Wuhan Virus Outbreak Suspected Greater Than Reported

THE OUTBREAK OF a new type of Coronavirus in Wuhan has, it appears, been contained. Authorities say that the outbreak is not sustaining itself, although they cannot rule out that some limited person-to-person spread may be occurring.

In its first public comment, the Chinese Centre for Disease Control and Prevention said on Saturday that all known cases involving the virus in China were restricted to Wuhan, despite unconfirmed reports of cases in Shanghai and Shenzhen and two known instances in Thailand and one in Japan. Several countries continue to screening incoming travellers from Wuhan.

However, scientists at the MRC Centre of Global Infectious Disease Analysis at Imperial College in London have suggested that the extent of the outbreak was far greater than reported.

They base their analysis on models that use the number of cases detected among international travellers who have visited the infected area but are diagnosed with the disease abroad. In this case, the calculations suggest that there were 1,723 cases as of January 12th, which, as the UK scientists say, is “substantially more cases of moderate or severe respiratory illness than currently reported”.

The official figure, as of January 16, was 41 cases, including two deaths, one a person with a pre-existing medical condition. (Update: Wuhan’s municipal health commission has subsequently reported further cases, taking the official total to 62 as of January 19.)

Most cases have been linked to the city’s large seafood and animal market, which has been closed for disinfection since January 1st to contain the outbreak (a reminder to trade negotiators of why food health and safety standards are necessary, by the way). None of the three infected international travellers is believed to have visited the market, however.

Coronaviruses occur in animals and humans. Most of the half dozen that have been found in humans cause mild respiratory problems, but there are two killers that cause Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). Both of those jumped from animals to humans and then spread among human populations to deadly effect.

China’s national health authorities shared the genome of the new virus internationally once they had decoded it, but there would be, lets us say, a degree of nervousness, among local officials about what they might have had on their hands by way of a potential public health emergency.

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Huawei Extradition Hearing Will Evaporate Trade Deal Goodwill

ANY FLEETING GOODWILL between Beijing and Washington generated by the signing of the phase one economic and trade agreement earlier this week is likely to evaporate early next week when a court in Vancouver opens an extradition hearing for Huawei’s chief financial officer Meng Wanzhou.

The United States wants to bring her to stand trial on charges of bank fraud in connection with allegations that she lied to HSBC about her company’s operations in Iran. Meng denies the allegation and is fighting the extradition attempt.

US Treasury Secretary Steven Mnuchin was at pains this week to underline how the Trump administration wanted to separate its trade and what he called national security issues with China. However, the message from President Xi Jinping read out at the signing ceremony calling for fair treatment for Chinese companies suggests that Beijing sees them of a piece.

There is little sign of the US campaign against the telecoms giant easing off. If anything, it is ramping up the pressure on allies to exclude Huawei from their 5G networks and is reportedly considering tighter restrictions on what US companies can sell to the firm.

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US-China Trade Deal: Not Much Win-Win; Not Much Loss-Loss

Screen grab or Annex 6.1 of US-China phase one economic and trade agreement, January 2020.

FROM THE SIGNING ceremony and the detailed text, this Bystander takes two overarching points from the new US-China phase one economic and trade agreement.

First, the agreement will work as long as China decides to make it work, and the deal provides a stick for the United States to help Beijing keep its mind resolved. Second, the biggest risk may be that what US President Donald Trump tells himself China has committed to do under the deal is different from what China thinks it has. Or, indeed, based on Trump’s inflation at the signing ceremony of the agreed numbers for Chinese imports of US goods and services over the next two years, what the agreement says.

For all the talk of this being an equal agreement, most of the commitments to action fall on China: the text contains 20 times as many ‘China shall’ as ‘the United States shall’ (h/t to Sinocism for that tidbit). That said, commitments and concessions are not the same, and what concessions there have been on both sides are small, even if China, on balance, made more and still faces tariffs on the majority of its exports to the United States.

