The meeting in Beijing next Friday will focus on the current conditions of U.S. dollar-denominated investment firms in China and the main challenges facing them, according to the sources who have direct knowledge of the matter and invitation documents reviewed by Reuters.

Continue reading HERE

Source: https://www.reuters.com/world/asia-pacific/china-invites-global-investors-rare-meeting-economy-sputters-sources-2023-07-14/

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Food is piling up in all the wrong places, thanks to carriers hauling empty shipping containers.

Global competition for the ribbed steel containers means that Thailand can’t ship its rice, Canada is stuck with peas and India can’t offload its mountain of sugar. Shipping empty boxes back to China has become so profitable that even some American soybean shippers are having to fight for containers to supply hungry Asian buyers.

“People aren’t getting their goods where they need them,” said Steve Kranig, director of logistics at IM-EX Global Inc., a freight forwarder that handles cargoes including rice, bananas, and dumplings from Asia to the U.S. “One of my customers ships 8 to 10 containers of rice every week from Thailand to Los Angeles. But he can only ship 2 to 3 containers a week right now.”

The core issue is that China, which has recovered faster from Covid-19, has revved up its export economy and is paying huge premiums for containers, making it far more profitable to send them back empty than to refill them.

Shipping containers next to gantry cranes at the Yangshan Deepwater Port in Shanghai, China, on Monday, Jan, 11, 2021.

There are signs that the soaring freight rates are boosting the cost of some foods. White sugar prices surged to a three-year high last month, and delays in food-grade soybean shipments from the U.S. could mean higher tofu and soy milk costs for consumers in Asia, said Eric Wenberg, executive director of the Specialty Soya and Grains Alliance.

Food Costs

While it’s not entirely uncommon for containers to transit back empty after a voyage, carriers usually try to backfill them to profit from shipping rates in both directions. But the cost of carrying goods from China to the U.S. is almost 10 times higher than the opposite journey, prompting liners to favor empty boxes instead of loading them, Freightos data showed.

At the port of Los Angeles, the U.S.’s biggest for container cargo, three in every four boxes going back to Asia are traveling empty compared with the normal 50% rate, said Executive Director Gene Seroka. In Vancouver, containers remain in the yards. Terminals have shortened the time to transport the stuffed boxes onto ships from three days to as little as seven hours, said Jordan Atkins, vice president of WTC Group.

“It’s not possible to get the amount of volume we have here in Vancouver to return containers in those tight windows,” said Atkins. “Pulses, in general, are struggling getting on the ships,” he said, referring to crops like peas and lentils. Canada is the world’s second-largest producer of pulses.

India, the world’s second-largest sugar producer, exported only 70,000 metric tons in January, less than a fifth of the volume shipped a year earlier, said Ravi Gupta, president of Shree Renuka Sugars Ltd, the nation’s top refiner.

Vietnam, the largest producer of the robusta coffee beans used to make instant drinks and espresso, is also struggling to export. Shipments dropped more than 20% in November and December, said Le Tien Hung, chairman of Simexco Dak Lak, Vietnam’s No. 2 exporter.

Warehouses in Vietnam are full due to seasonal selling and low exports following the shortage of containers, Volcafe Ltd., the coffee unit of commodities trader ED&F Man Holdings Ltd., said in a report.

Around the world, some foodstuff buyers are waiting while others have halted purchases altogether, traders say.

‘Shortage of Everything’

“It’s been like that since December,” said Kranig of IM-EX Global. “You’re going to get not only a shortage of food but a shortage of everything. I would not be surprised to hear some beneficial cargo owners’ freight rates for 2021-2022 shipping season double from previous years.”

If that prediction bears out, once the bulk of North Americans and Europeans are vaccinated, some of those high freight rates could be passed on to them as they return to cafes, restaurants, and office towers.

