Written by rjs, MarketWatch 666
The news posted last week about economic affects related to the Wuhan coronavirus, 2019-nCoV, has been surveyed and articles are summarized here. Although it is obvious that there will be some economic impact in China, the extent is not yet clear. (Picture below is an empty street in Beijing from The South China Morning Post 19 February.) Articles about the U.S. – China trade deal are near the end of this piece. News items about epidemiology and other medical news for the virus are reported in a companion article.
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30-year Treasury bond yield breaks to all-time low as coronavirus fears lift havens – U.S. Treasury yields extended their weeklong slump on Friday as investors worried that the economic impact of COVID-19 may not be contained to China, and is spilling over into neighboring regions. The 10-year Treasury note yield fell 5.4 basis points to a more than five-month low of 1.470%, contributing to a weeklong decline of around 12 basis points. The 2-year note rate slipped 4.5 basis points to a three-week low of 1.348%, extending a 7.6 basis point drop this week. The 30-year bond yield tumbled 5.4 basis points to 1.917%, sliding below its previous all-time low of 1.95%. The long bond’s yield fell 12.6 basis point this week. Global equity benchmarks and U.S. stocks tumbled Friday as the growing number of cases of the coronavirus outside China, especially in South Korea, raised fears that the damage to supply chains could hit several major Asian economies which are linchpins for industries like semiconductors and automobiles. The S&P 500 and the Dow Jones Industrial Average are set to book a more than 1% loss this week. Investors also said it’s unclear when workers will be able to return to factory floors. Some forecasters suggest car manufacturing and other industries may not return to usual production activity until March.
“Global Spillovers of a China Hard Landing” – That’s the title of an October 2019 International Finance Discussion Paper (Fed) which has taken on heightened relevance given current events. From the abstract:
This paper analyzes the potential spillovers of acute financial stress in China, accompanied by a sharp slowdown in Chinese growth, to the rest of the world. We use three methodologies: a structural VAR, an event study, and a DSGE model. We find that severe financial stress in China would have consequential spillovers to the United States and the global economy through both real trade links and financial channels. Other EMEs, particularly commodity exporters, would be hit the hardest. The U.S. economy would be affected to a lesser degree than both EMEs and other advanced economies, and the primary channel of transmission to the U.S. could well be adverse financial spillovers through increased global risk aversion and negative equity market spillovers.
From the introduction:
First, the VAR estimates suggests that the China adverse scenarios would have sizable effects on global variables in the expected direction. In particular, the dollar would appreciate, U.S. long-term yields would fall, global Emerging Market Bond Index (EMBI) spreads would rise, and world trade would fall (consistent with significant increases in EME risk premiums and safe haven flows to the United States, as well as China’s importance in global trade flows). In addition, there would be a substantial fall in global oil and metals prices (consistent with China being a major source of global demand for commodities).Second, the VAR estimates also suggest that the hit to economic activity in different countries and regions would generally be significant (consistent with China’s strong trade links with other economies). More specifically, the output hit to EME commodity exporters would be about ¾ as large as the hit to China itself; to other EMEs would be about half; to advanced economies excluding the United States slightly more than a third; and only a relatively modest hit to the United States. The smaller U.S. effect reflects the U.S. economy being more closed, limited direct U.S. financial linkages to China, and greater capacity at the moment (than other advanced economies, say) to ease monetary policy to cushion the blow.
SVAR estimates conditional on a Chinese 4% deviation from baseline (blue) 8.5% deviation (red) suggest a noticeable hit to US output.
Coronavirus: Investors track ships, chase rumours to get edge on Covid-19 risks – As investors crunch numbers to determine how the coronavirus will hit China’s economy, hedge fund manager Nathaniel Polachek has tied much of his outlook to the fate of a ship anchored near Weihai, China. The vessel carries some 750 tonnes of lead concentrate that Mr Polachek, head of New York-based Commodity Asset Management, purchased in Greece to sell on the Chinese mainland. The coronavirus outbreak has kept the ship idling off China’s coast for weeks, as movement restrictions and factory closures slow swathes of the world’s second-largest economy to a crawl. Word that the ship has been allowed to dock in Weihai – an access point to one of China’s main industrial hubs and home to several metal refineries and smelters – would be one signal that business activity is finally picking up, Mr Polachek said. Another encouraging sign would be an increase in air pollution levels over key Chinese manufacturing areas, which Mr Polachek monitors daily using the Air Quality Index web site. “The best indicators are… from the physical world,” he said. “I want to see how long it takes for materials to get off the boat, how long it takes for me to get paid for them.” Doubts over whether there are more cases in China than are being captured by official figures have fuelled a do-it-yourself approach among investors looking to determine the outbreak’s trajectory and gauge its economic impact. The tools they use range from artificial intelligence and computer modelling to simple word of mouth. Investors “don’t believe the stuff they’ve been hearing from the Chinese government”, said Mr Leland Miller, head of China Beige Book International, which regularly surveys thousands of Chinese firms to gauge business conditions in the country.
China’s wind energy sector faces significant impact due to the coronavirus, Wood Mackenzie warns – The new coronavirus outbreak could have a significant impact on the wind energy industry in China, according to research by Wood Mackenzie. In a statement Monday, the research and consultancy firm said the virus – officially known as COVID-19 – had “brought much of China’s wind turbine component production to a standstill in recent weeks.” While Hubei province – where the outbreak is thought to have originated – had “limited production capacity,” Wood Mackenzie noted that both quarantine and travel restriction measures would “impact an already tight supply situation for key components.” Wood Mackenzie said this represented “bad news” for wind markets in China and the U.S. – which sources wind turbine parts from China – where developers are trying to finish projects by the end of this year in order to be eligible for subsidies from the government. “Due to an already tight supply of key components such as turbine blades and main bearings before the COVID-19 outbreak, first-quarter production delays have already reduced annual output of those components by about 10%,” Xiaoyang Li, a senior consultant at Wood Mackenzie, said in a statement. As of February 16, there had been 70,548 confirmed cases of the coronavirus in China, according to its National Health Commission. More than 1,700 people have died there, authorities say. Wood Mackenzie’s Li stated that if the outbreak was brought under control in the next few months, components without pre-existing bottlenecks, like converters and generators, should be able to recover from delays in the first quarter. “In a best-case scenario, the epidemic is contained and production resumes by the end of March,” Li added. “In a bear-case, the epidemic could continue to impact the supply chain well into the middle of the year.”
Coronavirus Has Temporarily Reduced China’s CO2 Emissions By a Quarter – As China battles one of the most serious virus epidemics of the century, the impacts on the country’s energy demand and emissions are only beginning to be felt.Electricity demand and industrial output remain far below their usual levels across a range of indicators, many of which are at their lowest two-week average in several years. These include:
- Coal use at power stations reporting daily data at a four-year low.
- Oil refinery operating rates in Shandong province at the lowest level since 2015.
