Posts Tagged ‘China’s economy’

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China and the coronavirus

May 3, 2020

This is a collection of news, some of them disparate, and an attempt to make sense out of it.

How it started

The novel coronavirus may have first passed to humans somewhere in southern China months before the outbreak in the city of Wuhan, a new study found, cutting against widely held theories about the origins of the pandemic.

Mapping a network of coronavirus genomes and tracing mutations over time, a team of researchers led by a Cambridge University geneticist determined the first Sars-CoV-2 infection may have come as early as September in a region south of Wuhan, noting the pathogen could have been carried by humans well before it mutated into a more lethal form.

The virus may have mutated into its final ‘human-efficient’ form months ago, but stayed inside a bat or other animal or even human for several months without infecting other individuals,” geneticist Peter Forster told the South China Morning Post. He leads an ongoing yet to be peer-reviewed research, recently published in the Proceedings of the National Academy of Sciences journal.

Local party bureaucrats who dismissed the first warnings of a new dangerously contagious disease because it interfered with Chinese New Year celebrations, which are China’s most important holidays, were swiftly dismissed and central authorities imposed the most stringent travel bans, lockdowns, and social distancing rules one can imaging. Some 760 million people, roughly half the country’s population, were confined to their homes.

Infections and deaths peaked at the end of January and since then constantly dropped. China’s death rate per 1 million inhabitants is now 3, while the respective number for the USA is 204, for the UK 414, for Italy 476, for Spain 537, and for Belgium 670.

In a White House interview with Reuters news agency, US President Trump said that Beijing will face a lot of possible consequences from the US for the outbreak. He said China should have let the world know about the contagion much sooner.

By claiming that China’s delay in alerting the world to the spread of the virus was politically motivated and designed to boost the election chances of his political rival Joe Biden at the expense of his own, Trump was upping the ante in an increasingly bellicose war of words.

Asked whether he would use tariffs or debt write-offs to penalize Beijing, Trump refused to offer much detail, saying only that “we’re looking for what happened” and how to respond to the alleged cover-up.

President Trump’s criticism of China has been consistent and increasingly acrimonious. He is questioned the accuracy of the death toll there, and even said he was looking into suggestions that the virus originated in a biosafety level 4 laboratory in Wuhan.

The UK, which has been courting China for years, trying to be its “best friend in the West” to encourage inward investment, followed Trumps lead. According to Foreign Secretary Dominic Raab there will be “no more business as usual with China.” He promised a “deep dive review” as to how coronavirus was able to spread from China. British security services announced that they would begin an investigation into precisely where the coronavirus originated, focusing on a laboratory in Wuhan, from which, it has been speculated, the virus could have escaped.

In return a senior Chinese official, Le Yucheng, questioned the president’s handling of the crisis, and accused him of not acting quickly enough in order to prepare the American people for the spread of Sars-CoV-2, while Chinese Foreign Ministry spokesman Zhao Lijian raised the possibility that the US Army brought the virus to Wuhan during last October’s Military World Games.

Examples of solidarity

China has sent massive amounts of medical equipment to dozens of countries. Chinese health workers and medical consultants are helping out in many of them. They are engaged in “China’s most intensive and wide-ranging emergency humanitarian operation since the founding of the People’s Republic in 1949.”

At a virtual emergency summit of G20 leaders, Chinese President Xi Jinping presented a four-point program for international cooperation, including “improved information sharing; strengthened cooperation on drugs, vaccines and epidemic control; and cutting off cross-border infections.” There should be a collective response for control and treatment at the international level and support for international organizations, particularly the WHO (World Health Organization). Xi also called for enhanced international macro-economic policy coordination.

Long before the onset of the pandemic Cuba had collaborated with China in producing interferon, an anti-viral, anti-cancer drug. China found it to be helpful in confronting Sars-CoV-2 and 40 countries have ordered the drug from Cuba and China’s joint-venture company in China.

Economic impact

Energy analysts assumed that the factors responsible for driving petroleum use upward in recent years would persist well into the future. Growing automobile ownership in China, India, and other developing nations, ever-increasing commutes as soaring real-estate prices forced people to live ever farther from city centers; and an exponential increase in airline travel, especially in Asia would, it was widely assumed, more than compensate for any drop in demand by renewable energies or energy saving measures. 

