As The World Struggles, China Is Gaining From The Covid-19 Outbreak
For those who think that China will stand emaciated in a post-Covid world order, here are reasons to believe otherwise.
Before the outbreak of the Coronavirus, the government in mainland China was dodging between a trade war that had been on for almost two years, protests in Hong Kong that were not refusing to settle, Huawei’s entry into Europe, United States, and India, and a domestic economy that was growing at the slowest rate in three decades.
Today, almost 75 days after the Wuhan lockdown, the government in China is using the Covid-19 outbreak, which originated in the mainland, to its advantage.
From medical exports across Europe and the US to stocking up on oil, China is having a ball at the cost of the lockdown in many parts of the world.
Firstly, the outbreak has enabled China to curb the momentum of the Hong Kong protests. While the protests were already on the wane before the outbreak of the virus, the consequential lockdown has pushed the financial capital of Asia on the brink of a slowdown.
This is because of a number of reasons. One, Hong Kong’s GDP, once 25 per cent of mainland China, is down to merely less than 3 per cent. The political intricacies (One Country, Two Systems) with China do not guarantee a long-term future for the city as the financial capital it once was. Further, the protests last year coupled with the outbreak now has hit the local tourism industry. Already, there are reports of the GDP contracting by 3 per cent this year.
Thus, if the economy is to reopen tomorrow, local residents would want the protests to settle or for the protesters to reach a settlement with the government in mainland China.
Both these factors, eventually, work in favour of President Xi Jinping, who has, otherwise, appeared helpless. Given many people are choosing to leave Hong Kong, another prolonged season of protests will be seen as economically counterproductive by the locals.
Two, the dictatorial Wuhan lockdown has earned China some brownie points for its surveillance mechanism, otherwise criticised. Assuming China had not gone for a lockdown on 23 January, there are simulations which show that the total number of cases would have skyrocketed to 8 million by February.
While an earlier lockdown could have further reduced the cases, a timely lockdown of Wuhan prevented a 67-fold increase in total cases.
Even if one assumes that China is faking the total number of cases, they were credited with keeping 760 million people at home by ensuring their movements were logged, temperatures recorded, along with other means.
Also, the high-tech surveillance system was employed to track potential cases, and through their history, other potential cases were tracked, thus helping in curbing the spread of the virus.
While the means employed in India (using data from IRCTC, Airlines, etc.) may not be that high-tech, they do draw inspiration from the ways of China, and pose an important question — can digital surveillance be useful?
The inability of the US to ensure a successful lockdown in the earlier stages, especially in the cities of New York and Washington DC, and the recently reported incident of Tablighi Jamaat in India that is now the cause of almost one-third Covid-19 cases in India, China’s lockdown of Wuhan does come across as success story.
Turns out, controlling the pandemic does require the use of the iron fist, as the residents around Nizamuddin in Delhi learned last week to their dismay.
The actions of the Chinese government also raise a question on the liberal order the world has celebrated for more than seven decades since the end of the Second World War.
While President Donald Trump had to use the Defense Production Act of 1950 to get the likes of General Electric (GE) to make more ventilators, firms in China, backed by the state, supplied medical essentials across the country during the outbreak and are now doing across Europe and even the United States.
Thus, while the US struggles at finding its next Manhattan Project, the Chinese government is making Manhattan its own by timely deliveries of ventilators.
The US’ inaction at this hour is hampering its historical alliance with the European Union. Already fraught with the issues of taxing Big Tech and tariffs before the outbreak of Covid-19, the two allies are now at loggerheads due to a scarcity of medical supplies.
Already, Germany and France have accused the US of ‘mask’ piracy. Turns out, as per a report in South China Morning Post, local officials in France and Germany have blamed the US for confiscating protective gear, which also included face masks in transit in Bangkok.
While the Europeans pay for these supplies on deliveries, some Americans, as the report states, paid three-to-four times the amount to procure the equipment originally earmarked for France and Germany.
Turns out, some of these tricks are being employed in the Caribbean as well. As per this report, 20 ventilators paid and headed for Barbados were seized by the United States.
It’s not the imports that are pushing the US towards desperation, but also exports of its own companies.
In one of his pressers, President Trump spoke against 3M’s decision to export masks and ventilators outside the country to Canada and Latin America.
The US has been struggling in its ability to lead since the beginning of the outbreak in the West, starting with Italy. Not the US, but it was China who was the first to answer Italy’s call for emergency medical supplies.
China, publicly, committed to sending 1,000 ventilators, two million masks, 100,000 respirators, 20,000 protective suits, and 50,000 testing kits before 20 March itself.
Four, the industrial mobilisation of factories in China have made its medical exports critical in the wake of the Covid-19 outbreak. As per this report in Bloomberg, there is no country, literally, in the world right now that doesn’t want to procure ventilators from China, and rightfully so.
Given the hard choices doctors in Italy had to make when it came to choosing patients in the face of ventilator shortage, countries are now rushing towards China to fulfill their pressing needs.
New York City alone needs 30,000 ventilators while close to a million would be required across the country.
However, currently, the US has only 200,000 of these life-supporting machines.
