the rights of Uighurs that had been obscure in the west. But it also implies a conflict that is open-ended and intractable. As nasty as trade wars are, differences can be split and accommodations arrived at. First principles are not so amenable to compromise. If the US and China come to see each other’s systems as inherently wrong, it is not clear what there is to discuss. There is no ideological equivalent of a Phase One agreement. Click here to read.... [14]

US preps midrange missile to pierce China's 'anti-access' shield

As tensions rise in the South China Sea, a top U.S. Army official underscored in comments made public on July 31, the importance of developing and deploying new weapons systems that can potentially break Chinese defences and securing the Indo-Pacific through robust partnerships in the region. "We're going to have midrange missiles that can sink ships," said the Army's chief of staff, Gen. James McConville, in a discussion streamed by the Washington-based Centre for Strategic and International Studies. McConville also mentioned "long-range precision fires," such as hypersonic missiles, and "tactical fires with extended range" as priority areas. "India is a very important country in the region," and adding it in a defence partnership would be "very, very, helpful" for regional stability and security, McConville said. Click here to read.... [15]

US pledges to help Japan with 'unprecedented' Chinese incursions

The U.S. is fully committed to help Tokyo handle China's repeated incursions into waters surrounding the Senkaku Islands, the commander of American forces in Japan said on July 29. "The United States is 100% absolutely steadfast in its commitment to help the government of Japan with the situation," Lt. Gen. Kevin Schneider, the highest-ranking U.S. military officer in Japan, said in an online news conference. "That's 365 days a year, 24 hours a day, seven days a week." Chinese government vessels have sailed into the contiguous zone of the Japanese-administered Senkakus -- an East China Sea island chain that Beijing claims as the Diaoyu -- for more than 100 straight days. Schneider called the situation "unprecedented." Click here to read.... [16]

U.S. military to move its European headquarters out of Germany

The U.S. military said on July 29 it would move its headquarters out of Stuttgart, Germany to Belgium, as it outlined broader plans to shift 12,000 troops out of Germany on orders from President Donald Trump. But it will keep nearly half of those forces in Europe to address tension with Russia. Trump announced last month plans to cut the number of U.S. troops in Germany to 25,000, faulting the close U.S. ally for failing to meet NATO’s defence spending target and accusing it of taking advantage of America on trade. Despite concerns that the move is politically motivated, senior officials told Reuters that “streamlining and rationalising” the U.S. military presence in Europe made some strategic sense. Click here to read.... [17]

US and Australia propose 'network of alliances' to curb China

In a move likely to irk Beijing, the U.S. and Australia look to strengthen the web of regional alliances and partnerships to maintain a rules-based Indo-Pacific. The topic of China dominated the 30th edition of the Australia-United States Ministerial Consultations, or AUSMIN two plus two dialogue, where U.S. Secretary of State Mike Pompeo and Defense Secretary Mark Esper hosted Australian Foreign Minister Marise Payne and Defense Minister Linda Reynolds. "We'll work more closely with existing partnerships," Payne told a news conference after the meeting, "such as the Five Eyes, ASEAN, the Quad, the Trilateral Infrastructure Partnership, the East Asia Summit," name-checking a list of multilateral Asian alliances, collectives and organizations. Click here to read.... [18]

US imposes sanctions on Chinese company & 2 officials over ‘human rights abuses in Xinjiang’

Washington on July 31 imposed sanctions on a powerful Chinese company in the Xinjiang province and two officials for what it said were human rights abuses against Uighurs and other ethnic minorities. The move is the latest blow to US-China relations. The US Treasury Department said it blacklisted the Xinjiang Production and Construction Corps (XPCC), along with Sun Jinlong, former party secretary of the XPCC, and Peng Jiarui, deputy party secretary and commander of the XPCC, over accusations they are connected to “serious human rights abuse” against ethnic minorities in Xinjiang.The action freezes any US assets of the company and officials, generally prohibits Americans from dealing with them and bars Sun Jinlong and Peng Jiarui from travelling to the US, Reuters reports. Click here to read.... [19]

Veteran diplomat becomes new US envoy for Arctic as Washington seeks greater role in region

