World Bank Sees First Quarter Contraction in China

THE COVID-19 PANDEMIC has caused the World Bank to downgrade its growth projections sharply for the year and it is now expecting China’s economy to grow by just 2.3% this year on a baseline scenario.

The Bank’s ‘lower case’ scenario puts growth for the year at 0.1%. The economy grew by 6.1% in 2019.

As the Bank notes, China has already seen a steep drop in economic activity with high-frequency indicators pointing to a contraction of the economy in the first quarter. That number is due to be released on April 17. The Bank estimates it will fall in a range of minus 0.6% growth to minus 7.5% growth.

It also cautions that that range may be optimistic given the global economic impact of the pandemic spreading around the world.

The pace at which the government can get the economy up and running again will be critical. However, while many large industrial enterprises are starting to get back to work, few are running at anything like full capacity yet. That is even less true for most small and medium-sized firms, who are experiencing an even more fitful return.

The Bank also estimates that fewer people will escape poverty this year as a result of the pandemic. It had previously projected that more than 25 million would do so in China this year but now fears poverty rates will rise for households connected to the retail, tourism and some manufacturing sectors, which have been particularly hard hit by the virus.

Update: A reminder that the purchasing managers index (PMI) compares one month to the previous one, so it is a relative not an absolute indicator of the state of the economy, and that a score of 50 is the dividing line between expansion and contraction. Thus the newly announced rebound in the manufacturing PMI for March to 52 from February’s 35.7 means that the sector is doing marginally better than last month, which was terrible, not that the economy is back to normal, which it is not.

Leave a comment

Filed under Economy

Covid-19 Will Slow Progress on Phase One US-China Trade Deal

THE COVID-19 PANDEMIC raises questions over the implementation of the Phase One US-China trade agreement that came into effect on February 14. Officials are acknowledging that. For example, China says it is streamlining the process for registering new US feed products that can be imported, in response to delays caused by the infection.

Agricultural trade was a centrepiece of the Phase One deal. The headliner was China’s commitment to buy $80 billion worth of US farm exports this year and next over and above sales levels in 2017, the last full year before the two countries started slapping tariffs and counter-tariffs on each other’s exports. Yet, as politically useful as a single, big number is for US President Trump to parade before US farmers, a core electoral constituency of his, it is the mundane work of opening access to the Chinese market by dismantling regulatory, sanitary and phytosanitary barriers that will make the long-term difference.

US officials and farm industry leaders speak of future billion-dollar markets for US beef, pork and poultry products in China. Those will only come after trade negotiators have spent long hours immersed in the minutiae of rules and regulations and the HS six-digit product codes used to classify international trade.

  • Fully lifted the ban on US poultry and poultry products exports (imposed after an outbreak of avian ‘flu in 2015 and raised for US chicken meat in November);
  • Agreed not to impose a national ban on poultry in the event of regional US outbreaks of disease;
  • Proposed levels of some hormones in beef it would accept;
    Expanded its list of beef, pork and poultry products that may be imported;
  • Lifted age restrictions on the beef cattle from which beef or meat products are made;
  • Updated its list of US facilities, such as slaughterhouses, processing plants and cold storage, allowed to export beef, pork and poultry to China;
  • Updated its list of US facilities approved to export dairy, infant formula, seafood, fish oil and meal, animal protein, pet food and industrial tallow;
  • Expanded its list of US facilities that can export distiller’s dried grains with solubles (DDGS – a by-product of ethanol made from corn used as fodder for livestock and a billion-dollar export market for US producers before China enforced anti-dumping duties on US DDGS in January 2017;
  • Updated its list of feed additives that can be exported and streamlined the process for registering new feed products for export;
  • Eased restrictions on pet food imports;
  • Agreed a protocol for the import of fresh chipping potatoes and Californian nectarines;
  • Put in place a process for US exporters to apply for exclusions from retaliatory tariffs; and
  • Announced new tariff exclusions n hardwood products.

Most countries protect their farmers with non-tariff barriers. China is no exception, only more so. The Phase One agreement contains much that is aspirational in dismantling such barriers but also specifies a lot of processes for doing so being started within the first three months. Despite the disruption to physical trade Covid-19 has caused, officials from the two countries have held at least three sets of meetings to advance implementation of the technical aspects of the agreement. Some low-hanging fruit has been plucked. China has:

That list only scratches the surface of the rules and regulations that will have to be changed for US agri industry to realise its starry-eyed, long-term goals for sales to China. These are predicated on a growing appetite of an increasingly wealthy middle class to consume higher-value foods and of an expanding Chinese agricultural sector that is transitioning from a base of rural small farms to large-scale and international agri-businsesses.

Both sets are suitable markets for the foods and feedstocks that the United States produces. Equally, China will not abandon its long-term strategy of diversifying its sources of agricultural imports nor neglect the way it can use agriculture to extend its economic diplomacy push around the world.

