Chindia Alert: You’ll be Living in their World Very Soon
aims to alert you to the threats and opportunities that China and India present. China and India require serious attention; case of ‘hidden dragon and crouching tiger’.
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But trade with partner countries might not be as badly affected as with countries elsewhere in the world, observers say
China’s trade with belt and road countries rose by 3.2 per cent in the January-March period, but second-quarter results will depend on how well they manage to contain the pathogen, academic says
China’s investment in foreign infrastructure as part of its Belt and Road Initiative has been curtailed because of the coronavirus pandemic. Photo: Xinhua
The coronavirus pandemic is set to cause a slump in Chinese investment in its signature
and a dip in trade with partner countries that could take a year to overcome, analysts say.
But the impact of the health crisis on China’s economic relations with nations involved in the ambitious infrastructure development programme might not be as great as on those that are not.
China’s total foreign trade in the first quarter of 2020 fell by 6.4 per cent year on year, according to official figures from Beijing.
Trade with the United States, Europe and Japan all dropped in the period, by 18.3, 10.4 and 8.1 per cent, respectively, the commerce ministry said.
By comparison, China’s trade with belt and road countries increased by 3.2 per cent in the first quarter, although the growth figure was lower than the 10.8 per cent reported for the whole of 2019.
China’s trade with 56 belt and road countries – located across Africa, Asia, Europe and South America – accounts for about 30 per cent of its total annual volume, according to the commerce ministry.
Despite the first-quarter growth, Tong Jiadong, a professor of international trade at Nankai University in Tianjin, said he expected China’s trade with belt and road countries to fall by between 2 and 5 per cent this year.
His predictions are less gloomy than the 13 to 32 per cent contraction in global trade forecast for this year by the World Trade Organisation.
“A drop in [China’s total] first-quarter trade was inevitable but it slowly started to recover as it resumed production, especially with Southeast Asian, Eastern European and Arab countries,” Tong said.
“The second quarter will really depend on how the epidemic is contained in belt and road countries.”
Nick Marro, Hong Kong-based head of global trade at the Economist Intelligence Unit, said he expected China’s total overseas direct investment to fall by about 30 per cent this year, which would be bad news for the belt and road plan.
“This will derive from a combination of growing domestic stress in China, enhanced regulatory scrutiny over Chinese investment in major international markets, and weakened global economic prospects that will naturally depress investment demand,” he said.
The development of the Chinese built and operated special economic zone in the Cambodian town of Sihanoukville is reported to have slowed, while infrastructure projects in Bangladesh, including the Payra coal-fired power plant, have been put on hold.
The development of the Chinese built and operated special economic zone in the Cambodian town of Sihanoukville is reported to have slowed. Photo: AFP
Marro said the reduction of capital and labour from China might complicate other projects for key belt and road partner, like Pakistan, which is home to infrastructure projects worth tens of billions of US dollars, and funded and built in large part by China.
“Pakistan looks concerning, particularly in terms of how we’ve assessed its sovereign and currency risk,” Marro said.
“Public debt is high compared to other emerging markets, while the coronavirus will push the budget deficit to expand to 10 per cent of GDP [gross domestic product] this year.”
Last week, Pakistan asked China for a 10-year extension to the repayment period on US$30 billion worth of loans used to fund the development of infrastructure projects, according to a report by local newspaper Dawn.
China’s overseas investment has been falling steadily from its peak in 2016, mostly as a result of Beijing’s curbs on capital outflows.
Last year, the direct investment by Chinese companies and organisations other than banks in belt and road countries fell 3.8 per cent from 2018 to US$15 billion, with most of the money going to South and Southeast Asian countries, including Singapore, Vietnam, Indonesia and Pakistan.
Tong said the pandemic had made Chinese investors nervous about putting their money in countries where disease control measures were becoming increasingly stringent, but added that the pause in activity would give all parties time to regroup.
“Investment in the second quarter will decline and allow time for the questions to be answered,” he said.