The factories in China have not disappointed either. Factories in the mainland are working overtime to supply ventilators to the US and Europe. The philanthropic foundations of Jack Ma and Joe Tsai, two of China’s wealthiest technology entrepreneurs, have donated 2.3 million face masks, 2,000 ventilators and 170,000 pieces of protective gear to New York.
Alongside, Spain had signed a $467 million contract to procure medical equipment from China which includes 550 million masks, 5.5 million rapid test kits, 950 respirators, and 11 million pairs of medical gloves.
While there were reports of around 50,000 faulty testing kits in Spain, Europe’s best hope for medical imports continues to be China as the US struggles with manufacturing domestically.
Last week, China’s Ministry of Commerce, addressing the issue, stated that the exporters of all essential medical equipment would be required to show that they are certified in China and that their products meet the quality standards of the nation importing them.
However, it’s not only the medical exports that have received an upthrust, but technology-oriented solutions as well.
Backed by the state, the companies in China will be pursuing their 5G ambitions in Europe and elsewhere. Given the economic consequences of this financial crisis, not many telecom companies in India, Europe, or even the US would be in a position to invest heavily in 5G, thus further aiding China’s 5G pursuits.
However, it’s not 5G alone where China is leading. Given the outbreak of Covid-19, companies in China are now deploying big data, artificial intelligence, IoT, and other remote medical tech solutions across the world. For instance,robots were deployed to pick out suspected Coronavirus carriers from a crowd.
Hong Kong start-up Roborn Technology designed a mobile robot equipped with thermal scanners that can live-stream temperature readings to a control centre, and can send an alert when necessary.
These digital solutions will be critical in Africa and Latin America where China has been actively pursuing its geopolitical interests, and due to the lack of health infrastructure of the countries here.
Six, the Belt Road Initiative (BRI).
The future of the BRI will also be linked to the public health services the Chinese can export. Last month, over a phone call, President Xi Jinping told Italian Prime Minister Giuseppe Conte that China was willing to contribute with Italy to a ‘health silk road’ as an extension of its BRI. Talk about finding opportunity in a calamity.
However, China, soon, could be using the economic consequences of Covid-19 in Africa to further debt trap poor nations. Already, countries in Africa are in an urgent need of a $100 billion debt waiver and bailout as they try to secure their healthcare infrastructure while pushing the nations towards a lockdown to curb the spread.
China is the largest lender to Africa and holds about one-fifth of the total debt in Africa. For countries in Africa, especially the petrostates, the trouble is on two fronts. One, the virus, and two, the tumbling oil prices.
China, between 2000 and 2018, advanced more than $140 billion in debt to many African nations. However, routinely, they have been working on restructuring these loans by either negotiating the terms of payment or the duration of it.
In some cases, it has waived off the payment too like in 2018, it cancelled Cameroon’s US$78 million debt, Botswana’s US$7.2 million debt and US$10.6 million owed by Lesotho, and the previous year cancelled US$160 million owed by Sudan.
However, what China gains in lieu of these waivers can be estimated by how China has used the debt trap in the past to gain hold of strategic locations for economic and military expansion.
Once the dust settles, the Chinese may be left with many bad loans on their books, stemming from BRI, but the same programme would have given them far more political leverage than they would have hoped for in strategic global locations.
Seven, the tumbling oil prices.
Not only does the tumbling oil price give China more political leverage against the emerging petrostates it has trapped within the BRI, it also aids its economic recovery.
Making use of the oil war between Russia, Saudi Arabia, and now the US too, China has been stocking up cheap oil to meet its demands once the lockdown is lifted completely across the nation.
Interestingly, the origins of this oil war are in China’s weakening demand of oil, especially after the Wuhan lockdown.
Given the nation imports 70 per cent of its crude needs, it added 2.5 million barrels a day to its storage in the first two months of 2020. In 2019, China imported 10.2 million barrels a day.
The plunge of Brent crude from $67 to $25 saves China $428 million per day (or about 1 per cent of its GDP) in oil bills.
The Brent Crude has been in a free fall since the last days of January, after Wuhan went into a lockdown.
As the OPEC+ members failed to arrive at an understanding, China used the super contango in the market to enhance its strategic reserves, raising its crude oil inventory alone by 125 million barrels.
Lastly, its trade war with America.
China’s dependency on exports has reduced considerably over the years. While in 2006, exports made up for 36 per cent of China’s economy, by 2018, it was less than 18 per cent.
Therefore, to assume that a weak global demand could put the Chinese economy out of business is an exaggeration.
Surely, it will dent some factories in China, but given the backing of the state and the medical manufacturing the country is invested in, many would turn to other production activities.
For now, and for the foreseeable future, the trade war appears to have reached a pause. As the world stares at a recession, which draws parallel from the Great Depression of 1930 itself, the last thing one would want is more macroeconomic volatility through another trade war later this year, assuming the economy comes back to normal this year itself.
For Europe, the continent worst-hit by the pandemic after the US, in the long-term, China remains an essential market.
While short-term economic growth for all the states does look uncertain, what is indeed certain is that in the long run, the Chinese are not at all going to be dead and the gains shall only grow.
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