- Output of key steel product lines at the lowest level for five years.
- Levels of NO2 air pollution over China down 36% on the same period last year.
- Domestic flights are down up to 70% compared to last month.
All told, the measures to contain coronavirus have resulted in reductions of 15% to 40% in output across key industrial sectors. This is likely to have wiped out a quarter or more of the country’s CO2 emissions over the past two weeks, the period when activity would normally have resumed after the Chinese new-year holiday. (See methodology below.) Over the same period in 2019, China released around 400m tonnes of CO2 (MtCO2), meaning the virus could have cut global emissions by 100MtCO2 to date. The key question is whether the impacts are sustained, or if they will be offset – or even reversed – by the government response to the crisis.Initial analysis from the International Energy Agency (IEA) and Organization of the Petroleum Exporting Countries (OPEC) suggests the repercussions of the outbreak could shave up to half a percent off global oil demand in January-September this year. However, the Chinese government’s coming stimulus measures in response to the disruption could outweigh these shorter-term impacts on energy and emissions, as it did after the global financial crisis and the 2015 domestic economic downturn.
Reefer crisis looms as stranded perishables rot at congested Chinese ports – China’s clogged-up container terminals and reefer plug shortage has created a logjam of perishable cargo. Key maritime gateways like Shanghai, Ningbo and Xingang are congested due to a lack of local truck capacity, with many drivers unable to return to work amid the coronavirus outbreak. As a result, reefer containers usually swiftly moved inland are stuck in terminal yards, creating a severe shortage of space and plugs for new refrigerated imports. According to Vincent Tan, CH Robinson’s Asia director of ocean services, the crisis is having a significant impact on the movement of reefers in central and north China. “The 14-day quarantine period on truck drivers who truck out of cities is severely limiting the number of vehicles available to move containers,” he told The Loadstar. “Shipping lines have now been compelled to divert, and hold, refrigerated containers at other intermediate ports, like Korea or Taiwan, until the situation in China improves.” Furthermore, he warned, perishable cargo such as fresh fruit could be abandoned at Chinese terminals because many shipments only have a 3-4 week holding period before the sell-by date. In terms of equipment, Mr Tan reckoned it would take 4-6 weeks before any impact on the global supply of reefers would start to show. “The actual impact on reefer equipment supply is still unclear, as exporters are also slowing down their shipments to China,” he explained.
More Concerns About China’s Coronavirus Economic and Political Downside – – Yves Smith – US equities are cheerily unconcerned about the possibility of the Chinese economy taking a serious hit as a result of coronavirus outbreak. But in the last week, several overlapping stories in widely-read mainstream news outlets have taken issue with the consensus, and argue that China downside scenarios are both more probable and more serious than the mainstream view. In fairness, the more sober-minded bond market is rattled, and commodities, which are heavily exposed to Chinese activity, are already wobbly. So it isn’t as if investors broadly are asleep at the wheel. From Ambrose Evans-Pritchard at the Telegraph today (we’ll be turning soon to his last week clarion call on China coronavirus risk, and the kindred assessments by other analysts):
Safe-haven flight into the Swiss franc, the Japanese yen, and the dollar suggests that some large funds are battening down the hatches. The Australian dollar, a proxy for risk appetite, is plumbing depths last seen during the Lehman crisis. The US dollar index (DXY) has been rising for several weeks and is not far short of 17-year highs. This creates a self-fulfilling effect of world-wide tightening. It drains global liquidity and squeezes borrowers with $12 trillion of dollar liabilities on the offshore funding markets in Asia and Europe…. “We’re seeing all these signs of recessionary ‘risk-off’ behaviour. Something has to give here,” said Lars Christensen from Markets and Money Advisory….Few analysts have begun to ‘price’ the implication of a full-blown COVID-19 pandemic across the world… A pandemic is no longer a scientific tail-risk. It is fast becoming the central risk…We should have a clear idea whether or not the spread is unstoppable within three weeks. The US Defence Department’s Joint Staff has already activated its pandemic plan, ordering all services to brace for “widespread outbreaks” of the virus, according to Military Times.
We’ll focus on China, since the immediate economic concern is how the progress of the disease and efforts to manage it hurt their citizens and companies, which affects the West directly (supply chain disruption, loss of critical supplies, damage to companies that do a lot of business in and with China) and indirectly (the hit to global demand).
Apple Warns Coronavirus Outbreak Will Affect iPhone Sales, Lower Q2 Revenue -Apple Inc. on Monday issued disappointing new revenue guidance for the fiscal second quarter, saying it doesn’t expect to meet its previous forecast for revenue while the raging Covid-19 outbreak forces business in China to a virtual standstill. In January, Apple forecasted revenue of $63 billion to $67 billion for Q2. In a new guidance issued Monday, Apple said it will not meet this quarterly revenue forecast because of lower iPhone supply globally (due to the production slowdown in China), and weaker demand in China (its second largest iPhone market) as a result of Covid-19’s deleterious impact on business. Apple still assembles more than half its iPhones and other devices in China. Covid-19, which erupted into the open in December 2019, forced Apple to temporarily halt device production and close retail stores in China for much of January. Some Apple retail stores reopened in China Monday but most Chinese are apparently staying indoors to avoid infection. In its revised guidance, Apple admitted work is starting to resume around China but it’s still experiencing a slower return to normal conditions than it had anticipated. As a result, Apple does not expect to meet the revenue guidance it provided for the March quarter due to two main factors. The first is worldwide iPhone supply will be “temporarily constrained.” Apple noted its iPhone manufacturing partner sites are located outside Hubei Province, epicenter for the Covid-19 outbreak. It said all its facilities have reopened but “are ramping up more slowly than we had anticipated.”
With Half Of China Locked Up, Car Sales Plunge 92% – Car sales in China for the first two weeks in February are down 92% from a year ago. When you are locked in your home for weeks, with no income, and people are dying in the streets, guess what happens to retail sales. Bloomberg reports China Car Sales Tumble 92% in First Half of February on Virus:
China car sales plunged 92% during the first two weeks of February in the wake of the coronavirus outbreak, according to the China Passenger Car Association. It was even worse in the first week, with nationwide sales tumbling 96% to a daily average of only 811 units, PCA said in a report released earlier this week. Deliveries this month may slump by about 70%, resulting in a 40% drop in the first two months of 2020, it said. The figures exclude minivans. The situation is expected to improve in the third week of February compared with the start of the month, PCA Secretary General Cui Dongshu said in an interview on Friday.
The China Passenger Car Association said:
“Very few dealerships opened in the first weeks of February and they have had very little customer traffic.”
CPCA Secretary General Cui Dongshu said in his report:
“There was barely anybody at car dealers in the first week of February as most people stayed at home.”