The container crunch comes just as American shippers are trying to boost exports of everything from soybeans to grain meals to Asia. China is scooping up American crops to feed a hog herd that’s recovering from a deadly pig disease faster than most expected. The situation is so dire that some buyers are canceling contracts, opting for bulk shipping methods, the most common for feed products, or delaying purchases to avoid high freight costs.

“We know that some of the industry’s largest and most consistent buyers of soybean containers in Asia over the years are now electing to buy bulk vessel supplies,” said Doug Grennan, vice president for select global grain and oilseeds at Scoular Co., a century-old trader that’s one of the U.S.’s largest shippers of agricultural goods in containers. “And certainly like others, we had some booking cancellations.”

Still, a major global spike in food costs is unlikely. Only a small percentage of grains and oilseeds is traded in containers, said Arnaud Petit, executive director of the International Grains Council in London, with the rest going bulk cargo. It’s also unclear how much of the rise in shipping costs companies will be able to pass on to consumers, given the economic slowdown caused by the coronavirus.

Suspending Shipments

Hapag-Lloyd AG last year told customers it was suspending overseas container shipments of North American agriculture products to reposition empty containers back to Asia. Nico Hecker, director of global container logistics at the German sea-freight company, said in November that the firm was experiencing the strongest increase in demand for 40-foot containers following one of the biggest decreases ever.

“As containers became scarce in Asia, demand outpaced supply” along all container routes, said Judah Levine, research lead at Freightos. Some carriers have canceled sailings in coming weeks to catch up from delays, he added.

The pandemic has also upended flows of refrigerated containers. In China, boxes are piling up at ports as workers have to comply with strict Covid-testing procedures as well as disinfection of meat and seafood products after frozen-food imports were blamed for the spread of the virus. There are so many cold containers in Dalian that the port is running out of power plugs to keep them on.

As imports are being held up, wholesale pork prices in China, the world’s top consumer, jumped to the highest since September. That’s prompted the government to boost sales of state pork reserves to meet booming demand ahead of the Lunar New Year holiday.

Labor shortages due to the spread of the coronavirus are slowing operations at ports, and worsening the container shortage. Strikes in Argentina have also boosted demand for American agriculture products to supply Asia, increasing competition for boxes.

“It’s a bit of a perfect storm,” said Grennan. ”You have pent-up demand in Asia for agriculture products and that’s at the same time you have a pretty substantial consumer goods demand in the U.S. When you add to that some of these labor issues, that’s what really crated the scarcity you are seeing.”

— With assistance by Marcy Nicholson, Mai Ngoc Chau, Shuping Niu, Megan Durisin, and Pratik Parija

Source: https://www.bloomberg.com/news/articles/2021-02-02/the-global-food-trade-has-been-upended-by-a-container-crisis

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Encouraging as this economic pickup is for the period immediately ahead, Beijing’s demographics casts a long and ominous shadow.

Some people say that China’s leadership is all but magical. It has beaten the coronavirus pandemic before the United States or the rest of the world and has its economy roaring back much faster than others. It is true enough that China’s official statistics report a drop in infections and strong economic growth. Though Chinese figures, most especially from official sources, always include a hefty dollop of political leavening, there is nonetheless reason to accept these reports as broadly true of China’s present reality. But such glowing news misses the severe underlying problems facing that economy and its dubious longer-term prospects.

For now, China’s National Bureau of Statistics reports little but upbeat news. November export figures show a 21 percent jump from a year ago. The most recent report on China’s overall economy indicates that it grew 4.9 percent in the summer quarter from the same period in 2019, slower than China’s historic growth rate but robust nonetheless. Industrial production in October rose 6.9 percent from year-ago levels. Retail sales rose 4.3 percent during that same time. Investment spending on productive facilities rose a less impressive 1.8 percent but should pick up in coming months as direct foreign investment in China has risen a remarkable 18.4 percent during this time. This all speaks to a powerful and undeniable growth momentum going into 2021.