“Past experience along the belt and road has taught many lessons to both China and its partners, and forced them to think calmly about their own interests. The epidemic provides both parties with a good time for this.”
Dr Frans-Paul van der Putten, a senior research fellow at Clingendael Institute in the Netherlands, said China’s post-pandemic strategy for the belt and road in Europe
might include a shift away from investing in high-profile infrastructure projects like ports and airports.
Investors might instead cooperate with transport and logistics providers rather than invest directly, he said.
“Even though in the coming years the amount of money China loans and invests abroad may be lower than in the peak years around 2015-16, I expect it to maintain the belt and road plan as its overall strategic framework for its foreign economic relations,” he said.
China is now making more than 100 million masks a day, up from 20 million before the coronavirus outbreak, and may start to export more to other countries
Mask shortages elsewhere once more raise the debate about an over-reliance on China, with critics pointing to a lack of US industrial policy
China was producing 116 million masks per day of February 29, including a mix of disposable and high-end masks like the American-designed N95 model worn by President Xi Jinping on his trip on Tuesday to Wuhan. Photo: Xinhua
The Liu family factory has been making diapers and baby products in the Chinese city of Quanzhou for over 10 years, but in February, for the first time, it started making face masks, as demand soared spectacularly due to the coronavirus outbreak.
The business – which employs 100 people in the Southeastern Fujian province – has added two production lines to make up to 200,000 masks a day.
And while the decision was primarily commercial, “encouragement” from the Chinese government – in the form of subsidies, lower taxes, interest-free loans, fast-track approvals for expansion and help alleviating labour shortages – made the decision an obvious one, said Mr Liu who preferred only to give his family name.
“The government is advocating an expansion in production,” Liu said. “With faster approvals, producers need to prioritise the government’s needs over exports.”
WHO declares coronavirus crisis a pandemic
The factory is one of thousands of refitted pop-ups around China making masks and other protective equipment for the first time, part of a massive industrial drive to respond to the spread of the coronavirus.
Before the outbreak, China already made about half the world’s supply of masks, at a rate of 20 million units a day. That rose to 116 million as of February 29, according to China’s state planning agency, a mix of disposable and high-end masks like the American-designed N95 model worn by President Xi Jinping on his trip on Tuesday to Wuhan, the epicentre of the outbreak.
This exponential jump is the result of a wartime-like shift in industrial policy, with Beijing directing its powerful state-owned enterprises to lead the nationwide mask-making effort, and the country’s sprawling manufacturing engine following their lead.
For me, this is the big advantage of China, the speed Thomas Schmitz
“For me, this is the big advantage of China, the speed,” said Thomas Schmitz, president of the China branch of Austrian engineering giant Andritz, which has seen a big uptick in demand for its wet wipe-making machines in recent weeks, also due to the virus. “When you need to run, people know how to run, and this is something which has been lost in other countries since their industrial heydays.”
Chinese oil and gas major Sinopec upped production of mask raw materials such as polypropylene and polyvinyl chloride in January. This week, it set up two production lines in Beijing to produce melt-blown non-woven fabric, intended to make four tonnes of the fabric each day, which can then be used to produce 1.2 million N95 respirators or six million surgical masks a day.
The maker of China’s new J-20 stealth fighter jet, Chengdu Aircraft Industry Group, repurposed part of its factory to design a mask production line, according to local media reports. The SichuanDaily said 258 of the company’s engineers spent three days fast-tracking development of an assembly line with more than 1,200 components.
Coronavirus: From mysterious origins to a global threat
More than 2,500 companies in China have reportedly started making masks, among them 700 technology companies including iPhone assembler Foxconn and smartphone makers Xiaomi and Oppo, in an extraordinary mobilisation of resources.
The result resembles “the war effort” in the middle of the last century in the United States and western Europe, but arguably no other nation could undergo such a transformation so quickly today.
It is a reminder of what can happen in a centrally-planned economy with a strong manufacturing base, but also brings into sharp focus some of the geopolitical issues which have characterised China’s at-times difficult relationship with the rest of the world, particularly the European Union and US, over the past couple of years.