Nor can a billion dollars’ worth of US poultry or ethanol dregs, let alone ten-billion-dollars’ worth of US beef turn up in China overnight, but market access is the necessary prelude to sales. Establishing it will be a long and unglamorous slog for a large number of unheralded trade negotiators. That work will inevitably be slowed for now by the attention both governments are having to pay to more pressing matters — and, for as long as the Trump administration is in office, at risk of an unpredictable policy intervention by the US president.

With the trade agreement barely a month old and the lag in gathering trade data, it is too early for any progress to show up in the bilateral trade figures. The current success story for US farm exports to China — pork — has nothing to do with the Phase One deal. Sales in January (the latest available month) were up more than sevenfold by volume year-on-year, because of the devastating impact of African swine fever on domestic herds.

However, as this Bystander has noted, achieving the additional $80 billion of farm imports over the next two years is going to be a stretch, absent Beijing ensuring large, politically driven purchases. That was true even before the domestic and International disruption to supply chains and distribution networks caused by the global pandemic.

It will take several months at least for domestic demand to get back on an even keel, and US farmers will be preoccupied immediately with supplying their home market, too.

However, forecasts from Virginia Tech’s Centre for Agricultural Trade presented in mid-February, suggested that across six main categories of US farm exports (soybeans, corn, wheat, beef, pork and poultry, which collectively account for more than half the total) would rise by $5.5 billion this year and $9.5 billion next, 40% and 70% increases, respectively, over the 2017 baseline, but still far from dragging US farm exports as a whole over the line of the two-year $80 billion increase.

Leave a comment

Filed under Agriculture, China-U.S., Trade

A Glimmer Of Normalcy Returns To Hubei

Rice being packaged in Dangyang, Hubei Province on March 22, 2020. Photo credit: Xinhua/Cheng Min

LOCKDOWN RESTRICTIONS IN Hubei province have started to be lifted with limited outbound travel connections being established. The same will happen for Wuhan on April 8, officials say, another indication that authorities believe the worst of the Covid-19 outbreak has passed.

The past week has brought only one new recorded case in Wuhan, which has been in quarantine since the middle of January. (Asymptomatic cases are no longer being reported in the numbers.)

Medical teams drafted into Hubei from other provinces to help combat the outbreak are starting to return home and large-scale industry to resume work. Spring planting has commenced in rural areas, and a limited number of the province’s tourist attractions are reopening, too, albeit with strict infection control measures in place.

Managing the pace of the return to some sort of normalcy will be critical to preventing a renewed wave of community transmissions of the infection.

Update: Authorities have imposed a ban on incoming travellers to the country to mitigate the risk of imported Covid-19 infections, which are now the main source of new cases.

Leave a comment

Filed under Politics & Society

China Reports First Day Of No New Covid-19 Case In Wuhan

IT IS A milestone in the long journey to fight the SARS-CoV-2 virus. Wuhan and Hubei, the epicentre of the global pandemic, had their first day since January with no new reported cases of Covid-19, the National Health Commission has said.

That is not to say that there are not more cases to come. Imported cases remain a threat, as will be over-rapid relaxation of disease-suppression strategies and an inevitable ‘second wave’ of the disease later in the year or early next.

It will take a couple of weeks free of new cases from local transmission to be able to say the worst is passed for now.

Meanwhile, there can be no let-up in the search for a vaccine and treatment, or in dealing with the economic effects of a pandemic that is poleaxing the global economy.

Separately, the findings of the National Supervisory Commission investigation into Dr Li Wenlian, the Wuhan doctor who was detained by police after first warning of the outbreak and whose subsequent death from the disease created an uproar on social media, have determined he died from occupation injuries but do little more than wag a finger at the policing that led to his reprimand.

The investigators have suggested that local supervisory authorities look into the issuance of the reprimand letter to Li, which was inappropriate and failed to respect relevant law enforcement procedures, and urge police to revoke the letter and hold those responsible accountable and release the results in a timely manner.

Cue the sound of the buck stopping.

Leave a comment

Filed under Politics & Society

US-China Media War Escalates

CHINA’S RETALIATION AGAINST restrictions on Chinese state media’s US operations hit three of the publications whose reporting Beijing finds the most uncomfortable —the New York Times, the Wall Street Journal and the Washington Post.

They are also three publications for which the Trump administration has little love. Beijing may be calculating that Washington’s defence of them will not be whole-hearted.

Journalists of the three have been ordered to identify themselves to the Information Department of the foreign ministry within four days and return their press cards within ten days.

This applies to all journalists working for the publications who are US citizens and whose annual press passes expire before the end of this year. In effect, this means most US reporters at the three publications, in total several dozen. They are also banned from working in Hong Kong and Macau as well as mainland China.

In addition, the three newspapers plus Voice of America and Time are required to report details of their staff, finances and property holdings to authorities.

The measures follow the United States designating five state media outlets including the official news agency Xinhua as equivalent to Chinese diplomatic missions and requiring them to reduce their staffs to around 100 from 160.

Diminishing independent reporting on the ground from China by international media will remove one more barrier to Beijing’s ability to prosecute its policy objective of controlling the narrative about China’s role in the world.