However, over two years of intensifying tariffs pressure, Beijing successful resisted US attempts to make fundamental structural changes to its economy, which may be its biggest win of all.

Most notable among the ‘China shalls’ is strengthening its intellectual property protection, including providing better legal remedies to aggrieved foreign companies, and greatly increasing its imports from the US over the next two years.

The latter is largely a question of money and capacity to absorb the imports, plus dismantling non-tariff barriers.  One set that will go immediately pertains to low-risk foodstuffs, which will be able to be imported requiring only US Department of Agriculture health and safety certifications.

The former is the direction that China’s economic reformers are headed regardless as they move the economy up the value chain, resulting in more Chinese companies with intellectual property to protect and brands to defend from counterfeiting and piracy.

The same is true for pharmaceutical and financial-services market opening, and for the commitment not to devalue the currency competitively.  Even in the area of agriculture and food, the changing expectations and appetites of middle-class consumers for a safe, varied and international diet makes 1970s-90s-era protectionism for farmers as outdated as it is in most countries.

In that sense the, new agreement pushes on an open door, at least at the national level. Implementation will be key. Local government can be more recalcitrant and inconsistent, but the new Foreign Investment Law takes that on, as it does another long-standing complaint of foreign businesses, forced technology transfer, now explicitly forbidden.

If we set aside the loopholes, those are two ‘deliverables’ in the new trade agreement already delivered, as are many of the other commitments. That prompts the thought that this is a deal that could have been papered much earlier, saving many months of tariffs-induced pain on both sides.

There is no doubt that there are many cracks through which implementation could fall, intended or otherwise. That is where the stick comes in. Including an enforcement mechanism in the agreement was non-negotiable to the United States.

Part of that is just greater transparency required of China. It will need to provide regular reports of enforcement actions over IP infringements, institute a mandatory 45-day public comment period for all changes to IP rules and regulations, and present by mid-March an ‘action plan’ with deadlines for further IP protections. That will be more sunshine than to which many are accustomed.

But the heart of enforcement will both sides having compliance teams charged with monitoring the other side’s implementation and then resolving any disputes where one side feels the other is falling short.

The text offers little insight into how the monitoring will be done. There will be regular meetings between the staff of the two compliance teams, but points of complaint will likely have to come into each team from companies. That may test some companies’ willingness to put their heads above the parapet.

It will be up to each team to investigate complaints brought against their country. Resolution is to be reached by consensus within set deadlines. If it cannot be achieved, the complaint gets escalated up the chain of command. If it reaches the highest political level (a designated vice premier and the US Trade Representative) still without resolution, the aggrieved party can take punitive actions (e.g., slap on tariffs) without fear of retaliation.

If it believes the other side has acted in bad faith, it can withdraw from the agreement unilaterally. Either side can end the agreement with 60-days written notice. A Trump tweet will be the perennial wild card.

This procedure looks rickety. It has the feel of an effort by the Chinese negotiators to insert as much process into disputes resolution as possible short of denying the Trump administration the ability to restore tariffs unilaterally if the US president takes it into his mind that China is no longer adhering to the agreement. If he can say he can do that, he probably does not care too much about the rest of the details.

The mechanism may get to November this year unscathed. However, it would be a bold Bystander who would bet on it getting through another four years after that, especially if the incumbent US president is re-elected to office.

As has been noted here and widely elsewhere, phase one tackles a limited range of the issues at dispute between the Trump administration and Beijing. Unresolved and probably intractable fundamental differences over China’s state-led economic model, including government support for Chinese enterprises, indigenous technology development under Made in China 2025 and cyber theft, are deferred to Phase Two.

That will start, Trump says, as soon as he visits Beijing soon. However, it is unclear when substantive negotiations will start and even less so when they will conclude, if ever. China is in no hurry on either front.

