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The Silk Roads Business Brief

 April 2020
ISSN 2673-2033

Greetings,

Our warmest wishes of health and strength to all.

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Solidarity, Courage and Resilience to You All.

Jean-Guy Carrier

President, CWI Strategies

                                                      


Content


Editorial: Unmasked

The opening graphic of this edition was chosen for four reasons. The first is because much of the world is going without what has been revealed as the most basic protective instrument against respiratory infections such as covid-19: The face mask. A majority of us around the globe are unmasked at a time when the logic of donning a simple three ply shield over one’s mouth and nose has being revealed: If nobody knows how many people are ill, whether symptomatic or asymptomatic, then everyone wearing a mask that protects others with greater certainty than it protects the wearer, is above all an act of solidarity and kind prudence. 
 
The second reason is because our global health infrastructure has also been unmasked. It was and remains unprepared for this pandemic. The boasts and reassurances of leaders left and right, democratic and non-democratic, have long masked the severe shortfalls in health spending that have left hospitals and health care workers unarmed for a battle against an enemy that they long ago predicted, called on us to mobilize against, and now face with depleted resources. 
 
The third reason to top our newsletter with the caption ‘unmasked’ is because covid-19 has unmasked the latent prejudice that infects the minds of seemingly healthy people everywhere, rendering them blind to glaring evidence and deaf to resounding truth. The world watched in live time as a nation of 1.4 billion souls weathered a fierce storm, remaining dumbly transfixed by the drama, while arrogantly aloof to the reality of it. The abstractions of race and culture made these people somehow ‘other’, governed otherwise and somehow existing on other terms that do not apply to us, and that otherness, as wafer thin as a face mask, has become a barrier many have unconsciously decided they do not want to see beyond. Where war, poverty, gender inequality, racism and climate change have failed, covid-19 has succeeded in unmasking the brutal truth at the heart of our global mindset: most of us fundamentally do not care about most other people. Covid-19 has made immediate the deadliness of our apathy. 
 
Finally, we chose ‘unmasked’ as the title for this April 2020 newsletter, because of the potential for a revelation that might be rescued from this global tragedy, and in turn rescue us from our worst impulses. If anything, covid-19 reveals that we are all vulnerable, and that the only way to protect ourselves from what we are vulnerable to is to align our efforts to protect ourselves. This is true for covid-19 and it is true for all the blights that afflict humanity. Solidarity is the cure. Wear a mask, not only for yourself, but for everyone else too. 
 

The Numbers Trade


China Leads Scramble for N95 Masks and Medical Supplies to Fight Coronavirus 

By John W. Miller, Trade Data Monitor

John W. Miller is an award-winning journalist and filmmaker who has covered trade, mining and global economics as a foreign correspondent for the Wall Street Journal.

As the covid-19 pandemic sweeps the globe, it’s batting down economies mercilessly. Simultaneously, it has sparked surging commerce in medical supplies.

With such resources scarce, countries are battling for essential gear to fight the coronavirus, such as N95 masks, surgical gloves and respirators. 

And one country is buying more than anybody else: China. 

In the first two months of 2020, China’s imports of “made-up textiles”, the trade category that includes N95 face masks used to keep germs out of nasal and oral pathways, boomed to $706.4 million worth from $31.1 million in the first two months of 2019, far outpacing every other nation, according to Trade Data Monitor, the world’s top supplier of trade statistics. 

China bought at least $10 million worth of made-up textiles from 14 countries, suggesting this was a coordinated buying spree, not a one-off bulk purchase that happened to fall during the first two months of the year. It imported $187.7 million from South Korea, $42.6 million from Japan and $36.4 million from the U.S. 

Meanwhile, the U.S., the world’s second biggest buyer of face masks, shrank its collective purchases to $654.9 million from $759 million. Third-place Japan also cut buying, to $194.4 million from $217.3 million.



Likely this wasn’t because the U.S. and Japan wanted or needed fewer face masks. They were outbid. China paid an average of $59.9 per kilo in the first two months of 2020, compared to $25.3 per kilo over the same period in 2019, according to TDM data. Meanwhile, prices paid by U.S. and Japanese buyers declined slightly. 

As a spat in April between the U.S. and Canada over 3M’s shipments of N95 masks illustrates, tension over pandemic-fighting gear seems likely to exacerbate global trade tensions over the 12 to 18 months scientists say it will take to contain the virus. The U.S. has imposed limits on shipments of medical supplies to other countries. Dozens of governments have issued similar orders curbing exports of masks and other essential equipment. 

At the same time, China, the world’s biggest supplier of face masks, cut exports 16% to $645 million from $768 million, increasing its overall supply. South Korea, thanks to bulk sales to China, leapt into second place, followed by the U.S. and Japan.
 