From here, down 50% or even 90% is an “improvement”. People have had no income for weeks.I highly doubt buying cars is on their minds. From an economic standpoint, January saw the Largest Shipping Decline Since 2009 and That’s Before Coronavirus impact hit.Supply chain disruptions have barely started. It is impossible to estimate the full impact as long as cases are spreading. Worse yet, cases are exponentially rising outside of China.
Chinese Cities Begin Subsidizing Car Purchases To Resurrect Auto Market From The Dead – As nearly the entire country of China remains on lockdown – and the country’s auto industry, which was already mired in recession prior to the coronavirus fiasco, gets thrashed even further – some Chinese cities are doing what governments do best: inefficiently throwing money they don’t have at their problems. The Chinese city of Foshan is the first in what we guess is going to be a long line of cities to start subsidizing car purchases, according to a Bloomberg report out Monday. Consumers who trade in old models are going to be given 3,000 yuan (about $430 USD) of subsidies. Buyers of new vehicles without trade ins will be entitled to 2,000 yuan. The move comes after President Xi Jinping has urged local officials to help boost auto sales. Recall, we wrote just days ago that auto sales in China were crushed in January, declining 20.2% on a year over year basis, according to the government-backed China Association of Automobile Manufacturers. The country sold 1.94 million vehicles, according to the CAAM. The decline is attributable, obviously, to the coronavirus outbreak in the country, combined with the lunar new year falling in late January, as opposed to early February, this year. And, unfortunately, there is literally no reason for optimism in February, as it was the end of January and early February when China was placed essentially on a full lockdown due to the outbreak of the virus.
Chinese Companies Say They Can’t Afford to Pay Workers Now – A growing number of China’s private companies have cut wages, delayed paychecks or stopped paying staff completely, saying that the economic toll of the coronavirus has left them unable to cover their labor costs. To slow the spread of the virus that’s claimed more than 2,000 lives, Chinese authorities and big employers have encouraged people to stay home. Shopping malls and restaurants are empty; amusement parks and theaters are closed; non-essential travel is all but forbidden. What’s good for containment has been lousy for business. With classes canceled at a coding-and-robotics school in Hangzhou, employees will lose 30% to 50% of their wages. The Lionsgate Entertainment World theme park in Zhuhai is closed, and workers have been told to use up their paid vacation time and get ready for unpaid leave. “A week of unpaid leave is very painful,” said Jason Lam, 32, who was furloughed from his job as a chef in a high-end restaurant in Hong Kong’s Tsim Sha Tsui neighborhood. “I don’t have enough income to cover my spending this month.” Across China, companies are telling workers that there’s no money for them — or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work. It’s too soon to say how many people have lost wages as a result of the outbreak, but in a survey of more than 9,500 workers by Chinese recruitment website Zhaopin, more than one-third said they were aware it was a possibility. The salary freezes are further evidence of the economic hit to China’s volatile private sector — the fastest growing part of the world’s second-biggest economy — and among small firms especially. It also suggests the stress will extend beyond the health risks to the financial pain that comes with job cuts and salary instability. Unsurprisingly, hiring has all but ground to a halt: Zhaopin estimates the number of job resumes submitted in the first week after the January outbreak was down 83% from a year earlier. “The coronavirus may hit Chinese consumption harder than SARS 17 years ago,” said Chang Shu, Chief Asia Economist for Bloomberg Intelligence. “And SARS walloped consumption.”
13,000 Missing Flights: The Global Consequences of the Coronavirus – New York Times – Thousands of planes criss-cross China every day, but that number has fallen sharply as flights are canceled to help combat the coronavirus.The slowdown in air travel has started to spread to popular destinations for Chinese travelers, like Japan and South Korea.It is, in part, a response to fears that the virus could become a pandemic. In Europe, 47 people in nine countries have been infected so far.The decline poses economic risks, too, as China is a major source of tourism to countries like the United States. The disappearance of tens of thousands of flights from China’s skies in recent weeks points to how the coronavirus has hobbled a nation.The flight suspensions started to mount late last month as countries and airlines sharply limited service in response to the accelerating spread of the virus, which as of Friday has infected at least 76,000 people and killed more than 2,200, most of them in China.Within just three weeks – from Jan. 23 to Feb. 13 – the number of daily departures and arrivals for domestic and international flights dropped to just 2,004, from 15,072, according to Flightradar24, an industry data firm. Over 13,000 flights a day, lost to a crisis. Restrictive measures adopted by China helped to delay the spread of the virus to other countries by two to three weeks, the World Health Organization said this week. Officials in China closed off Wuhan, the epicenter of the outbreak, on Jan. 23, and began canceling train, bus and airline travel; closing schools and factories; and pressuring residents to stay home around the country.But China’s increasing isolation from the world could have lasting economic consequences.When tourists stop showing up to the temples in Kyoto or the malls in Hong Kong or the beaches in Thailand, their absence is felt. Chinese travelers account for about a fifth of all tourism spending, more than any other country, according to the U.N.’s World Tourism Organization. In 2018, Chinese residents spent $277 billion abroad, according to the U.N., or nearly twice as much as residents of the United States. It’s still too early to tell what the overall impact will be, but Wall Street firms, analysts and economists have been trying to calculate the costs. As China struggles to reopen for business, a range of companies have warned that the outbreak may weigh on their financial performance. Japan, whose economy had already been teetering,is facing a possible recession. Oxford Economics said in a new report that, in a worst-case scenario, the outbreak could cut $1.1 trillion in global output. If the coronavirus crisis is anything like the SARS outbreak in the early 2000s, it could eliminate $29 billion in global airline revenue this year, resulting in a small industry contraction, the International Air Transport Association said on Thursday. The SARS outbreak wiped out about $6 billion in annual revenue for airlines in that part of the world and it took nine months for international passenger traffic to recover, the association said last month. But the coronavirus has so far proved more lethal, more widespread and more damaging to flight traffic in China, which today plays a far bigger role in global travel than it did two decades ago.
Coronavirus: Stranded by Manila’s travel ban, Hong Kong domestic workers face financial havoc and an uncertain future – Mimi Rios has to pay 5,000 Philippine pesos (HK$768) for her son’s college exam fee this week – a small fortune she can only afford thanks to her job as a Hong Kong domestic worker. But she is one of many migrant workers facing an uncertain financial future after Manila imposed a ban on travellers from the city over the deadly coronavirus outbreak, leaving them stranded and anxious.Over 73,000 people in over two dozen countries have been infected with the novel virus – known as Covid-19 – which was first detected in the Chinese province of Hubei. Among them have been over 1,800 recorded deaths including one in the Philippines, prompting President Rodrigo Duturte to extend an entry ban to all visitors from China, Hong Kong and Macau.