Encouraging as this economic pickup is for the period immediately ahead, China’s demographics casts a long and ominous shadow. After all, Beijing had maintained a one-child policy for decades, China’s leadership has effectively cut the country off from the sort of workforce that so contributed to the amazing growth of the past forty-some years. In place of the plentiful, eager workforce of China’s past, the policy has ensured an acute shortage of workers in the economy’s future. The figures are striking. United Nations statisticians project that over the next few decades China’s workforce will actually shrink 6.8 percent. Whereas today China has almost five people of working age for every American equivalent, these demographic trends promise to shrink that edge by half.

On top of this problem, China also labors under a fundamental flaw in its growth model. The approach China still uses worked wonderfully well in the early stages of economic development.  Like Japan before it, China years ago oriented its economy toward exports. Official policy discouraged consumption to free up resources for the construction of factories and infrastructure, including worker housing, needed to manufacture and move products for sale to the developed world. Because China’s economy was so underdeveloped, this approach paid handsome dividends, to which the stupendous growth recorded in the latter decades of the twentieth century and the early years of this century testify.  But as Japan had learned before and Beijing admitted, the model is only good for the initial decades of growth. Chinese premier Wen Jiabao made that clear as early as 2007 when he called out the limitations of the export-investment approach and pledged to sustain future development by shifting the growth model toward the consumer-driven approach that is common in the developed world.

But China has failed to make the adjustment. Back in 2007, when Wen Jiabao made his announcement, the Chinese consumer commanded to some 37 percent of the economy, compared to some 70 percent focused on the consumer in the American and European economies. Back then, exports and investment dominated China’s economy, commanding fully 49 percent of total output. At last measure, Chinese consumers command only slightly higher 39 percent of the economy, while exports and investment combined still dominate at an only slightly reduced 45 percent of the economy.  China’s economy, in other words, remains as lopsided as it was. Worse still, the authorities during this long interim period when they failed to adjust the shape of their economy, have bolstered growth by redoubling the investment practices of the past. Some of their efforts, to be sure, have focused on technology, but most have still gone to more factories and more infrastructure. Unlike during China’s underdeveloped past, however, the more recent apartment complexes have remained empty and rail links have gone nowhere useful. Impressive as they look to visiting journalists, these expensive investments have not paid the growth dividends earlier such efforts did. A sure sign emerges from the poor performance of worker productivity, which, instead of soaring, as it did in the earlier phase of development, has declined every year since 2010.

In many respects, this misplaced investment gets to a still more fundamental failing of China’s system. Because the economy is centrally planned and controlled, it misses the kind of diversified economic experimentation available to more market-driven economies. In less centrally directed economies, thousands of private firms and individuals pursue any number of new ideas and projects. Many of these ventures fail and leave a legacy of debt and waste, but because the effort is diversified, that waste and debt pales next to the returns on those projects that succeed. On balance, the economy gains. But in China’s centrally planned arrangement, such effort is much less diversified. Instead, it concentrates massively on the few directions favored by the authorities. And because China’s development has made future needs less obvious than they were in the country’s underdeveloped past, more of the projects initiated by the authorities miss economic needs and fail to generate the income necessary to discharge the debt incurred by pursuing them. The extent of those mistakes is evident in a comparison of debt levels relative to the size of the economy. Over the past ten years or so, the economy has risen at a 6.3 percent annual rate while debt has expanded at more than twice that rate, 15 percent in the last year alone so that in 2020, all debt—mostly at provincial and municipal governments as well as state-owned enterprises—amounts to 335 percent of China’s gross domestic product (GDP).

It is more than a little ironic that so much of the positive reporting on China by American and European journalists views these wasteful projects as evidence of strength. They visit China, or they did before the pandemic severely curtailed international travel, and are dazzled by huge construction projects and rows of shiny high-speed locomotives. Without questioning whether these projects represent the most effective use of the huge amounts of labor and capital involved, these journalists express regret that their own countries cannot marshal resources the way China’s top-down planners can. They do not seem to consider whether China’s economy might have had better uses for those resources, human, financial, and natural. It should be apparent that such questions need asking, that these planners have largely missed the nation’s needs and are not likely to catch on any time soon.