The World Health Organization and World Customs Organization put out a coronavirus classification guide listing dozens of medical supplies suddenly in high demand. The list, in its variety and scale of devices, is enough to tell a story about a deadly disease and the supply chain that’s geared up to fight it: Covid-19 test kits; swabs; rubber gloves; disposable hair nets; intubation kits; hand sanitizer. 

China has bumped up imports in almost all those WHO-WCO categories, according to TDM figures. For example, it increased imports of protective garments to $206.1 million from $506,446 (five hundred and six thousand four hundred and forty six!! you read that right) and purchases of plastic, surgical and other rubber gloves to $75.3 million in first two months of 2020 from $42.9 million in the first two months of 2019. Meanwhile, the U.S. and Japan shrank purchases.

In the first two months of 2020, Chinese imports of disinfectants including hand sanitizer almost tripled compared to a year ago, rising to $64.7 million from $22.1 million. U.S imports of hand sanitizer increased 37% to $17.5 million from $12.7 million worth. Germany, the U.S. and UK are the world’s top three suppliers of hand disinfectants including hand sanitizer. 

To be sure, medical supplies are not the only part of global trade that will persist in the time of coronavirus. In March, shipments from Brazil (the first nation to report trade data for the period) to China increased 12.5% to $5.9 billion, thanks to upticks in soybeans and meat. People in the world’s most populous nation, after all, still need to eat.

That, and the medical supplies acquisition spree, suggest that one story will still be true after all this is over: China is buying. 

Trade Data Monitor (info@tradedatamonitor.com) is a Geneva, Switzerland and Charleston, USA based supplier of import and export statistics from 111 countries.


The Resurgence of the Health Silk Road


When China first proposed the Health Silk Road (HSR) eight years ago, the concept was ignored or rejected by national and international organizations focused on health. Today the HSR has re-appeared in the form of “mask diplomacy” and the arrival in some countries of medical teams, shipments of respirators and other health equipment. In the new context HSR is being greeted with open arms, and open minds as experts around the world consult with Chinese specialists on every aspect of fighting the virus and saving lives. Moreover, improved transportation through BRI infrastructure projects is being credited for the quick distribution from China medical protective equipment and covid-19 testing kits to 54 countries. 
 
Even the Asian Infrastructure Investment Bank (AIIB), created to finance BRI infrastructure projects, has announced it is for the first time shifting its focus from transport infrastructure to investment in health care systems. The bank is making an initial $5 billion available to those if its 78 member countries who need support to fight the pandemic. Twenty members have already requested such support, including India and China. The latter will access $355 million in what will be the AIIB’s first loan to the health care sector. 
 

 The Corporate Social Credit System: How China's Government Leveraged SCS in the Fight Against Covid-19

 
By Kendra Shaefer, Head of Digital Research, Trivium China
 
To protect its citizens from public health crises, governments need the ability to rapidly implement effective epidemic prevention policies. But even the most effective public health regulations are useless without widespread adoption and strict enforcement.
 
In China’s fight against COVID-19, local governments and state agencies faced the difficult task of ensuring airtight adoption of virus containment measures within their jurisdictions. Several of these bodies turned to the social credit system (SCS) to strengthen those efforts. 
 
Quick refresher: what is the SCS?
The SCS can be most simply understood as a tool to help government bodies enforce existing policies and regulations. The SCS is being rolled out for both individuals and companies. 
 
The SCS centralizes existing government records into “social credit files” on companies. The files contain, among other things, information about a company’s history of compliance. Government bodies then cooperate by jointly punishing companies with poor compliance, and jointly offering rewards and incentives for consistent compliance and good corporate citizenship. If we understand social credit as a policy enforcement tool, we can see how the SCS might play a role in COVID-19 prevention. (Want to understand the SCS in depth? Check out Trivium China’s primer, Understanding China’s Social Credit System)
 
Social credit and COVID-19
Trivium’s policy monitoring team first noted the mention of flagged SCS in relation to COVID-19 prevention in a January 24 policy released by China’s Ministry of Transportation. The purpose of the policy was to open fast-pass, toll-free lanes for qualifying vehicles carrying personnel and emergency supplies. The policy noted any company vehicle caught impersonating emergency vehicles would have the violation recorded in their social credit file. 
 
Over the following weeks, a series of provincial governments released social credit-related policies cracking down on corporate behaviors perceived as a threat to public health or as destabilizing to the economy, and encouraging behaviors that supported economic stability. There were some common themes: 
 
They penalized:
  • Driving up prices on epidemic prevention products, hoarding, and otherwise disturbing market order.
  • Not adhering to regulations regarding resumption of business activities and return to work (this might include re-opening without approval, overcrowding workspaces, or failing to implement temperature checks for incoming workers)
  • Falsifying participation in outbreak prevention activities
They incentivized: 
  • Procuring or transporting urgently-needed medical supplies or important materials, or expanding production to manufacture supplies or materials
  • Donating materials or funds to assist prevention efforts
  • Reducing rent, increasing capital investments or other financial measures supporting SMEs 
  • Outstanding performance in work and business resumption
  • Outstanding contribution to the protection and defense of market order and stability
  • Temporarily shifting production to urgently needed prevention products 
Soon thereafter, as China’s economy slowed in the wake of the epidemic, policymakers recognized that struggling businesses were in danger of defaulting on certain obligations - an offense that would result in poor social credit. In response, local governments released support measures which offered:
  • Leniency to businesses that cannot honor their financial, legal or administrative obligations due to decreased revenue, lack of staff, or other issues.
  • Legal support for credit repair
So what?
 