“I’m so worried because I don’t have any income,” Rios, 48, told HKFP. “This is a basic necessity because all of my income is for my children. What if I can’t go back? How am I going to support my family?”Hong Kong is home to 380,274 foreign domestic workers, according to government statistics – more than half of whom are from the Philippines. Many make the momentous decision to move in search of higher wages to support their loved ones, spending months apart while sending cash home. But with the uncertainty of the travel ban, domestic workers like Rios have been forced to count their pennies.“I’m scared, of course. In the Philippines, it’s very difficult to find a job,” she said. “For now, I can still pay [college fees] but in the coming weeks – no. I don’t know where to get the money. Maybe I can ask for an advance from my employer, but I’m not working, so I don’t know how to ask them for it.”The mother of three said she is wracked with fear that if the ban continues, her employer will find another domestic worker – a prospect which will deal a devastating blow to her family’s financial security.“I am worried my boss will replace me because they still need our services,” she said, though her employer has vowed to wait for now.
I Have No Idea What To Do Now – South Korean & Japanese Firms Screwed By Shortage Of Chinese Migrant Workers – Since COVID-19 went global just over two weeks ago, we’ve spent a lot of time discussing how China’s economic shutdown is going to impact the global economy. But by focusing on giant companies like GM and Foxconn, we’ve maybe overlooked some of the little people.People like the millions of Chinese migrant workers who occupy unskilled and skilled jobs in South Korea and Japan. Many companies in agriculture and construction employ young Chinese ‘technical interns’ to compensate for serious labor shortages. These workers effectively form the base of a transnational supply chain. And without workers, the agricultural sector could be in a serious bind as the spring and summer approach.In a story published Friday, the Nikkei Asian Review offers a glimpse into the world of migrant workers in Japan and South Korea (the paper essentially caters to English speakers in East Asia outside mainland China). As Nikkei reminds us, South Korea’s economy has experienced a serious backlash from the global resurgence of protectionism and mercantilist trade policies. These changes have disrupted trade and global supply chains across Asia, creating winners and losers (Vietnam has often been cited as a beneficiary of President Trump’s antagonism of Beijing), and South Korea is an example of a fast-growing economy that has been upended. Some economists have gone so far as to argue that it could be the ‘canary in the coal mine’ for the global economy if trade continues to decline.
US Firms In China Suffering Severe Shortages Of Workers, Warn Virus Impact Hitting Supply Chains — The global supply chain Armageddon is happening. The economies of the world are more interconnected than ever. There are many ‘single points of failure’ in these complex and global operations, of which many of them originate in China. A new poll via Shanghai’s American Chamber of Commerce (AmCham) discovered that 50% of US firms operating in China say shutdowns of factories have impacted their global operations due to the Covid-19 outbreak, reported Reuters.About 78% of these firms warn that their staffing is currently short at the moment, which would prevent the resumption of full production, leading to massive shortages of products in the next several months for Western markets. Many of these companies, about 109 in total, have operations in Shanghai, Suzhou, Nanjing, and across the Yangtze River Delta, are regions currently experiencing mass quarantine of citizens, industrial hubs shuttered, and transportation networks halted. AmCham President Ker Gibbs said:
“The biggest problem is the lack of workers as they are subjected to travel restrictions and quarantines, the number one and number two problems identified in the survey. Anyone coming from outside the immediate area undergoes a 14-day quarantine. Therefore, most factories have a severe shortage of workers, even after they are allowed to open. This is going to have a severe impact on global supply chains that are only beginning to show up.”
As we noted earlier this month, many companies were slated for last Monday to resume production, with full production expected by the end of this month. However, that’s likely not going to happen, throwing much of the world’s complex supply chains into chaos. The economic impact of shutting down major industrial hubs in China with more than 400 million people in quarantine, some reports actually indicate the total could be 700 million, is generating a massive shock that could tilt the global economy into recession. These disruptions will cause world trade growth to plunge. Already, recession bells are ringing in Japan and Singapore, as it appears, these two countries are on the brink of disaster. As we noted on Sunday night, the world is witnessing the “ugly end of globalization.” Trade war and virus impacts on global supply chains have sent de-globalization into hyperdrive and could trigger the next worldwide recession.
Supply Chains and Factory Openings: An AmCham Shanghai Mini-Survey – The American Chamber of Commerce in Shanghai has just conducted a survey of member companies with manufacturing operations in Shanghai, Suzhou, Nanjing and the wider Yangtze River Delta. The survey was in the field from February 11-14 with 109 members responding. The purpose of the survey is to provide a clear picture of the operating environment as companies begin to re-open. In addition, AmCham was seeking to provide helpful feedback to the local and provincial government on the re-opening process. Survey Highlights:
- 48% of companies report their global operations are already impacted by the shutdown
- 78% of companies do not have sufficient staff to run a full production line
- 41% of companies say a lack of staff is their biggest challenge in the next 2-4 weeks; 30% of companies say logistics issues will be their biggest concern
- Over the next few months, 58% of companies expect demand for their output to be lower than normal
- 38% of companies do not have sufficient masks/other supplies to protect their staff from coronavirus infection
- 35% of companies ranked a clearer explanation of requirements as the most important thing government officials could do to speed up factory opening approvals
Which Supply Chains Are Most At Risk- The Answer In One Chart – In a report looking at the impact of Chinese factory shutdowns on the US consumer, Goldman’s Spencer Hill first looks at historical precedent and finds that a somewhat similar supply shock emerged in the winter 2014-15 – a four-month labor dispute affecting West Coast ports – which appeared to meaningfully affect retail spending on consumer goods in the first quarter of 2015 (though snowy weather was likely a factor as well). This is shown in the chart below. Indeed, the March 2015 Beige Book noted that consumer spending in the San Francisco Fed district would have been stronger “if not for delays receiving merchandise caused by labor disputes at West Coast ports.”Extrapolating this historical pattern, Goldman notes that “long shipping times to the US (generally 1 month or more by sea) imply the supply-chain effects of Chinese production shortfalls may not fully materialize until future quarters – at which point above-trend Chinese production or import substitution from other counties could offset some of the impact.” However, analyzing granular international trade data from the Census Bureau, Goldman finds that nearly a third of Chinese products arrive by air (by value, including over 75% of telecom hardware), with these goods representing 3.6% of US retail sales and just under 1% of personal consumption expenditures. The composition of these products (and their wholesale value) are shown in the left panel of the chart below, and represent the sector most likely to be impacted as China remains paralyzed. Unsurprisingly, airfreight imports are skewed towards high-value, light-weight products such as smartphones, laptops, and consumer electronics, representing a perfect storm for a company such as Apple which is reliant on all three. Additionally, a significant share of apparel and footwear (10%) also arrives from China by plane. To summarize, here are the sectors more at risk from a continued crunch across Chinese factories:
Key Apple Supplier Hynix Tells 800 Workers To Stay Home After Trainee Contracts Virus – Chipmaker SK Hynix, a key Apple supplier, reported Thursday that a trainee tested positive for Covid-19 at its Icheon, South Korea, facility, reported Reuters.Hynix told 800 employees on Thursday not to return to work and conduct self-quarantining at their homes as a prevention measure to stop the spread of the deadly virus.Hynix is one of the top chipmakers in the world and is a major supplier to Apple and Huawei.A Hynix spokesperson said the 800 employees represent .045% of its workforce in Icheon.A source told Reuters that another employee also had symptoms of the virus but tested negative. A second test is expected in the coming days. As a precautionary measure, the chipmaker is expected to close its training facility and hospital in Icheon by the end of the week to prevent further transmission of the virus.On Wednesday, South Korea reported its first death of the virus, with new cases totaling 104.The epicenter of new cases has been in the city of Daegu, which is a little over 110 miles from Hynix’s Icheon facility. On Monday, Apple issued a statement admitting it does “not expect to meet the revenue guidance” for 1Q due to production woes at its assembly plants.Foxconn, the main iPhone assembler, is currently operating at 30% to 50% of capacity and will be constrained through April. There’s a lot of obstacles, from labor shortages to logistics transportation that has been unresolved because the virus has shut down two-thirds of China’s economy. A significant concern that lingers for Apple, and its intricate network of suppliers in China and across Asia, is if the virus will be contained in the coming weeks. If not, production woes could hit suppliers, like Samsung Electronics, Taiwan Semiconductor Manufacturing Co, and SK Hynix. Reuters noted via a source with direct knowledge that some Apple suppliers are already starting to develop production issues in China. The source said:
“If one component factory stays closed and they’re the only supplier, then everyone has to stop and wait. And if there are two suppliers and one is shut down, then we need the other to do more.”