As suggested by oil giant BP in its Energy Outlook for 2019, “All of the demand growth comes from developing economies, driven by the burgeoning middle class in developing Asian economies.”

These projections are void now and the oil price has sunk below 20 US$ as there is no demand and companies are running out of storage space, using even oil tankers and railway cars as temporary storage.

China’s National Bureau of Statistics reported that the country’s GDP shrank by 6.8 percent from January to March 2020, the first such decline in 40 years and a staggering blow to the till now dominating growth model. Even though government officials are slowly reopening factories and other key businesses, most observers believe that spurring significant growth will prove exceedingly difficult given that Chinese consumers, traumatized by the pandemic and accompanying lockdown measures, seem loath to make new purchases or engage in travel, tourism, and other non-essential and unnecessary activities.

A slowdown in China will have staggering consequences for the economies of numerous other developing nations that rely on that country’s tourism or its imports of their oil, copper, iron ore, diamonds, rare earth, and other materials. China, after all, is the leading destination for the exports of many Asian, African, and Latin American countries. With Chinese factories closed or operating at a reduced tempo, the demand for minerals and other commodities has drastically plummeted, causing widespread economic hardship for the populations of these countries.

The IMF (International Monetary Fund) has forecast that China’s economy will avoid a recession but grow by just 1.2 percent this year. Job figures released recently showed the official government unemployment figure had risen sharply and layoffs were especially pronounced in companies linked to export trade.

Chinese President Xi Jinping about efforts to restart the economy: “We must adroitly and accurately materialize all measures to fight the epidemic and to resuscitate industry and production so that the targets and goals of this year’s economic and social development will be realized.”

Correspondingly the Politburo announced, that it would prioritize “boosting domestic demand, encouraging consumer spending and increasing public spending.” The country would raise its fiscal deficit ratio and issue special government bonds. The politburo also urged the central bank to use tools, including interest rate cuts, to support growth. 

The party central authorities and the State Council would take advantage of the new wave of investments to modernize infrastructure (particularly in central and coastal cities) in cutting-edge areas such as: 5G Internet, mass data, cloud computing, robotics, electric cars, new materials, green technology, and different types of AI (artificial intelligence).

In the last two decades, China has seen average economic growth of around 9 percent a year and even as it was locked in a trade war with the US, China’s economy grew 6.4 percent in the first quarter of 2019. Chinese consumers were also undeterred, they spent for instance 277.3 billion US$ during overseas trips in 2018. 

One year later, as already mentioned, China’s economy has contracted 6.8 percent in January to March. Factory output was down 1.1 percent, retail sales plummeted 15.8 percent, and unemployment hit 5.9 percent in March, slightly better than February’s all-time high of 6.2 percent. This contraction of economic activity will translate into bankruptcies of countless small companies and into job losses.

To ease the pain Beijing has promised a significant economic stimulus and the official mouthpiece of the ruling Communist Party, the People’s Daily, reported it would expand domestic demand.

Yet, the universal slowdown in the global economy presents a significant problem as exports still play a major role in China’s economy. If it indeed comes this will not be a quick recovery.

Just like in 2008, China will try to speed up industrial activity with infrastructure mega-projects like maglev (magnetic levitation) lines, high-speed railways, sea-crossing bridges between Shanghai, Ningbo, Zhoushan, and a cobweb of metro links. These are only part of a long list being unveiled by China’s provincial authorities that may herald a new bonanza of infrastructure investment.

China will further accelerate the installation of 5G networks. Chinese state-owned carriers officially launched 5G services in November 2019, but coverage remains limited to major cities and key areas in lower-tier cities. Environmental and health concerns, which may impede the installation of 5G in some European countries, will not be an issue in China.

The domestic part of the recovery is set out, though it will meet ecological limits. Any hegemonic aspirations will limited as well by the reality of less intertwined and less interdependent national economies.

The coronavirus pandemic means undoubtedly the end of globalization, as all nations try to shorten supply chains and become more self-sufficient. The “One Belt One Road” initiative, China’s version of globalization, will have to be significantly scaled down.