This gives us a few interesting insights into the state of corporate social credit implementation. 
  1. China is serious about implementing social credit: Social credit is not simply another initiative du jour which will disappear after it’s had its moment in the sun. 
  2. System implementation is still fragmented: During the epidemic, the SCS had not been leveraged in a unified fashion at the national level, but rather in a piecemeal fashion at the local level.
  3. The boundaries of the SCS are not clearly defined: There has been considerable debate within China about where the boundaries of the SCS lay, which types of violations can be included and which can’t, and whether or not local governments should be allowed to shoehorn new policies into the system any time and at will. The sudden inclusion of COVID-19 enforcement into SCS policies underscores this problem.
Kendra Schaefer is the Head of Digital Research at strategic advisory Trivium China, and co-authored Trivium’s August 2019 primer on the SCS. (Want to understand the SCS in depth? Understanding China’s Social Credit System). She has provided briefings on social credit to the U.S. Department of State, the National Committee on U.S.-China Relations, the U.S. China Business Council, and the Embassy of Norway.                                                               
 

Will BRI Lenders get their Money Back?


Estimates of investment loans, mainly from China, for BRI infrastructure projects range from $trillions to the conservative World Bank estimate of $545 billion, up to 2019. What’s certain is that the covid-19 pandemic will cripple the economies of many recipient countries, some of whom were already in difficulty. 
 
The largest BRI project is in Pakistan, which the Asian Development Bank estimates will suffer an $8.2 billion loss due to the pandemic. Other BRI project loan recipients are suffering, with Bangladesh set to take a $3billion hit, Thailand bracing for a recession and many covid-19 vulnerable countries in Africa conscious more than ever that China is their largest market for natural resources and a main supplier of their industrial products and consumer goods. Paying back BRI loans is clearly not going to be their priority for a while. 
 

How Important is BRI to China?


The top priority of China’s government is preserving the power of the Communist Party of China by maintaining social, national unity and economic growth. The BRI, as one of President Xi Jin Ping's signature projects, is assumed to be among the top 10 priorities of the central government, but ranking lower than stability, maintaining growth, employment and providing quality services, with an emphasis on healthcare now more than ever, to the citizens of China. 
 

Whither the BRI?


The overall impact of the covid-19 pandemic on the BRI is becoming clear:
  • The benefits of regional integration through trade and investments in infrastructure projects have been welcomed by many BRI project countries. The spread of communicable diseases along the same Silk Roads will possibly cause governments to re-consider their growing economic dependence on China.
  • Even projects judged to be viable are on hold due to the inability to procure construction materials, equipment and goods. Port and airport closures, blocked roads and railways are holding up deliveries. 
  • Supplies of such materials will likely be re-directed from BRI projects to domestic use in China as the government implements ambitious infrastructure plans to kick-start economic growth. 
  • Chinese companies implementing BRI projects are short of workers due to travel restrictions. Many managers and workers who travelled for the holidays are unable to return due to travel bans. The shortage can only get worse as workers are diverted to new projects in China. 
  • Workers in some of the BRI project countries in Asia and Africa are reluctant to work with Chinese nationals, for fear of being infected by the virus. Racism and anti-Chinese sentiment expressing such fears and conspiracy theories about the virus abound on social media. 
  • The attitude of China’s people towards BRI expenditures abroad may turn negative as unemployment and the shortage of medical and other services underline the need for investments within China, rather than abroad. 

For more Information Contact us
 www.carrierwalker.com/contact-us/

The Publisher

The Silk Roads Business Brief is a monthly publication of Carrier Walker International (CWI) Strategies, a private-sector company based in Geneva and Shanghai, with extensive experience working with countries along the 21st Century Silk Roads and with international organizations working in coordination with the BRI.  

Copyright

© 2020 CWI Strategies. Copying, downloading and distribution of material from this CWI publication, The Silk Roads Business Brief, ISSN 2673-2033, is permitted provided credit in print is given and that the material will not be used for commercial or for-profit purposes without permission. The photographs reproduced in this newsletter were obtained from pexels.com and pixabay.com.

Disclaimer

The information contained in this newsletter is factual according to our knowledge. All recommendations made are without guarantee by the author or publisher (CWI Strategies). The author(s) and publisher disclaim any liability in connection with the use of this information.

For more information on CWI Strategies visit us @ www.CarrierWalker.com

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