Trade
Coronavirus batters China’s economy
Author: Yan Liang, Willamette University
Just when China and the United States breathed a collective sigh of relief after sealing the ‘phase one’ trade deal, the Chinese economy encountered a ‘black swan’ — an unforeseen event with major consequences. The novel coronavirus (COVID-19) has so far infected over 80,000 people and claimed more than 2900 lives in China. Counter measures to contain the epidemic are taking a significant toll on the Chinese economy.
The Chinese government locked down 48 cities and four provinces, with restrictions on travel affecting over 500 million people. The hardest hit sectors are tourism, restaurants, cinema, transportation and energy. The first three sectors had a combined estimated loss of US$143 billion over Chinese New Year. For transportation, many airlines have cancelled or reduced flights. Trips after Chinese New Year were down by 80 per cent compared to the same period last year, while oil consumption dropped by 20 per cent and electricity production was down approximately 60 per cent.
Manufacturing production — from automobiles to electronics — has also been significantly curtailed. Wuhan, the epicentre of the epidemic, is a major manufacturing city. Apple, Tesla, Hyundai, Starbucks, Ikea and many other multinational corporations are cutting down or even temporarily closing their operations in China. China’s export demand also fell significantly due to the logistical freeze and the World Health Organization’s declaration of a Public Health Emergency of International Concern. Shipping data from Alphaliner showed that container vessel calls at major Chinese ports declined by 20 per cent in late January.
Economists project that China’s first quarter GDP growth could slide by 1.5 per cent to 4.5 per cent, while the annual growth rate this year could be as low as 5.5 per cent.
Given that China’s economy accounts for a whopping 19.7 per cent of global GDP, pain in China will hurt the rest of the world. Thailand, for example, is in a conundrum between welcoming Chinese tourists but risking increased transmission of COVID-19, or restricting visitors and suffering an estimated US$1.5 billion loss in revenue. Globally, oil prices declined by 15 per cent and copper was down 13 per cent in early February from two weeks earlier, hurting oil and mineral exporting countries.
Disruptions to global supply chains are also causing production delays and difficulties in fulfilling goods orders. Worse still, if China and the rest of the world fail to stop the spread of COVID-19, a severe global pandemic could see the loss of millions of lives and cost as much as 1 per cent of global GDP. US Secretary of Commerce Wilbur Ross’s comment about COVID-19 in China helping bring jobs back to the United States was neither ethical nor based in economic reality. Governments and international organisations must to combat the epidemic and a potential economic downturn.
Despite the severity of the negative economic impacts, they are likely to be and China’s economy could achieve a quick ‘V-shaped’ recovery. Chinese economic output and domestic demand could rebound as long as the epidemic is contained by the end of March or early April. Based on the experience of SARS and the decelerating growth of confirmed and suspected COVID-19 cases in China, this timeline of containment of the virus is not unrealistic. Still, even if the epidemic only brought short term losses, these losses could cascade into a long-term downward trend for the economy if they are not properly managed.
According to a recent survey of 995 companies, 85 per cent stated that they have enough cash to last for only three months — and 20 per cent planned to cut their payroll. Business failures and layoffs could significantly undercut income and consumption growth, leading to still more business failures and layoffs. To avoid such a downward spiral, the Chinese government must flex its policy muscles and provide assistance to businesses and individuals.
The People’s Bank of China has injected around into the economy through reverse bond repurchase agreements and by lowering the 14-day interbank reverse repurchase agreement interest rate. Major banks have extended more loans and cut loan rates for selected businesses and individuals. This is a welcome measure to provide much needed credit for cash-strapped small- and medium-sized private enterprises. Bond market regulators have also expressed support for bond issuances from businesses that are hard hit by COVID-19. Further cuts of the required reserve…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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