The Trump administration on July 29 named a special envoy for the Arctic, filling a post that had been vacant for more than three years. Washington is seeking a greater role in the region, trying to blunt growing Russian and Chinese influence there. The State Department’s appointment of veteran career diplomat Jim DeHart to be US coordinator for the Arctic came just a week after Secretary of State Mike Pompeo vowed enhanced US engagement in the Arctic, speaking during a visit to Denmark, AP reported. The US opened a consulate in the semi-autonomous Danish territory of Greenland earlier this year as part of its new Arctic strategy. The post of the envoy for the Arctic had been created during the Obama administration but remained vacant since President Donald Trump took office and the previous coordinator, retired Coast Guard Adm. Robert Papp, stepped down. Click here to read.... [20]

Nuclear weapons guarantee N. Korea’s safety, Kim Jong-un says

North Korean leader Kim Jong-un has said that Pyongyang’s nuclear weapons guarantee its safety, the Korean Central News Agency (KCNA) reported on July 28. Kim was addressing a conference of veterans on the 67th anniversary of the 1953 armistice that ended Korean War hostilities. Up to three million Koreans died in the three-year conflict. The armistice has never been replaced with a peace treaty, leaving North and South technically still at war. “Thanks to our reliable and effective self-defensive nuclear deterrent, there will no longer be such word as war on this land,” AFP quoted Kim as saying, citing the report. “Our national security and future will be firmly guaranteed forever,” he added. Click here to read.... [21]

Pacifist Japan ruling party proposes strike capability to halt missile attacks

Pacifist Japan took a step closer to acquiring weapons able to strike North Korea on July 31 after a ruling party committee approved proposals to consider acquiring strike capability to halt ballistic missile attacks. Giving long-range munitions to Japan’s Self Defence Forces is a controversial issue for a country that renounced the right to wage war after its defeat in World War Two. The proposal is also likely to anger China and Russia, which could fall within range of any new strike weapons. “Our country needs to consider ways to strengthen deterrence, including having the capability to halt ballistic missile attacks within the territory of our adversaries,” the proposal document said. The recommendations will be discussed by Japan’s National Security Council, which is expected to finalise new defence policies by the end of September. Click here to read.... [22]

China to conduct major military drill to seize Taiwan-held SCS islands

China is expected to carry out a large-scale landing drill aimed at seizing the Taiwan-controlled Pratas Islands in the South China Sea in August, a professor at the National Defense University of the People's Liberation Army said. In his paper published in the August issue of a pro-China magazine in Hong Kong, however, Li Daguang, a prominent expert in military strategy, did not specify a date and place for the major drill by the Chinese army. Although Kyodo News reported the plan in May, citing sources familiar the matter, it was the first time that a person related to the Chinese military acknowledged it. Depending on the content of the drill, military tensions between China and the United States may escalate in the South China Sea, with U.S. Secretary of Defense Mark Esper warning against the possible provocative action by Beijing. Click here to read.... [23]

Hong Kong postpones Sept. legislative election for 1 year

Hong Kong's September legislative election will be postponed for a year due to health concerns amid the coronavirus pandemic and China's parliamentary advice will be sought for setting a legal basis to extend incumbent lawmakers' term of office, government leader Carrie Lam announced on July 31. Pro-democracy lawmakers opposed the possible delay, saying in a joint statement that it could shake the foundation of the Hong Kong Special Administrative Region. "Delaying the election would stir up a constitutional crisis, amounting to a power grab, shaking up Hong Kong SAR's base of establishment," the letter reads. "The democratic camp will not condone the government's attempt to rob the citizens' rights to vote while failing in the fight against the pandemic." Click here to read.... [24]

First-ever EU cyber sanctions hit Russian, Chinese, N. Koreans

The European Union on July 30 imposed its first-ever sanctions over cyber attacks, slapping them on alleged Russian military agents, Chinese cyber spies and organizations including a North Korean firm. The six people and three groups hit with sanctions include Russia's GRU military intelligence agency. EU headquarters blamed them in a statement for the 2017 "WannaCry" ransom ware and "NotPetya" malware attacks and the "Cloud Hopper" cyber espionage campaign. EU foreign policy chief Josep Borrell said the sanctions "are a travel ban and asset freeze to natural persons and an asset freeze to entities or bodies. It is also prohibited to directly or indirectly make funds available to listed individuals and entities or bodies." Click here to read.... [25]