China’s dominance in manufacturing has become all the more evident as the rest of the world scrambles to shore up their own dwindling medical supplies, leading many to wonder why the world is so dependent on it for vital supplies.
The lesson for Washington is not that we need to emulate the Chinese economic model, but rather that we need to better steward the industrial base in key sectors Rush Doshi
The Italian government, which is dealing with the highest number of coronavirus cases and deaths after China, is to take shipment of 1,000 ventilators, 2 million masks, 100,000 respirators, 200,000 protective suits and 50,000 testing kits from China.
Italian foreign minister Luigi Di Maio said after a phone call with Chinese counterpart Wang Yi, they had agreed the export deal in the same week that European neighbours France and Germany banned masks from being exported because of low domestic supplies.
The Italy export deal showed that “China is emerging as a global public goods provider as the US proves unable and unwilling to lead,” said Rush Doshi, the director of the China Strategy Initiative at the Washington-based Brookings Institute think tank.
“China’s ability to produce what is needed to fight coronavirus is not simply a product of its economic model – it’s also a product of its industrial capacity,” Doshi said. “The US once had this capacity too, but it has lost important parts of it. The lesson for Washington is not that we need to emulate the Chinese economic model, but rather that we need to better steward the industrial base in key sectors.”
The frustration is felt acutely by Michael Einhorn, president of medical equipment distributor Dealmed-Park Surgical in New York, who has been trying to source stock from China for weeks, “but cannot get straight answers” from vendors.
Einhorn said he placed an order with a private seller in China’s virus-stricken city last week, but that the goods had not been shipped.
“Everyone is running out here, people are panicking in hospitals and we want to be able to help our most important customers,” Einhorn said. “We are dealing with hospitals that do not have products, how in the United States of America in 2020 did this happen?”
With the number of confirmed coronavirus cases in China falling daily, it is not inconceivable that the sort of export deal struck with Italian leaders becomes commonplace, although for now, it deal can be chalked up as a significant public relations coup for Beijing.
The World Medical Association is unable to specify how many masks are required to supply frontline medical staff in virus-hit areas, but said that “this crisis should be a wake up call for politicians and societies to make the necessary investment in emergency preparedness and to look into the vulnerability of our supply chains”.
Australian-listed manufacturer Eagle Health announced on Friday that it had installed production lines at its Xiamen factory in southern China to make 300 million masks a year and said it had already received orders from China and would be securing further larger orders internationally.
The group, which normally makes products including amino acids, protein supplements and lozenges in China, said it would prioritise meeting the large domestic demand, but was aware of an impending global shortage.
Eagle Health has already commenced production of its first order of 3.2 million medical masks for the Yiling Hospital Management Group in China, a process which will take 10 days. It has other smaller orders from Chinese government agencies and expects to receive more orders outside China.
The decision to make more masks came from increased demand. These are opportunities. The global demand for high quality masks will be significant Xu Gang
“The decision to make more masks came from increased demand. These are opportunities,” said chief executive Xu Gang. “The global demand for high quality masks will be significant. Imagine when the schools open. The situation will take some time to peak.”
Last week, the Australian Dental Association said supplies of masks at many practices were expected to run out within four weeks. The Australian government has since arranged a supply of 54 million masks for both the dental and medical industries.
At the same time, the US only has 1 per cent of the 3.5 billion masks it would need to counter a serious outbreak, Bloomberg reported.
While China has no quota on the volume of masks that had to be hived off for local consumption, the government has said domestic demand needs to be prioritised.
Businesses are free to export but overseas demand has yet to explode like it has in China, said Fujian factory owner Liu.
Wendy Min, sales director of Pluscare, a manufacturer based near the virus’ epicentre in Hubei province, said her company is making 200,000 masks per day, much of which are sold to the government, with exports still restricted by partial lockdown of workers and cargo transport.