Milton Ezrati is a contributing editor at the National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New York-based communications firm. His latest book is Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live.

Source: https://nationalinterest.org/feature/china-faces-new-economic-woes-during-pandemic-era-174266

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Beijing’s 2035 vision for “basic socialist modernization” includes few specific targets and did not specifically mention the United States. China’s total economic size and per capita income “will climb to a new big level” by 2035, with significant improvements in its economic, technological, and comprehensive power, according to the communique of the fifth plenary session of the Communist Party Central Committee.

Per capita gross domestic product (GDP) in China will reach that of a “mid-level advanced country”, with a bigger middle-income group at home and “new competitive advantages” abroad by then, according to the communique. In summary, China will be a rich, green, fair, and formidable economic power by 2035.

If this vision can be achieved, the natural result is that China’s economic influence will exceed that of the US. In terms of total economic size, for instance, since China’s population is almost four times that of the US, a per capita GDP that is about half of the US level would make China’s economy twice as large.

It is worth noting that Beijing now views the trend of continuous growth with absolute certainty. What the Chinese leadership is foreseeing is that the country’s growth rate may vary year to year – as evidenced by the way the coronavirus outbreak resulted in a dip in the growth rate this year – but the upward trend will stay on track until at least 2035.

(South China Morning Post)

Source: https://wbj.pl/china-plans-to-overtake-us-as-the-worlds-no-1-economy/post/128890

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A pedestrian wearing a protective face mask amid the the coronavirus (COVID-19) outbreak is reflected on a screen displaying stock prices outside a brokerage in Tokyo, Japan, on March 17, 2020. Issei Kato/Reuters

The coronavirus is throttling the global economy. In a matter of weeks, the highly contagious disease has pushed the world to the brink of a recession more severe than the 2008 financial crisis. The depth and duration of the downturn will depend on many factors, including the behavior of the virus itself, public health responses, and economic interventions.

Given the extraordinary nature of the pandemic-induced crisis, fiscal and monetary policymakers are working without a playbook. Many, however, are moving forward with stunning bailouts that could collectively top $10 trillion.

How bad will the recession be?

Readings in April suggested the global economy was sailing into a colossal storm. “We anticipate the worst economic fallout since the Great Depression,” said Kristalina Georgieva, managing director of the International Monetary Fund (IMF). Meanwhile, the Organization for Economic Cooperation and Development said its indicators produced the strongest warning on record that most major economies had entered a “sharp slowdown.” The World Trade Organization, for its part, forecast that nearly all regions of the world would suffer double-digit declines in trade this year, with North American and Asian exporters hit hardest.

Many governments have effectively frozen social and economic activity in all or parts of their countries to contain the outbreak, shuttering nonessential businesses and ordering residents to stay at home for weeks or months. Billions of people worldwide remain under some type of lockdown. Major industries, especially airlines and other travel-related sectors, are on the brink of bankruptcy. The hope is that economies can power down without causing extreme disruptions, such as widespread business failures or joblessness, and then quickly get back up to speed after the pandemic abates.

Just how quickly governments should unshackle their economies is a matter of debate. Some governments in Asia and Europe that feel they’ve contained the virus have begun to slowly reopen their economies. Similarly, more than a dozen U.S. states are loosening restrictions, and President Trump did not renew federal social-distancing guidelines, which expired on April 30. But new outbreaks have already caused some countries to reimpose restraints.

For now, some economists hope for a strong global rebound in the third quarter, mirroring the recoveries in Asia after the Severe Acute Respiratory Syndrome (SARS) outbreak of 2003. However, others warn that the pandemic could be far more economically destructive than any past outbreak, and caution that a recovery could take much longer.

In the meantime, many world powers are moving mountains to prop up their economies during the coronavirus downturn.