Africa, which has moved from a continent gradually modernizing within the framework of a Western model to one dependent almost solely on China, is likely to be left in an almost ruinous situation by late 2020 and beyond. African societies will be forced to evolve new economic models if they want to avoid neo-colonization by either China + Russia or the West. 

There is also a likelihood that the USA in the post-crisis period will try to strengthen its dominance in the Americas (where China, in particular, has built a strong presence in Venezuela and Cuba), and also in Central Asia as a means of blocking the Eurasian Silk Road development plan.

Not anymore the worlds cheap factory

Since March, China has slowly started letting factories resume production and letting businesses reopen, but this is a gradual process to return to pre-lockdown levels. China relies heavily on its factories and manufacturing plants for economic growth, and has been dubbed “the world’s factory”.

Exports of goods and services accounted for 19.50 percent of China’s GDP last year, according to the World Bank. While that figure is declining, it is still sizeable. Based on this, a 10-percentage-point decline in China’s exports might mean a decline of about 2 percentage points in GDP growth on average. Exports employ 180 million workers, so any hit to the sector also has a knock-on effect on employment, incomes, and consumption.

A sharp drop in export orders seriously hindered China’s economic recovery in April, although businesses were gradually getting back to work. China’s factories are laying off workers due to foreign buyers withdrawing orders. There are large inventories of industrial raw materials. At least half a million companies were dissolved in the first quarter of this year and more are likely to close.

We estimate at least an additional 22 million urban workers will lose their jobs in 2020, pushing up the unemployment rate to around 10 percent. A further 250 million could experience wage cuts in the range of 10 — 50 percent,” the EIU (Economist Intelligence Unit) said.

UBS Securities reported that up to 80 million jobs have been lost in the service sector, industry, and construction.

Reduction of exports make a painful economic adaption necessary but may in the long term fit perfectly into Chinese plans, as China lately like most other nations has strived for more self-sufficiency in specific sectors, limiting foreign exposure where possible. As the US administration has adopted a highly confrontational trade posture, introducing tariffs and investment or trade restrictions, Beijing’s plans have only been sped up. 

China clearly wants to reorient its export flows away from the anglosphere and to liquidate its hoard of dollar-denominated financial paper.

The Chinese need to find a way to stop shipping actual physical manufactured goods to the US in exchange for pieces of paper or promises to pay, all of which are about to become worthless at one point, without triggering a dangerous rise of bilateral tensions. The need to do so with all necessary haste became obvious in mid-August of 2019, when it turned out that banks were no longer to accept US Treasury debt instruments as collateral for overnight loans. These were supposedly the safest investments in the world that made up the world’s largest and most liquid financial market — until it turned out that they weren’t that at all.

Before the pandemic China’s exports to the USA were around 20 percent of its total exports, and this number needs to be reduced. With the entire Western world heading into a major economic recession, China also has to partially reorient its economy away from exports and toward domestic capital investment and consumption. A global panic and an economic reset provoked by the pandemic has been useful in furthering the goal of reducing China’s dependence on the USA while hiding behind the smokescreen of a plausible force majeur incident.

And no cheap labor either

The Chinese workforce, increasingly smaller and skilled, is moving away from the attributes that cemented China’s central position as a low-cost critical link in many global manufacturing supply chains.

First, China’s demographic pyramid is increasingly unbalanced. China’s population is forecasted to peak in 2029 at 1.4 billion people, and its dependency rate (the proportion of non-working people) has steadily grown since 2011. By 2050, China’s working-age population will have decreased by 200 million people. 

As the Chinese workforce has been steadily shrinking for roughly a decade, further driving up labor costs, Chinese standards of living have also increased due both to China’s economic growth and a higher-educated population which demands higher wages.

Second, Chinese wages are growing at pace with the Chinese economy. Even amidst the trade war, some Chinese provinces and municipalities continued to increase minimum wage standards in a bid to boost consumer spending amid slowing economic growth. This development, along with the cancellation of tax preferences for foreign firms, has compelled foreign manufacturers to seek low-cost labor in Southeast Asian and elsewhere. Some international firms with global supply chains are already planning to leave: 40 percent of US firms surveyed by the American Chamber of Commerce said that they planned to shift at least part of their production out of China. 