“We previously exported to Europe, South America and other parts of Asia,” Min said. “But at the moment we can’t export. We are trying to discuss this with the government, but we cannot wait any more – we have to export soon.”
Min said that while she was receiving countless cold calls up until last week from people in China looking for masks, these have stopped, perhaps unsurprising given the abundance in supplies becoming available.
An influx of Chinese-made masks, though, is likely to be welcomed in other virus-stricken parts of the world.
Self-quarantine of all international travellers to Beijing as China fights import of coronavirus
Miguel Luiz Gricheno, CEO of Brazilian mask manufacturer Destra, said that his company is making 30,000 masks a day, but cannot meet local demand due to a lack of supplies, including the non-woven fabric from which masks are made.
“In disposable masks, most Brazilian companies are paralysed due to the lack of raw materials,” Gricheno said. “With the arrival of the coronavirus in Brazil, the demand has increased a lot but the main raw material comes from abroad.”
However, a short-term supply fix will not answer underlying questions about how so many countries found themselves in such dire straits,meaning the geopolitical fallout of the coronavirus will be extensive.
Decades of weak industrial policy helped elect US President Donald Trump, who said he would bring manufacturing jobs back to America at China’s expense. While he has waged a bruising two-year trade war with China in response, the current situation shows just how difficult it will be to change the global manufacturing processes, which are so heavily controlled by China.
One of the great flaws of globalisation is that everyone wanted things cheaper, but did you compromise your health care infrastructure in the process? Stephen Roach
“In the guise of trying to improve efficiency and create value for price-sensitive consumers, we’ve created a global production network that is very difficult to unwind,” said Stephen Roach, a professor of economics at Yale University and a veteran China watcher. “One of the great flaws of globalisation is that everyone wanted things cheaper, but did you compromise your health care infrastructure in the process.
Reuters reported that Trump is considering invoking the emergency provisions of the Defence Production Act, which would allow the government to instruct companies to alter production to help address the domestic shortage of medical supplies like masks. If a company is producing 20 per cent N95 masks and 80 per cent standard masks, the White House could order them to rejig the ratio, an unnamed official said.
The New York Times reported on Wednesday that the White House is preparing an executive order that would allow the government to buy medical supplies from overseas in the hope that it will incentivise companies to make them within the US.
But these changes still do not give Trump the sort of sweeping powers enjoyed by Chinese counterpart Xi.
“When you have a pluralistic, democratic situation that Trump is overseeing, it becomes more unwieldy” to take the steps necessary to address a crisis situation, said Harry Broadman, chair of the emerging markets practise at the Berkeley Research Group and a senior US government official in the 1980s and 1990s.
“That is why I think Trump looks at Xi with envy, because he doesn’t have to deal with a disparity of views or democratic interests,” Broadman said. “I think Trump is at heart a bilateral guy, as you saw with the phase one [US-China] trade deal and the state-to-state purchases. That is why he likes dealing with [Russian President Vladimir] Putin and Xi, because each of them can move mountains. I think Trump is very envious of that ability.”
Rocket artilleries fire in a military presentation in Korla, northwest China’s Xinjiang Uygur Autonomous Region, Aug. 3, 2019. The opening ceremony for the competitions hosted by China as part of the International Army Games 2019 was held on Saturday in Korla, northwest China’s Xinjiang Uygur Autonomous Region. The Chinese army will host four contests in areas such as infantry combat vehicles and weapon repair. Teams coming from 12 countries in Asia, Europe, Africa and South America will take part. (Photo by Wang Junqiang/Xinhua)
URUMQI, Aug. 3 (Xinhua) — The opening ceremony for the competitions hosted by China as part of the International Army Games 2019 was held on Saturday in Korla, northwest China’s Xinjiang Uygur Autonomous Region.
The Chinese army will host four contests in areas such as infantry combat vehicles and weapon repair. Teams coming from 12 countries in Asia, Europe, Africa and South America will take part.
During the period of the competitions, cultural exchanges and equipment exhibitions will be held.