It may be that the only way forward will be small, issue-specific settlements. It  remains hard to envision a comprehensive phase two acceptable to the United States that would not undermine the Party’s monopoly grip on power, equally unacceptable on the other side.

Meanwhile, one way we shall amuse ourselves is by filling in the blank order grid in the agreement (see screenshot above) for the $200 billion of additional US imports China promises to buy this year and next over and above the baseline level of 2017’s imports, the last year before the tariff wars.

We have the high-level numbers for the four categories, manufactures, energy, agriculture and services, but no details. These are being kept secret to avoid price and supply distortions in the market, it is said. We suspect there is still work being done on the final numbers down in the bowels of the international trade categorisation system at the six-digit level, and on China’s capacity to absorb such an increase in imports over that relatively short time.

One question the text of the deal has answered, however, is on how the agricultural imports numbers will be got to add up to their targets. The answer is that ethanol purchases will count under agriculture. US ethanol is produced from corn.

China, too, converts some of its corn stockpiles into the fuel. Like their US counterparts, Chinese farmers will now have to start making calculations about how much acreage to plant in the light of the import targets and how much to devote to soy in the face of falling demand for soy meal for hog feed because of the African swine fever epidemic. Such are the real calculations of trade wars.

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US-China Trade Deal: A Less Than Wonderful World

Vice Premier Liu He and US President Donald Trump present the signed US-China Phase One economic and trade agreement during a ceremony at the White House in Washington DC on January 15, 2020. Photo credit: Xinhua/Wang Ying.

DONALD TRUMP TODAY applied his humungous signature and, in a tiny but telling sign of the continuing competition between the two powers, Vice Premier Liu He inscribed his name in matchingly large characters on the Phase One US-China trade agreement. The signing of the deal in a White House ceremony signals a pause to the escalating tariffs war between the two countries, but, as this Bystander has noted before, far from its conclusion.

The US president left the room to the strains of ‘What a Wonderful World’. Nonetheless, the next year and beyond in the world’s most critical bilateral relationship is likely to be uneasy. As Liu noted, both sides now must focus on the implementation of the deal.

However, even what that deal is still seems open to interpretation. In another telling couple of moments during the signing ceremony, Trump said that China had agreed to buy $50 billion worth of US farm produce. In his remarks, Liu put the figure at $40 billion, which is in line with the numbers in the actual agreement behind Trump’s signature.

Game on.

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Tsai Sweeps To Second-Term And Beijing Is Bothered

Taiwan's President Tsai Ing-wen seen in 2015. Photo credit: Voice of America. Public domain.

TSAI ING-WEN won a sweeping re-election victory in Taiwan’s presidential election on January 11.

She received a record 8.2 million votes, 1.3 million more than she won first time round in 2016. That translates into a 57% vote share, giving her a secure mandate for the next four years for her firmly China-sceptic stance.

Preliminary results in the legislative election held at the same time give her Democratic Progressive Party (DPP) 61 of the 113 seats in parliament. (Update: The DPP lost seven of its 68 seats in the legislature. The Kuomintang gained three, to take it to 38. The remaining 14 seats went to independents and small parties.)

The relationship with China dominated the campaign. In her victory speech, Tsai called on China to abandon its threat to reunify the island by force.

That may fall on deaf ears.

Mainland state media have already dismissed the result as a ‘temporary counter-current‘ and the result of anti-Chinese Western powers (i.e., the United States) intervening to contain China. “The historical trend toward a stronger China, national rejuvenation, and reunification cannot be stopped by any force or anyone,” thundered Xinhua in a commentary. The Party’s ever belligerently nationalist Global Times headlined one election report, ‘Mainland experts urge expediting reunification after Tsai’s win‘.

Beijing has been publicly rebuffed. How much its bluster turns into action — and how much it becomes part of the broader US-China conflict — will be Tsai’s preoccupation for the next four years.