Adidas’ China Business Activity Crashes 85% Due To Virus Shock — Under Armour was the first apparel company to warn the Covid-19 outbreak in China would have a negative impact on sales in 1Q. The Baltimore-based apparel company said last week that the industry as a whole would be damaged. One week later, German sportswear maker Adidas has warned the virus outbreak across China, forcing dozens of cities to close with 400-700 million people in quarantine would severely impact sales in 1Q. Adidas generates more than a third of its sales in Asia, which has been a significant growth market for the apparel company in the last decade. The region is also home to factories of the company that could still be shuttered.Adidas expects lower shopping traffic for mainland China, South Korea, Japan, and other Asia Pacific countries, reported Reuters.It said mainland China sales dropped 85% year-on-year over the Lunar New Year holiday as many of its 12,000 franchise and 500 corporate stores were closed for virus containment purposes. There’s no word on the status of the stores until next month.
Covid-19 Triggers Global Luxury Bust – The impact of Covid-19 on supply chains has been tremendous. Uncertainty across the global economy is building as China remains in economic paralysis. The luxury fashion industry is suffering its most significant “shock” since the 2008 financial crisis, reported the Financial Times. Our angle in this piece is to asses which luxury brand companies are most exposed/dependent on China. Many of these firms have complex operations in the country, from manufacturing facilities to brick and mortar stores to e-commerce platforms. Chinese consumers accounted for 40% of $303 billion spent on luxury goods globally last year. The virus outbreak has also disrupted complex supply chains for mid-market apparel brands, like Under Armour, Adidas, and Puma, warning about collapsing demand and factory shutdown woes. LVMH, Kering, and Richemont are luxury brands that are some of the least exposed to China because their manufacturing facilities are outside the country. However, Luca Solca, a luxury goods analyst at Bernstein, said it doesn’t matter where luxury brands are making their products, the whole demand story in China has collapsed. Kering, the owner of Gucci, warned earlier this month that the virus outbreak in China could damage sales in the first quarter. A Moody’s report this week showed US-listed luxury brands, Coach and Kate Spade owner Tapestry, have increased their market exposure to China in recent years to gain access to a robust market, allowing their revenues to increase far faster than industry norms. That strategy today is likely to have backfired. Fashion brands from Hennes & Mauritz, Next of the UK, and Tory Burch, have built factories in China to take advantage of inexpensive silk, fabrics, and cotton, along with lower labor costs, are now experiencing supply chain disruptions that could lead to product shortages in the months ahead. The National Chamber for Italian Fashion warned earlier this week that the virus impact in China would lead to a $108 million drop in Italian exports in the first quarter because Chinese demand has fallen. If consumption remains depressed, then luxury exports to China could drop by a whopping $250 million in 1H20. A top executive at Shanghai’s luxury shopping mall Plaza 66 said the mall had been deserted this month. Stores such as Cartier and Tiffany’s have been shuttered.
After Mass Chicken Cull, China Approves Live Poultry From US – The Ministry of Agriculture (MOA) of China has approved the import of live chickens from the US after farmers across the country were ordered to cull tens of millions of chickens because of the Covid-19 outbreak. The MOA had banned poultry meat imports from the US in 2015 due to avian influenza threats. As a concession for the phase one trade deal, China had lifted poultry meat import bans and now has allowed the import of live chickens, reported the Financial Times. Beijing allowing the MOA to approve the import of live chickens is mostly because the mass culling has led to a sharp increase in prices. At the moment, China isn’t just facing a shortage of food, but also an economic crisis, and couple both of those together, the real threat of protests and riots in many cities, some larger than NYC, could be nearing. “There is no question China’s chicken population will fall sharply in the coming months,” said Qiu Cong of Jinghai Poultry Industry Group. “The chicks are gone and farmers are struggling to make ends meet.”A report by Wang Zhongqiang, a former director at the China Animal Husbandry Association, and Ning Zhonghua, a professor at China Agricultural University, said farmers had culled upwards of 100 million young chickens since the virus broke out. Though the figure is approximately 1% of China’s annual production of 9.3 billion chickens, it’s currently having an impact on prices. On top of this all, farmers culled 50% of the country’s pig herd last year on the rapid spread of the African swine fever virus. Darin Friedrichs, a Shanghai-based commodity analyst at INTL FCStone, said meat prices in China would remain high for the next quarter while new sourcing is seen. Friedrichs added that shortages could persist in the weeks ahead. Charoen Pokphand Group, a top animal feed maker with factories in Hubei, the epicenter of the Covid-19 outbreak, said its supplies are running low. “Freight traffic has collapsed in Hubei,” the company said. “There are roadblocks everywhere.” China allowing imports of live chickens from the US is a positive for the Trump administration but won’t have a significant impact on reaching the $200 billion hard targets of goods the country must purchase over the next two years.