The Chinese army has taken part in the games since 2014 and became a host in 2017.
CFC-11 is also known as trichlorofluoromethane, and is one of a number of chloroflurocarbon (CFC) chemicals that were initially developed as refrigerants during the 1930s.
However, it took many decades for scientists to discover that when CFCs break down in the atmosphere, they release chlorine atoms that are able to rapidly destroy the ozone layer which protects us from ultraviolet light. A gaping hole in the ozone layer over Antarctica was discovered in the mid 1980s.
Media caption Twenty-five years of ice loss in the Antarctic
The international community agreed the Montreal Protocol in 1987, which banned most of the offending chemicals. Recent research suggests that the hole in the Northern Hemisphere could be fully fixed by the 2030s and Antarctica by the 2060s.
When was the CFC problem discovered?
CFC-11 was the second most abundant CFCs and was initially seen to be declining as expected.
Image caption Monitoring stations in Korea and Japan were key to detecting the mystery sources of CFC-11
That team reasoned that they were seeing new production of the gas, coming from East Asia. The authors of that paper argued that if the sources of new production weren’t shut down, it could delay the healing of the ozone layer by a decade.
What did investigators find on the ground?
Further detective work in China by the Environmental Investigation Agency in 2018 seemed to indicate that the country was indeed the source. They found that the illegal chemical was used in the majority of the polyurethane insulation produced by firms they contacted.
One seller of CFC-11 estimated that 70% of China’s domestic sales used the illegal gas. The reason was quite simple – CFC-11 is better quality and much cheaper than the alternatives.
So what does this latest study show?
This new paper seems to confirm beyond any reasonable doubt that some 40-60% of the increase in emissions is coming from provinces in eastern China.
Using what are termed “top-down” measurements from air monitoring stations in South Korea and Japan, the researchers were able to show that since 2012 CFC-11 has increased from production sites in eastern China.
Image copyright GETTY IMAGES
They calculated that there was a 110% rise in emissions from these parts of China for the years 2014-2017 compared to the period between 2008-2012.
“This new study is based on spikes in the data on air that comes from China,” lead author Dr Matt Rigby, a reader at the University of Bristol, told BBC Inside Science.
“Using computer simulations of the transport of these gases through the atmosphere we can start to put numbers on emissions from different regions and that’s where we come up with this number of around 7,000 tonnes of extra CFC-11 emissions coming out of China compared to before 2012.
“But from the data, all we just see are the ultimate releases to the atmosphere, we don’t have any information on how that CFC-11 was used or where it was produced, it is entirely possible that it was manufactured in some other region, some other part of China or even some other country and was transported to the place where they are making insulating foams at which point some of it could have been emitted to the atmosphere.”
Where are the rest of the emissions coming from?
The researchers are not sure. It’s possible that the missing emissions are coming from other parts of China, as the monitoring stations just can’t see them. They could also be coming from India, Africa or South America as again there is very little monitoring in these regions.
Does this have implications for climate change?
Yes – the authors say that these CFCs are also very potent greenhouse gases. One tonne of CFC-11 is equivalent to around 5,000 tonnes of CO2.
“If we look at these extra emissions that we’ve identified from eastern China, it equates to about 35 million tonnes of CO2 being emitted into the atmosphere every year, that’s equivalent to about 10% of UK emissions, or similar to the whole of London.”
Will China clampdown on the production?
The Chinese say they have already started to clamp down on production by what they term “rogue manufacturers”. Last November, several suspects were arrested in Henan province, in possession of 30 tonnes of CFC-11.
Clare Perry from the Environmental Investigations Agency (EIA) said that the new findings re-affirmed the need to stamp out production.
“I think with this study, it is beyond doubt that China is the source of these unexpected emissions, and we would hope that China is leaving no stone unturned to discover the source of the CFC-11 production.
“Unless the production of the chemical is shut down it will be near impossible to end the use and emissions in the foam companies.”
The study has been published in the journal Nature.
CHINDIA ALERT: You'll be living in their world, very soon 