China

The world’s second-largest economy was stirring back to life in April after suffering a withering blow from the coronavirus, which originated in the city of Wuhan in Hubei Province in late 2019. Several weeks of government-imposed lockdowns on dozens of cities led to steep declines in factory output, retail sales, construction, and other economic activity. Overall, gross domestic product (GDP) dipped almost 7 percent in the first quarter, China’s first economic contraction in more than forty years.

China’s leadership seems less inclined to spearhead a global economic recovery this time than it did following the 2008 financial crisis, when it spent liberally on a stimulus package of more than a half trillion dollars. In the years since, China has roughly doubled its government debt—to about 60 percent of gross domestic product (GDP)—and many analysts think it cannot afford to spend so aggressively again.

So far, China’s central bank has taken relatively modest actions, reducing reserve requirements for banks, which will allow them to loan an additional $80 billion to struggling businesses, and indicating that it will cut interest rates in the months ahead. “The normal monetary policy should be kept as long as possible,” wrote central bank chief Yi Gang in late April. “The impact of the pandemic is temporary. China’s economy has strong resilience and great potential, while the fundamentals for high-quality development won’t change.”

Analysts say a major sign to watch will be Beijing’s announcement of its annual growth target, which was postponed from March to May because of the virus. An ambitious goal of around 6 percent could signal that a hefty stimulus package is coming, while a more modest number, closer to 3 percent, would likely mean a continuation of the status quo. There is also a possibility that China may forgo setting a target for this year. To hit its long-held goal of doubling GDP between 2010 and 2020, China would have to grow at least 5.6 percent this year, a pace few economists think is possible.

Germany

The German economy is expected to shrink for the first time since 2009, anywhere from 3 to 10 percent this year. The government itself forecasted a contraction of just over 6 percent, which would be the economy’s worst performance in decades. In March, nearly a half million German companies applied to have their employees join a short-term government work program intended to prevent mass layoffs.

To counter the economic fallout from the coronavirus, Berlin is taking bold actions, abandoning its steadfast commitment to balanced budgets, known as schwarze Null or “black zero.” It is allocating at least 350 billion euros—or about 10 percent of its GDP—to prop up the eurozone’s largest economy. Funds will be spent to bail out struggling businesses, including by making unlimited loans and potentially taking equity stakes.

“We’re doing whatever is necessary,” said Chancellor Angela Merkel, who also led the country through the 2008 crisis. “And we won’t be asking every day what it means for our deficit.” Officials note that Germany is poised to spend aggressively because the government has kept its finances in check in recent years, reducing its debt-to-GDP ratio from more than 80 percent in 2010 to below 60 percent today.

After moving swiftly to control the outbreak within its borders, Germany announced in mid-April that it would slowly reopen its economy. However, Merkel cautioned state leaders—Germany has a federal system—to lift restrictions with great care.

Japan

Economists predict that Japan’s export-driven economy will shrink by around 3 percent this year, which would be its worst performance since 2008. The deep impact from the pandemic comes on the heels of an economic slowdown from a sales tax hike last fall. The virus has also forced the government to postpone the Summer Olympics until next year.

Like some of its peers in the West, the Japanese government has responded with a massive relief package, worth nearly $1 trillion, to help the country through one of its most challenging periods in recent memory. The headline figure is equal to about 20 percent of Japan’s GDP, but analysts say the actual spending impact will be much smaller.

“It is no exaggeration to say that Japan’s economy, and the world economy, is facing the biggest crisis since [World War II] right now. We will protect employment and life at all costs,” said Prime Minister Shinzo Abe. Bailout measures include cash payments to citizens and small and midsize businesses, interest-free loans, delayed tax payments, and travel and tourism coupons.

Japan’s central bank announced in late April that it was prepared to buy an unlimited amount of government debt and to double its purchases of corporate debt. However, some critics say the Bank of Japan has limited options after having kept interest rates next to zero for years.

United Kingdom

The pandemic is paralyzing the British economy just as its leaders are negotiating a post-Brexit relationship with the European Union. Prior to the outbreak, there were already concerns about a recession from a so-called hard Brexit. Economists say that the coronavirus pandemic could take a 5 to 10 percent slice out of the economy in 2020.