Inside the Massive Foreign-Policy Team Advising Biden’s Campaign

Former U.S. Vice President Joe Biden’s team of informal foreign-policy and national security advisors has expanded to over 2,000 people, including 20 working groups spanning issues from diversity in national security to arms control, defence, intelligence, and homeland security, according to campaign officials and an internal list of the co-chairs of those groups obtained by Foreign Policy. It also sheds light on the coterie of behind-the-scenes advisors, such as the East Asia expert Ely Ratner and Daniel Benaim, a Middle East specialist with deep ties to Biden, who are likely to take up top and midlevel posts in the Pentagon, State Department, intelligence community, and other agencies if Biden is elected. Click here to read.... [26]

Will the Gulf-Israel rapprochement be derailed by annexation?

The Trump administration has few well-defined foreign policy issues, but the "maximum pressure" campaign against Iran is one of them. That campaign requires international cooperation, and some of the few firm allies the administration has found in the Middle East region are the Gulf Cooperation Council (GCC) countries and Israel. Washington's attempts to create a de facto alliance between the two however is threatened by Israeli Prime Minister Benjamin Netanyahu's plan to annex parts of the occupied West Bank - a plan that has provoked outrage and anger throughout the Arab world. It appears to have been put on hold for the moment but could be revived at any time, and if Netanyahu presses ahead, the scheme will put Gulf countries warming up to Israel in a difficult position with regard to domestic public opinion. Click here to read.... [27]

Medical

Russia preparing mass vaccination against coronavirus for October

Russia’s health minister is preparing a mass vaccination campaign against the novel coronavirus for October, local news agencies reported on Aug 01, after a vaccine completed clinical trials. Health Minister Mikhail Murashko said the Gamaleya Institute, a state research facility in Moscow, had completed clinical trials of the vaccine and paperwork is being prepared to register it, Interfax news agency reported. He said doctors and teachers would be the first to be vaccinated. “We plan wider vaccinations for October,” Murashko was quoted as saying. A source told Reuters this week that Russia’s first potential COVID-19 vaccine would secure local regulatory approval in August and be administered to health workers soon thereafter. The Gamaleya Institute has been working on an adenovirus-based vaccine. Click here to read.... [28]

EU warns of risk of syringe shortages for possible COVID-19 vaccine

The European Union has warned member states of the risk of shortages of syringes, wipes and protective gear needed for potential mass vaccinations against COVID-19 and urged them to consider joint procurement, according to an EU document. The bloc has also asked EU governments to consider jointly buying more shots against influenza and increase the number of people vaccinated to reduce the risk of simultaneous flu and COVID-19 outbreaks in the autumn. No vaccine against COVID-19 has yet been fully developed or approved, but countries around the world are seeking to secure supplies of potential shots so that, if and when vaccine candidates prove effective, immunisation campaigns can start quickly. Some countries hope that it may be developed as early as this year. Click here to read.... [29]

COVID-19 tracing apps proving to be a tricky business around the world

Scores of digital contract tracing apps have been developed around the world in an attempt to stem the pandemic. Many have floundered and for those that haven't, it's still not clear if they are that effective. For example, apps that don't store data at a centralized location may work very well, but there is no central authority with the data to say exactly how many people were successfully warned about the risk of infection. In terms of pure volume of downloads, India's Aarogya Setu app is a frontrunner. In April, it was in the top 10 most downloaded apps in the world with only tech behemoths like Zoom, TikTok, Facebook, WhatsApp, Instagram and Messenger ahead of it. But India has a population of over 1.3 billion. With less than 10% take-up, the chances of two people coming into contact with each other who have both downloaded the app is around 1%.Click here to read.... [30]

Next big COVID-19 treatment may be manufactured antibodies

As the world awaits a COVID-19 vaccine, the next big advance in battling the pandemic could come from a class of biotech therapies widely used against cancer and other disorders - antibodies designed specifically to attack this new virus. Development of monoclonal antibodies to target the virus has been endorsed by leading scientists. Anthony Fauci, the top U.S. infectious diseases expert, called them "almost a sure bet" against COVID-19. Monoclonal antibodies - grown in bioreactor vats - are copies of these naturally-occurring proteins. Scientists are still working out the exact role of neutralizing antibodies in recovery from COVID-19, but drug-makers are confident that the right antibodies or a combination can alter the course of the disease that has claimed more than 675,000 lives globally. Click here to read.... [31]