Supply Chain Chaos Unfolds At Major Chinese Ports As Frozen Meat Containers Pile Up – New evidence from Bloomberg reveals cracking global supply chains are fast emerging at major Chinese ports with thousands of containers of frozen meat piling up with nowhere to go. The Covid19 outbreak will remain a dominant issue for 1Q as supply chain shocks are being felt by multinationals on either side of the hemisphere. Sources told Bloomberg that containers of frozen pork, chicken, and beef (mostly from South America, Europe, and the US) are piling up at Tianjin, Shanghai, and Ningbo ports because of the lack of truck drivers and many transportation networks remain closed. Seaports in China are quickly running out of room to house the containers and cannot provide enough electricity points to keep existing containers cold. This has forced many vessels to be rerouted to other destinations. It’s clear that a logistical nightmare is unfolding as two-thirds of the Chinese economy has effectively shut down much of its production capacity, producing a massive “demand shock.” The impact on the global economy is already dragging down world trade and could force the World Trade Organization (WTO) to slash economic growth forecasts for the year. The Chinese economy constitutes about 20% of global GDP, and supply chain disruptions across China could cause a cascading effect that could tilt the world into recession. But it’s not just frozen meats piling up at Chinese ports or a crude glut developing. There’s a high risk that product shortages to Western countries could be 60-90 days out. Alibaba Group’s CEO Daniel Zhang warned last week that the supply chain disruption, or “shock,” is a “black swan event” for the global economy. The “black swan” warning was also repeated by Freeport-McMoRan CEO Richard Adkerson several weeks ago after he said the outbreak of the virus in China is a “real black swan event.” China’s economy is at a standstill and could trigger the next economic crisis, not seen since 2008.
HSBC Announces Mass Job Cuts, Huge Write-Down, Asset Sales, Halt of Share Buybacks. Warns of Coronavirus Impact on Credit Losses & Revenues in China & Hong Kong – Global banking behemoth HSBC’s net profit slumped 53% in 2019, to $5.97 billion, after the lender announced a $7.3 billion write-off to reflect weakened conditions in global banking and markets, and European commercial banking. Its shares dropped 6% in London and are now down 25% from a peak in January 2018. Many of the bank’s problems originated in Europe, where the ECB’s negative-interest-rate policy is decimating even large Eurozone banks’ ability to turn a profit. HSBC’s write-down in the 4th quarter resulted in a pre-tax loss of $4.65 billion in the bank’s European business. In the U.S., where lower interest rates also took a toll on the group’s performance, revenue shrank 3%, to $4.7 billion, and adjusted profits before taxes fell 39% to $600 million. In a bid to reverse this trend, HSBC will embark on an ambitious global restructuring program that will see it withdraw even further from certain markets. The number of countries it operates in has already dwindled from 87 in 2011 to just over 50 today, spurring HSBC to eventually ditch its slogan, “the world’s local bank.” The number will keep falling as it doubles down on its Asian pivot. The bank also plans to slash around 15% of its global workforce over the next two years, which would amount to 35,000 job cuts, bringing its workforce down to about 200,000 people, in the hope of reducing operating costs by just over $4 billion. “This represents one of the deepest restructuring and simplification programs in our history,” said interim CEO Noel Quinn. Quinn said some of the job cuts would occur through natural attrition as existing employees leave HSBC of their own volition. But its under-performing investment bank is likely to suffer a large number of the cuts. So, too, are the bank’s European operations, where it aims to reduce costs by 25%. It’s not yet clear how many jobs could be on the line in its domestic UK market where the bank employs some 40,000 people. Workers in the U.S. also face significant job losses amid HSBC’s planned closure of around a third of its 224 branches there. The bank also plans to shed $100 billion of assets by 2022, with the stated goal of keeping pace with its sharper, nimbler, more focused competitors. HSBC will also suspend share buybacks for the next two years to pay for the restructuring costs. In this climate, markets forgive and forget anything except the suspension of share buybacks. The announcement of cutting 35,000 jobs would have normally boosted shares, as even massive write-offs are ignored. But the suspension of share buybacks is toxic. While HSBC blames the bulk of its poor performance on mature markets in Europe and North America, with their low or negative interest rates, it’s in its most important market of all, Hong Kong and mainland China, where it faces the biggest headwinds and risks. HSBC’s headquarters may be based in London but it’s in Hong Kong where the lion’s share of its money is made.
Australia, South Korea, Brazil Are the Major Economies Most Exposed to China Trade – China’s first-quarter GDP growth could slow to 4.5% year on year — a record low — because of the coronavirus, according to Bloomberg Economics’ scenario analysis. If that happens, a period of weaker imports will transmit the shock to trade partners. Looking at exports to China as a share of total exports, the major economies with the highest exposure are Australia, South Korea and Brazil.
Lift China tourism ban ‘within weeks’ to save jobs – The Morrison government should lift the China travel ban within weeks to stem the economic damage from the coronavirus on the multibillion-dollar tourism sector, according to a peak industry group.As the tourism sector calls for the Coalition to double its financial assistance following the double whammy of bushfires and coronavirus, Australian Tourism Industry Council executive director Simon Westaway said lifting the travel ban as soon as possible was also on their wishlist.”There is great uncertainty about when they will be reopened, but we do need to be on the front foot,” Mr Westaway told The Australian Financial Review.”At some point they will need to be re-opened for a whole lot of social and economic reasons. We have to be able to position ourselves to get back into the international market because it’s critical for our industry, which is so reliant on this trade.”Prime Minister Scott Morrison announced on Friday the government would extend the travel ban on Chinese nationals for another week as it keeps an eye on the spread of the deadly disease.But with the tourism industry losing an estimated $1 billion a month from the Chinese tourist ban, there are growing calls for it to be lifted sooner rather than later as some businesses struggle to stay afloat.China is Australia’s number one tourism market, delivering 1.4 million visitors a year and contributing about $12 billion annually to the economy.Mr Westaway said the tourism industry understood the government was dealing with a public health issue first and foremost, but the economic damage from the coronavirus – which has also hit the education industry hard – was becoming very serious.He said Australia needed to get back on the front foot because countries around the world would be working hard to woo back Chinese tourists – including China, which would want to boost its own domestic tourism industry. “The tourism industry is front and centre of this and we are copping the brunt,” he said.
Covid-19: Indian pharma catches a cold – The coronavirus outbreak and the resulting factory shutdown in China has led to a supply crunch in the Indian pharmaceutical sector and prices of some drugs have gone up. According to media reports the price of paracetamol – a common drug used to treat many conditions including headache, cold, and fevers, among others – has risen by 40%, while the cost of azithromycin, an antibiotic used for curing various bacterial infections, has spiked by 70%.Industry experts feel the supply crunch will worsen if factories don’t start functioning by the first week of next month. India depends on China for 80% of its requirement of active pharmaceutical ingredients. So, the supply disruption is expected to lead to increased production costs in India. Many businesses in China came to a standstill amid restrictions on the movement of people and commodities. The virus-hit Hubei province and Shandong account for around a quarter of the raw materials supplied to India and if the factory shutdown is prolonged it could have a cascading effect on the pharma industry. The Indian pharmaceutical industry is concerned that stocks of active ingredients for drugs like paracetamol, ibuprofen, could last for 15 days, while stocks for other drugs could last for two to three months. A government panel wants Indian states to take action against hoarders and entities or people creating an artificial shortage of essential drugs. India is one of the largest suppliers of generic drugs and has numerous homegrown pharmaceutical industries, 12% of which cater to the US market. The federal government is also considering imposing an export ban on 12 essential drugs including antibiotics, vitamins, and hormones, to ensure that there is no shortage of drugs in the country.