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Taiwan’s Tsai Looks Set For Unpredictable Second Term

resident Tsai Ing-wen of Taiwan, seen in 2016. Photo credit: Voice of America. Public domain.TAIWAN GOES TO the polls on January 11 to elect a president and legislature after a campaign in which China’s social media influence and what the protests in Hong Kong might foreshadow for the island have taken the spotlight.

President Tsai Ing-wen looks set for re-election, her China-sceptic stance aligning well with the two dominant issues of the campaign. Since the protests in Hong Kong have begun, her poll numbers have risen as those for the pro-China opposition presidential candidate Han Kuo-yu have fallen.

Her victory would do little to ease cross-Strait tensions. However, Beijing will likely restrict itself to political bluster over reunification and military posturing, such as further aircraft carrier group passages through the Taiwan Strait, at least until the endgame in Hong Kong becomes clear.

Meanwhile, Taiwan’s international diplomatic standing will continue to erode and its economy will struggle to escape its long-term sluggishness.

The wild card is the US-China relationship.

As part of its confrontation with Beijing, the Trump administration has been more supportive of Taipei than its immediate predecessors. The newly elected US president controversially took a congratulatory call from Tsai in December 2016, throwing into doubt US commitment to the ‘One China’ policy it has pursued since 1979.  More recently, he approved sales to Taiwan of US military equipment including critical fighter jets, and by starting to draw it into US-led regional security arrangements.

Closer alignment with Washington is a two-edged sword. It will leave a re-elected Tsai hostage to the state of US-China relations, relations that under Trump, who faces his re-election in November, will continue to be unpredictable.

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World Bank Sees China’s Growth Slipping Below 6%

World Bank forecasts for China's GDP growth to 2022. Graphic: China Bystander.

THE WORLD BANK, never a Pangloss among economic forecasters, has scaled back its growth forecasts for China in the newly published edition of its Global Economic Prospects.

It now expects 5.9% GDP growth for this year. If that proves correct, it will be the first time growth will have fallen below 6% in three decades. The forecast is a 0.2 percentage point cut from the one the Bank made last June. It sees growth coming in at 5.8% in 2021, and 5.7% in 2020 as the rebalancing of the economy continues.

There is more to it, of course, that planned structural change and a managed slowdown of the growth rate. Heightened trade tensions with the United States have chilled the global economy, causing Chinese domestic demand to decelerate more than the Bank had previously expected.

The contraction in exports to the United States has tightened, even though, as the Bank puts it, ‘shipments to the rest of the world have been somewhat more resilient’. However, imports weakening more than exports and industrial production falling to multiyear lows point to a broader slowing of domestic demand beyond trade.

Authorities have countered this with more accommodative monetary policy, mainly by cutting bank reserve requirements, even though regulatory tightening to lessen the debt risks in non-bank lending has continued. They have also resorted to fiscal measures, such as tax cuts, and support for accelerated public investment spending at the provincial and municipal government level.

However, the fact that total debt has surpassed 260% of GDP but the share of non-bank lending has continued to decline shows how Beijing is walking a fine line between keeping growth going while still seeking to de-risk the financial sector.

The high and rising stock of private debt in an increasingly complex and interconnected financial system is seen by the Bank to be China’s primary vulnerability:

Rising defaults in local banks or in the shadow banking system, a collapse in property prices, or large capital outflows alongside a sharp adjustment in asset prices could all ripple through the highly leveraged financial system. This risk is only partly mitigated by the country’s low reliance on external financing and ample capacity for fiscal and monetary support.

The Bank also makes a justified nod in the direction of the long-term slowdown in labour productivity (far from a uniquely Chinese problem), but it is the external headwinds that are most buffeting the economy. As the Bank notes:

A permanent and lasting resolution of trade disputes with the United States that builds upon recent progress could bolster China’s growth prospects and reduce reliance on policy support.

True, in as far as it goes, but as the Bank readily admits, the risks remain tilted to the downside.

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