The government is prepared to make interventions that would be “unprecedented in the history of the British state” to support the economy, finance minister Rishi Sunak said in early March. Among its emergency measures, the Treasury has pledged to pay 80 percent of workers’ salaries for several months to keep companies from resorting to huge layoffs; offered to reimburse self-employed workers for lost wages; deferred tax payments; increased unemployment benefits; established a loan program for small and midsize companies; and provided rescue aid to charities.

The Bank of England has dropped its benchmark interest rate to 0.5 percent, a record low, and loosened capital requirements for banks. In an extraordinary move in early April, the central bank agreed to directly finance the government’s spending during the crisis, freeing it from having to issue debt in the bond market. All told, the rescue efforts could see Britain spend upward of 400 billion pounds, or about 15 percent of GDP.

United States

In a sign of the staggering toll the virus was taking on the U.S. economy, more than thirty million Americans—about one in six U.S. workers—have filed for unemployment since mid-March. Before this crisis, the highest number of filings in a single week was 695,000, in 1982. Economic output plunged by nearly 5 percent in the first three months of 2020, the steepest dive since 2008. Most analysts expect the damage to be far worse in the second quarter, with some suggesting that the unemployment rate could reach as high as 40 percent, significantly higher than its peak of 25 percent during the Great Depression.

While Washington has been criticized for mismanaging the public health response to the pandemic, it’s also been credited with moving decisively to stabilize financial markets. In March, the Federal Reserve indicated that it will do anything within its power to support the economy and provide liquidity. Among the Fed’s historic actions have been: cutting interest rates close to zero, reducing bank reserve requirements to zero, rapidly purchasing nearly $2 trillion in Treasury bonds and mortgage-backed securities, buying corporate and municipal debt, and extending emergency credit to nonbanks.

Meanwhile, on the fiscal side, lawmakers passed a $2 trillion stimulus package in March that some analysts have characterized as a bridge loan to get the U.S. economy through the crisis. It includes direct payments of up to $1200 to individuals, hundreds of billions of dollars in loans and grants to businesses, increases to unemployment benefits, and support for hospitals and health-care providers. “In effect, this is a wartime level of investment into our nation,” said Senate Majority Leader Mitch McConnell. A month later, Congress signed off on a second bailout package, this one totaling close to a half billion dollars and aimed at providing relief to small businesses and more aid to hospitals.

Multilateral Institutions

European Union. Eurozone finance ministers agreed to a 500-billion-euro package to provide emergency lending and other assistance to member countries, businesses, and workers. Christine Lagarde, president of the European Central Bank (ECB), has promised there will be “no limits” on the ECB’s defense of the eurozone. The bank is set to buy up to 750 billion euros in additional bonds this year to help its members amid the downturn.

International Monetary Fund. The IMF has set aside $100 billion to lend to member countries that are facing acute financial crises because of the coronavirus, with preference given to emerging economies. By early April, more than ninety countries had requested bailouts.

World Bank Group. President David Malpass said the bank was committing more than $150 billion to counter the pandemic’s effects. More than two dozen virus-related loan requests have been fast-tracked, with many more in the pipeline. Thus far, India has received the largest loan at $1 billion.

Source: https://www.cfr.org/backgrounder/coronavirus-how-are-countries-responding-economic-crisis

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A man returns to his duties at a reopened workshop, part of the Harbin Electric Machinery Company in China’s Heilongjiang province, on February 25. Photo: Xinhua

China Inc. is gradually returning to business. After more than a month of extensive city lockdowns and travel restrictions in response to the Covid-19 outbreak, Chinese workers and small business owners cannot wait any longer to make some money in the Lunar New Year, while factory owners can finally tell their foreign clients that it is back to business as usual.

Beijing is equally impatient. President Xi Jinping told local government officials that people need to get back to work. Local governments provided free transport to ferry workers from their hometowns, while large companies such as Foxconn have offered thousands of yuan in bonuses to lure workers back to the factory.