Fiat Chrysler To Shut Serbia Plant As Covid-19-Shock Paralyzes Global Supply Chains – It’s certainly plausible that the global economy is in the early stages of grinding to a halt. Already, we’ve noted that two-thirds of China’s economy is offline, with major industrial hubs idle and 400 million people quarantined. The next phase of the supply chain chaos is to spread to regions that are overly reliant on Chinese parts for assembly, such as a Fiat Chrysler Automobiles NV plant in Serbia. Bloomberg reports Friday morning that the plant is expected to halt operations of its assembly line because of the lack of parts from China as the Covid-19 outbreak worsens.Turin, Italy-based automaker’s Kragujevac factory in Serbia, which assembles the Fiat 500L, has to bring its production line to a halt due to lack of audio-system and other electric parts sourced from China.We reported on Feb 6 that Fiat Chrysler was expected to close the plant if the virus continued to spread.Four of the automaker’s suppliers have been impacted by China’s decision to shut down much of its industrial sector as part of a quarantine that’s expected to take a massive chunk out of GDP growth in the first half. Fiat Chrysler CEO Mike Manley said four of the company’s suppliers in China had already been affected by the outbreak, including one “critical” maker of parts putting European production at risk.
Thousands Ordered To Work From Home As Experts Warn Japan Is “On The Cusp Of A Large Outbreak” – With half of China’s population facing some level of travel restriction due to the coronavirus outbreak, the Politburo’s attempt to get the country back to work has been slow going and fraught with setbacks. Much of the coverage so far has lingered on Apple’s supply woes and warnings by companies as diverse as automakers and textiles firms about supply chain disruptions tied to factory closures in China. But China isn’t the only country facing serious economic blowback from the outbreak. Tens of thousands of professional workers in Japan have been asked to work from home in a government-supported policy to contain a possible outbreak in Tokyo. With 66 confirmed cases outside the 542 infected aboard the ‘Diamond Princess’, Japan has the largest number of cases outside China. As the government advises people to avoid crowded area, many companies have instructed employees to either work from home or minimize their time in-office. According to Nikkei, they include: Soy, Fujitsu, Toshiba, Takeda, NEC, KDDI and SoftBank:
To keep employees out of large crowds, Sony urged staffers Tuesday to telework and avoid commuting during rush hour. It is suspending its usual 10-day monthly cap for working from home. For those who must physically be on-site, Sony is offering a flexible schedule with shorter mandatory hours of noon to 3:30 p.m., compared with the usual start time of 9:30 a.m. Bypassing rush-hour commutes will minimize the risk of contracting the coronavirus, the thinking goes. Fujitsu is letting employees who are pregnant or have underlying health conditions to work from home for as many full days as needed, scrapping its usual weekly and monthly limits. Toshiba told all subsidiaries Tuesday to introduce telecommuting to all workers. Takeda also urged its 5,200-plus workers to stay off and avoid commute during rush hour if they must come in at all. Among other companies advocating telework are NEC, KDDI and SoftBank Corp.
Tokyo Olympics organisers says there is no ‘Plan B’ for 2020 summer games amid coronavirus fears Tokyo Olympic organisers and the International Olympic Committee (IOC) said there is no ‘Plan B’ for the upcoming summer games despite growing fears that the coronavirus could impact the event, which are set to begin in July, the Associated Press reported. Speaking at a press conference Friday, the organisers took 11 questions, all of which were related to the virus, athletes and fans coming in from China, and the continuation of the planned events. “Certainly the advice we’ve received externally from the WHO [World Health Organisation] is that there’s no case for any contingency plans or cancelling the games or moving the games,” IOC inspection team head John Coates said during the news conference, CBS Sports reported. Coates also claimed he is “100% confident” that the Olympic games will continue as scheduled. “It is meaningless to predict a timing when [the coronavirus] may come to an end,” former regional director of the WHO and an infectious disease expert from Japan Shigeru Omi told the Associated Press separate from the news conference on Thursday. “We should assume that the virus has already been spreading in Japan. People should understand that we cannot only rely on border controls to prevent the spread of the disease.” However, CEO of the Tokyo Olympics Toshiro Muto said on February 4 at a meeting with International Paralympic Committee officials that he was “seriously worried” about the impact the coronavirus could have on the “momentum towards the games,” the Associated Press reported. Several qualifying events have already been cancelled or moved because of the virus, CNN reported. Asia and Oceanian region’s qualifying boxing event has been cancelled, and the Asian Football Confederation’s women’s football qualifiers has been moved from Wuhan, the epicentre of the outbreak, to Nanjing.
State-Backed Economist Says China Must Delay Trade-Deal Commitments – Remember when Larry Kudlow said that President Xi had pledged to “meet [China’s] obligations” under the ‘Phase 1’ trade pact, outbreak be damned, and that negotiations for ‘Phase 2’ were “completely separate” from the outbreak? Unsurprisingly, the SCMP confirmed on Monday that this probably isn’t going to happen. Odds are, China will need to delay its commitment to purchase an additional $200 billion in American goods and services, even as Beijing ends restrictions on importing American agricultural products like poultry and soybeans. Two weeks ago, rumors that China would seek “flexibility” were the earliest indication that the regime was already weighing what to do. Now, in an obvious trial balloon, a state-backed economist is urging Beijing to invoke ‘force majeur’. Fortunately for Beijing, the two sides included a ‘force majeur’ clause in the deal that read: “In the event that a natural disaster or other unforeseeable event outside the control of the parties delays a party from timely complying with its obligations under this agreement, the parties shall consult with each other.” However, few expect the US to accept the delay without some kind of negotiation: Xu Qiyuan, a researcher at the China Finance 40 Forum (and a state-backed economist in Beijing), said he believes China should request to postpone the implementation of the purchase plan “in an appropriate manner” right away. According to the SCMP, Xu’s comments about missing the deal quotas were part of a mounting consensus among international trade economists that the outbreak has made meeting the quotas impossible. One week after the nation was supposed to get “back to work”, most of China’s economy remains shuttered. Even the factories that have reopened are operating well below capacity. A survey by the American Chamber of Commerce in Shanghai released on Monday saying that almost 80% of American-owned factories in China haven’t been able to staff production lines.