Leave a comment

Filed under China-U.S., Media

Climbing Back Up The Cliff Will Be Slower Than Falling Off

THE LATEST ECONOMIC indicators — industrial production (see above), retail sales and fixed asset investment for January and February — bring more evidence of the economic damage brought by the Covid-19 outbreak, and raise the possibility that China’s economy will contract in the first quarter.

All three indicators fell year-on-year both for the first time and by large margins, down 13.5%, 20.5% and 24.5% respectively, the National Bureau of Statistics reported. More concerning for authorities is that urban unemployment edged up to 6.2% in February, a full percentage point higher than in the previous month.

Authorities say that outside the outbreak’s epicentre, Wuhan and surrounding Hubei province, 95% of large enterprises and 60% of small and medium-sized businesses have returned to work. Nonetheless, they are still not operating at full capacity.

Further macroeconomic stimulus measures have been announced to keep the economy going. The central bank has cut banks’ reserve requirement ratios for the second time this year to make a further 550 billion yuan ($78.6 billion) available for loans and injected an extra 100 billion yuan through the medium-term lending facility. Additional injections of credit are likely to ensure businesses have the working capital to sustain a recovery in activity.

More fiscal stimulus — increased local government bond issuance and tax and fee cuts — are planned. Infrastructure projects, such as expanding 5G networks, already in the national plan will be expedited, an official of the National Development and Reform Commission says. That will help keep employment stable.

The worst of the outbreak appears to have passed for now in China, but that is not the case in the rest of the world. Significant markets for Chinese exports such as the United States and the EU are forecast to contract in the second quarter as a result. Thus recovery in China will be measured.

Leave a comment

Filed under Economy

Let A Hundred Tweets Bloom

Beijing’s propaganda playbook on social media is changing, influenced by US President Donald Trump’s combat tweeting and Russia’s holistic infowar strategy of sowing doubt, distrust and distraction.

This Bystander has been mulling the lessons that might have been learned from Trump’s realization earlier than most populist politicians that repeating a lie often enough makes it true is an outdated concept.

Perhaps because of his experience with reality television, Trump grasped that reality is an artifice that can be created. And if created once, why not multiple times? In such a world, if anything can be true, nothing needs to be.

Alternative and multiple versions of reality can be created by the simple mechanism of hypothetical questions that are impossible to refute absolutely, no matter how incredible their premise. More importantly, they provide an envelope in which to carry that premise in the direction of plausibility. For the politician, there is an additional attraction: any idea can be floated and promoted without responsibility having to be taken for holding or endorsing it.

The controversy over the tweet in which Zhao Lijian, deputy director of the foreign ministry’s Information Department, said “it might be US army who brought the epidemic to Wuhan” is a case in point. It is just as hypothetical a suggestion as that of US senator Tom Cotton that there was a need to investigate whether the virus escaped from a Chinese bioweapons lab in Wuhan.

Zhao’s tweet was not the first time that China has pushed the narrative that the SARS-CoV-2 virus originated outside of China. The implication is that it is the United States that has to offer China the explanation for what has become a global pandemic; that the responsibility lies elsewhere than China’s wet markets.

This is being continued by the Global Times, the stridently nationalistic English-language publication of the People’s Daily. It is highlighting an online petition to the US government that speculatively connects the SARS-CoV 2 virus to the US Army’s medical research centre for infectious diseases at Ft. Detrick that was closed last year. US citizens have a constitutional right to petition their government and do so on a variety of issues profound and quixotic. The Ft. Detrick petition has attracted barely 450 signatures, well short of the 100,000 needed for the White House to respond.

The conclusion of all this is that while once the rest of the world could expect a unified line from China on any issue, in future, it will have to cope with multiple lines, some conflicting, many false, others partially true, but all undermining the credibility of the fundamental truth.

In the information age, pre-emption in the world of ideas becomes a pillar of national security. As Russia’s information warriors have shown, just sowing confusion and uncertainty can be enough. The creation and dissemination of misinformation and disinformation are at the heart of Russia’s offensive infowar strategy.

An example of this came in the foreign ministry’s daily briefing for foreign correspondents. In response to a question asking for a response to Zhao’s suggestion that the US Army brought the epidemic to Wuhan, spokesman Geng Shuang said:

In recent days we noticed many discussions on the origin of the COVID-19. We firmly oppose the unfounded and irresponsible comments made by certain high-level US officials and Congress members on this issue to smear and attack China. The fact is, there are different opinions in the US and among the larger international community on the origin of the virus. China believes it’s a matter of science which requires professional and science-based assessment.

Even though Twitter is banned within China, Chinese officials have taken to the platform fulsomely of late, with Zhao prominent among them, as Beijing’s intensifies its policy to control the international narrative about China. This is a sophisticated and well-funded operation, already being pushed back against by Washington, that includes owning foreign media, sponsoring journalistic coverage and a cadre of ‘talking heads’ around the world who can be relied upon to ‘tell China’s story well’ whenever local media outlets come calling.

Febrile social media offers the perfect environment for such a strategy to flourish, as Trump has so deftly proved with his combat tweeting. We should expect more and more of the same from China’s diplomats.

Leave a comment

Filed under Media