For multinational firms like Foxconn, the priorities are obvious – the largest business risk is losing their million-dollar contracts to competitors. Beijing’s objective is even clearer – after years of slowdown amid the trade war and other tensions with the United States, the Chinese economy is vulnerable to shock and must be shored up.

These decisions may be rational. However, the aggregate systematic risks of a second wave of the coronavirus could be tremendous for both China and the world. To the Chinese government, perhaps the risk of an economic downturn is bigger.

People like to draw lessons from the severe acute respiratory syndrome outbreak in 2003 to shed light on the current outbreak, but such an exercise is not very useful. When Sars hit China 17 years ago, its economy was on an upward swing after its accession to the World Trade Organisation in 2001. Its economy was much simpler and had weaker ties with other economies.

This time is different. The Chinese economy is much bigger, but slowing. Moreover, China’s engagement in complex global supply chains is much stronger than 17 years ago.

It has been moving up the value chains from downstream labor-intensive processing to research-and-development-intensive activities in almost all industries. It now commands the production of many key parts and components used by global producers of household appliances, medical products, cars, and electronics.

A supply chain disruption originating from China ripples through the world. No country is spared, from those in the relative upstream such as Germany, Japan, and South Korea, to those downstream, such as Cambodia, Thailand, and Vietnam. It is just too difficult for multinational firms to find substitutes for the increasingly sophisticated Chinese suppliers, at least in the short term.

Consumers have yet to feel the impact as shipments can take weeks to arrive. Companies relying on Chinese inputs for production also stockpiled inventories in anticipation of the annual factory shutdown over the Lunar New Year break.

When inventories are used up, the unexpected production delays caused by the coronavirus will drive prices up around the world, substantially raising the odds of a global recession. We saw a similar cost-push global recession in the late 1970s when oil prices spiked. That is certainly something the Chinese government does not want to see.

Recession concerns aside, losing trade partners forever could be much more detrimental to the prospect of China’s long-term growth. According to the 2019 China Business Climate Survey by the American Chamber of Commerce in China, 65 percent of members said US-China trade tensions were influencing their longer-term strategies, with the majority either continuing to expand investments or waiting to see.

Foreign companies that have invested a lot in long-term relationships with their Chinese partners will find it even harder to leave China completely. So far, in response to the trade war, foreign firms that have reorganized their supply chains away from China have tended to move only the labor-intensive parts of production to lower-cost locations such as Vietnam.

But a continued manufacturing freeze in China would force foreign clients to try new suppliers – and they may realize that the options are no worse. This is what Beijing is trying hard to avoid. The slowdown in the spread of the coronavirus in China, based on official statistics, provided the perfect backdrop for Beijing to declare a reboot of the economy.

Multiple studies show that Covid-19 appears to be very contagious but not very deadly. Just when the situation appeared under control in China, an epidemic began outside the country, in South Korea, Italy, Iran and elsewhere.

Research teams around the world are still learning about the nature of the virus, including its seemingly much longer incubation period. Harvard epidemiology professor Marc Lipsitch predicts that 40-70 percent of people around the world could eventually be infected with Covid-19. The lessons from Sars are, once again, not very useful for us to understand the current virus.

China’s success in slowing the spread of the virus may be due to its bold measures to limit people’s interactions. Based on other countries’ experiences, social distancing appears key to avoiding an outbreak. With millions of workers heading back to the factories, dining in the shared cafeterias and sleeping in the shared dormitories, the risk of a second wave of infections could be substantial.

As University of Chicago economist Frank Knight once said, unquantifiable risks should be called uncertainty. In facing its dilemma, the Chinese government has decided to reduce the risks, but not the uncertainty.

Heiwai Tang is Professor of Economics and associate director of the Institute for China and Global Development at the University of Hong Kong

Source: https://www.scmp.com/comment/opinion/article/3053019/chinas-return-work-good-news-economy-it-also-risks-unleashing

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