Coronavirus solidifies US-China decoupling -In November 2019, Henry Kissinger was in Beijing for the Bloomberg Next Economy Forum, warning that the US and China are in the “foothills of a Cold War“, saying that conflict could be worse than World War I if left to run unconstrained.These comments came in the context of escalating tensions in recent years over trade, increasing rhetoric of military conflict over Taiwan and the South China, Sea, accusations of espionage and influence campaigns, and an all-out competition to define the norms and values underpinning the international order.One month later in December, there was an outbreak of the coronavirus in Wuhan, which resulted in worldwide panic and the de facto quarantine of the Chinese economy via city lockdowns, business shutdowns, and travel bans from the international community.With the shift of Washington’s China policy from one of engagement to containment and decoupling under the Trump administration, some observers such as Curtis Chin, an Asia fellow at the Milken Institute, believes the coronavirus is accelerating the decoupling with China as countries and businesses “think about their supply chain for the long run.”Commerce Secretary Wilbur Ross shares this view and sees China’s pandemic crisis as an opportunity to bring jobs back to the US. Meanwhile, hawks continue to stress maximum pressure to boycott, divest and sanction (BDS) China with warnings that Beijing is committing bio-warfare via a virology lab in Wuhan, and for the US to deny medical aid and allow the virus to “rampage through the ranks” of China’s Communist Party, telling US officials they arebeing used as unwitting agents of China, and to continue with trade tariffs and varioussanctions on the Chinese economy. In recent years, China watchers have been growing alarmed at the rapid deterioration of US-China relations. Nowadays, it is common to hear arguments warning of a split of the global economy into mutually exclusive American and Chinese spheres of influence. The former Australian prime minister Kevin Rudd has warned that if indeed we arrive at a fully ‘decoupled world’, it would herald the return of an ‘iron curtain’ between the East and the West, and “the beginning of a new conventional and nuclear arms race with all its attendant strategic instability and risk.” However, Yun Sun from the Stimson Centre says US and China have already entered a war of attrition that will accelerate the decoupling of US-China economic ties, as both actors and third parties change the composition and direction of their supply chains and shift them elsewhere. She warned that if decoupling results in the two countries shedding all common interests and leaving raw and pure conflicting interests, it would be a dangerous path – one leading towards military confrontation. That view is shared by a retired senior US Army officer, Lt. Gen. Karl Eikenberry.
White House Warns Beijing- ‘We Still Expect You To Honor Your Trade Deal Commitments’ — A Chinese official recently suggested that Beijing might need some ‘wiggle room’ to fulfill its commitments under the ‘Phase 1’ trade deal. Now, the Treasury Department is hinting that this might not be an option, and that the US expects the Chinese to honor their commitments. Citing comments from an anonymous ‘senior Treasury official’ (possibly Mnuchin himself), Reuters reports that the US government expects China to honor its commitments, to which it agreed late last year, around the same time that the virus first emerged in Wuhan. The report arrives just days after the IMF confirmed that the epidemic had already disrupted economic growth in China, and that it could derail already-fragile global growth if it continues to worsen and spread. However, the official narrative in Beijing is that the government is winning the war, and that the brief pullback in Q1 growth will be offset by a recovery later in the year. Yesterday, the market got the first hint at the outbreak’s impact on China’s high-tech manufacturing sector (think Foxxconn, iPhones) with an unprecedented drop in China’s emerging industries PMI.But so far the fallout has been beyond brutal. To be sure, the US didn’t rule out all flexibility. While the official said the US still expects China to meet its commitments with the $200 billion figure in total imports, he pointed out that these increases are supposed to be doled out over a “period of time.”As the Washington Post reminds us, China’s agricultural commitments alone in the Phase 1 deal were pretty specific: Beijing agreed to buy an additional $32 billion over the first two years, $12.5 billion over the $24 billion baseline in 2020, and $19.5 billion over that same baseline in 2021. The ‘baseline’ is $24 billion, the level of Chinese ag purchases in 2017, before Trump decided to instigate his big trade war. The commitments were part of a deal that’s supposed to guarantee an additional $200 billion in ag purchases over the baseline in the years ahead, with Beijing ordering state-controlled firms to carry them out in good ol’ fashioned centrally planned purchases that brings to mind the control economies of the Communist era.And those ag purchases are only part of the broader $200 billion commitment over two years: Technically, China is expected to purchase an additional $77 billion US goods in 2020 and $123 billion by 2021, compared with a baseline of U.S. imports from 2017 However, almost as soon as the deal was signed, economists and analysts complained loudly that the deal was little more than a PR stunt, and that there was no way Beijing would be able to guarantee such hefty purchases (others argued that Beijing could make it happen). On Thursday, the chief economist at the US Department of Agriculture seemed to suggest that these critics might have been on to something when he released a projection claiming that China would only import roughly $14 billion in ag products during the business year that ends Sept. 30. That’s only a $4 billion increase from a year ago. Purchases were supposed to be between $40 and $50 billion this year and next year. Perdue made the comments during the USDA’s Agricultural Outlook Forum this week, and during a news conference later on, he added that enforcing the deal “remained a concern” and that the coronavirus outbreak made projections difficult. So far, China has lifted some restrictions, including a live poultry ban (mostly for breeding), affecting the US. But that ban wasn’t related to the trade war; ironically, it was a precaution put in place during an avian flu outbreak.
Trump Proposes 16% Cut To CDC As Global Number Of Coronavirus Infections And Deaths Rise –As the coronavirus continues to spread, President Trump’s proposed 2021 budget calls for drastic cuts to funding for the Centers for Disease Control and the World Health Organization that critics say could prevent preparedness for a pandemic at home.
- Trump released his proposed 2021 budget Monday, which included a 16% cut to the CDC’s budget and a 10% overall reduction to the Department of Health and Human Services’ funding, according to the Washington Post.
- The U.S. contributes about 2.5% of the World Health Organization’s overall $4.8 billion budget, and Trump’s proposal calls for a $65 million cut to the group; if enacted, the U.S.’ contribution would be reduced by over 40%.
- An additional 34% reduction is proposed for overall global health programs, but Trump is asking for $115 million to be set aside for global health security for the purpose of combating “infectious disease threats.”
- However, the proposed budget is unlikely to pass the Democratic-controlled House of Representatives, which the Post notes has the power of the purse, and will ultimately decide how the funds will be spent, after various committees weigh in.
- The coronavirus (which was renamed Tuesday by the World Health Organization as COVID-19) has not been declared a pandemic, but the group has called for an immediate $675 million investment in “rational and evidence-based interventions” to stop the outbreak.
- As of Monday, the U.S. has 12 confirmed cases, with one patient erroneously diagnosed as testing negative for the disease, based on a “mix-up” between the CDC and a San Diego hospital, CNN reported.
The Senate Budget Committee (led by Senator Bernie Sanders (I-Vt.) as the ranking member) said Trump’s budget would “destroy discretionary programs [by] cutting them by $1.9 trillion. These are things like Section 8, Head Start, WIC, LIHEAP, public housing, NOAA, NIH, NASA, NSF, the CDC – most of the programs that we think of when we think of what the government does.” And James Hamblin, a doctor who writes for The Atlantic, said on Twitter that the budget “doesn’t consider pandemic preparedness a matter of national security.”
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