The future seems to hold more of the same as other developing countries like Vietnam for instance offer relatively lower-cost labor, as well as improvements in their infrastructure and human capital needed for massive manufacturing hubs. The Chinese government, in pushing for wage growth over manufacturing output, recognizes that Chinese labor supply — increasingly educated and urban — will not be able to competitively fill low-value-add factories much longer.

Abusing nature comes at a price

The economic contraction is only one of China’s problems, as the country will continue to see extreme vulnerability to food and water shortages, which can only be ameliorated by a) dependence on imported food and agricultural products, most of which would need to come from the USA (given that other suppliers cannot meet the demand), and b) reduction in the lifestyles and numbers of the PRC population, a factor which could have significant social-political ramifications.

China has 18.4 percent of the world’s population, but only 7 percent of the world’s water, and of that water at least 25 percent (as the government itself acknowledges), is polluted, along with much of its agricultural water table. And the problem is getting worse, as the greatest water source, the aquifers flowing from the melting snows of the Tien Shan Mountain range in Central Asia, has been reduced by climate change.

The result of this, and the fact that Chinese agriculture has not developed to any great degree, is that the People’s Republic of China is perhaps more strategically dependent on imported food than any other great power.

The Chinese Bureau of Statistics in the 1980s recorded that there were some 50,000 rivers in mainland China. But by 2017, there were only some 23,000. Capital Beijing, serviced by the Three Gorges Dam, recorded in 2017 that 39.9 percent of its water was so polluted as to be unusable. Tianjin, a principal port city of the north with a population of 15 million had only 4.9 percent of its water in a potable state.

The growing urbanization of the constituent populations of China have made the food and water crises more and more urgent. Urban populations use far more water than rural societies. They also demand more water-intensive food, such as pork and beef, especially as the city-dwellers become more prosperous. And China’s urbanization rate continues apace: By the end of 2017, some 58.52 percent of its population was urbanized, compared with only 17.92 percent in 1978.

In 2019, as parts of Thailand, Cambodia, Laos, and southern Vietnam experienced a devastating drought, China held abundant water on the Upper Mekong River back from downstream communities, wiping out their crops and fishing stocks. At one point the river was roughly 5 meters lower than it should have been under natural conditions.

China announced in February, that it would release more water from a cascade of dams on the Mekong River to help its downstream neighbors, but Vietnamese media reported that the release was too small to even reach the Mekong Delta.

The Chinese water scarcity is very similar to the situation in the USA, where the western states are stricken by a mega-drought and the Colorado River is drying up because of overuse by industrial agriculture.

And then there is the contamination of air, water, and soil. In a Machiavellian pact China’s leadership accepted industrial pollution in order to lower production costs and become the manufacturing powerhouse of the world. Europe and the USA gladly took the offer, outsourcing manufacturing and with it toxic pollution.

The resulting ecological damage cannot be undone and will trouble the Chinese people for many generations.

The Chinese population is used to wearing face masks, and pneumonia, lung cancer, asthma, and tuberculosis are all common problems in Wuhan and other Chinese cities. Air pollution has been bad enough for people to vehemently protest in 2019. There is a lot of poison in air, water, and food, the resulting chronic ailments and compromised immune systems are surely factors in the initial lightning fast spread of Sars-CoV-2.

On June 28, 2019, residents of the Yangluo residential district of Wuhan took to the streets to protest the construction of a waste-to-energy plant (an incinerator). The protests, which occurred outside the city government’s offices, were met with a large contingent of regular and riot police, according to pictures and comments circulated on Weibo, and the violent response of the police was widely condemned by netizens.

Wuhan, like many cities in China, faces a waste disposal problem, as growing urbanization leads to dense population centers with little room for refuse. Wuhan’s city message board contains several complaints about smells emanating from the landfill currently located in Yangluo, as well as concerns about the construction of new landfills or incinerators.

A poisoned environment, and now the pandemic, there’s a lot what the Chinese people have to endure. One can only hope, that at least they will be spared war.