Authors: Yao Zhe and Wu Yixiu*
As the Covid-19 outbreak stabilises in China, the central government is starting to talk about protecting the economy as well as mitigating the virus.
On 3 February, the politburo standing committee called for China to “tackle the epidemic with one hand, and develop the economy with the other”, and continue working “to realise the year’s economic and social goals”. It reiterated this approach on 12 February.
This year marks the end of the 13th Five Year Plan, which includes the goal of creating a “moderately prosperous society”. Over the plan period (2016-20), national GDP and average incomes were meant to double compared to 2010. For that to happen, GDP would need to grow around 6% this year. There is no doubt the government will produce a stimulus package to help. But a programme focused on infrastructure such as railways and roads will hamper the country’s transition to a sustainable economy.
Heavy industry on the mend
Covid-19 led to the extension of the Chinese New Year holidays to almost a month, which affected all parts of the economy. For heavy industry, the biggest uncertainty was demand. Downstream manufacturers and property developers have been slow to get back to work and the economy in general is sluggish. With demand not yet recovered, output of the raw materials produced by heavy industry, such as steel and aluminium, has fallen, though not precipitously. Steel mill utilisation rates remain at a normal level of about 70%, with no major reduction in output. First quarter steel output is expected to be down about 3%.
The return to work has picked up since 10 February. Coal consumption at six major power plants has increased slowly but steadily, indicating industry is getting back on track. Work on key infrastructure projects such as roads and bridges resumed on 15 February, with considerable fanfare. Experts answering questions online for the Ministry of Ecology and Environment said that despite widespread stoppages in construction, services and labour-intensive manufacturing, the heavy industries that supply these sectors continued to operate through the Chinese New Year and beyond. It’s not economical, for example, to stop furnaces in a steel factory for a week or two, so these continued to burn while producing less steel.
The analyst Lauri Myllyvirta pointed out that China has excess heavy industrial capacity and the sector will be able to ramp up to meet any increased demand, with industrial output and power consumption soon recovering. Experts have said the epidemic will mean a significant but short-term drop in energy consumption by heavy industry in the first quarter of the year, until the epidemic is brought under control.
Signs of an infrastructure-focused stimulus
Covid-19 is a new challenge for a Chinese economy already facing a slowdown. The government’s usual response to economic pressure is to use public spending to promote investment, particularly in infrastructure, and there are signs this will again be the case.
Tens of trillions of yuan of investment is planned in major projects across China this year, according to figures in the Economic Information Daily. The latest figures indicate that among the batch of special-purpose bonds (SPBs) issued by local governments earlier in the year, about 67% are to the infrastructure sector. SPBs are designed to help local governments inject funds into specific projects, such as irrigation and toll roads, to help boost their economies. Since January, local governments have issued about 950 billion yuan (US$136 billion) of SPBs, accounting for about 73.6% of the front-loaded SPB quota for this year.
Transport and energy infrastructure – including gas pipelines, oil refineries and nuclear power plants – are well represented in the project lists that some provinces have published. For example, Jiangsu province plans to invest 220 billion yuan (US$30 billion) in infrastructure out of the 540 billion yuan that is going into 240 major projects. Of the 233 major projects listed by Shandong province, 25 are road or rail construction and 16 are building projects. Meanwhile, Yunnan province announced an infrastructure construction plan at a recent press conference on Covid-19, including 100 billion yuan for high-speed rail.
Economic analysts expect to see infrastructure investment in China climb by as much as 8% to 9% this year.
Lauri Myllyvirta has calculated that the extended holiday cut China’s carbon emissions in the first two weeks of the lunar new year by a quarter year-on-year. These climate savings may be offset by a government stimulus package favouring infrastructure projects. According to Zhang Shuwei, director of the Draworld Environment Research Center: “If the government eases monetary policy and boosts infrastructure construction, we may see a nationwide increase in the energy intensity of the economy. It’s likely that energy consumption will not be affected, or will even jump quite a bit.”
If an economic stimulus is unavoidable, it should at least be targeted and not run contrary to China’s efforts to improve the structure of the economy. The service sector, which has been rocked by Covid-19, accounts for 54% of China’s GDP and provides huge numbers of jobs. Support tailored to it will be crucial for rebuilding resilience and confidence, and is in line with China’s economic transition.
Chinese economists often debate how best to direct public finances in order to stimulate the economy. The coronavirus has brought something new to that discussion, by highlighting that public services like hospitals and schools suffer from a lack of resources and capacity to respond to emergencies.
Former mayor of Chongqing, Huang Qifan, wrote that government spending has long favoured transportation and construction, while overlooking public facilities and services. Huang believes spending on the latter would be a more effective way to boost GDP while also meeting public needs. He thinks government spending should incentivise consumption of public goods and services “to promote sustainable and high-quality economic growth.”
Heilongjiang and Jiangsu provinces are adding public health and other “catch-up” projects to their list of major projects, with funding support for those chosen. Nationally, the decision on whether to make improving the public health and emergency response systems a key target for government investment will be a test for policymakers.
Covid-19 is believed to have spread to humans via wild animal consumption. The public is now more aware of the importance to health of living in better harmony with the natural world. What is less recognised is that as well as bringing us disease, the overexploitation of nature also brings systemic risks that could cause disastrous “black swan” events. Four of the five major risks listed in the World Economic Forum’s 2020 Global Risks Report are environmental: climate change, biodiversity loss, extreme weather and the water crisis. As these risks interact rather than stand alone, they could cause a chain reaction.
If we are to increase our resilience, we need to fully understand these risks and ensure the facilities and mechanisms to respond are in place to prevent incidents escalating catastrophically. Environmental risks, like public health risks, need major investment to guard against. There are two aspects to this investment: one is spending on restoring our damaged environment and minimising further damage; the second is investment in environmentally-friendly technologies and industries that can change our mode of economic growth – to increase the “compatibility” of our society and economy with the environment.
How will we restore the economy once the epidemic has passed? If we direct government spending to high-carbon infrastructure construction and heavy industry, as usual, we will place ourselves at huge climate risk. This kind of investment is clearly not sustainable.
According to Zhang Shuwei: “The key is what we see when we look back at the lessons of the epidemic. Will we focus solely on the joy of victory, or acquire an awe at how nature, society and ourselves rely on each other? Our answer will lead us down different paths.”
From our partner chinadialogue
*Wu Yixiu is team leader of chinadialogue’s Strategic Climate Communication Initiatives. Before joining the team she was campaign manager with Greenpeace East Asia responsible for international policies. She also worked as a reporter at the English Service of China Radio International. Yixiu holds a B.A. in History in Fudan University and a master’s degree in Journalism from University of Westminster, London.
The Blazing Revival of Bitcoin: BITO ETF Debuts as the Second-Highest Traded Fund
It seems like bitcoin is as resilient as a relentless pandemic: persistent and refusing to stay down. Not long ago, the crypto-giant lost more than half of its valuation in the aftermath of a brutal crackdown by China. Coupled with pessimism reflected by influencers like Elon Musk, the bitcoin plummeted from the all-time high valuation of $64,888.99 to flirt around the $30,000 mark in mere weeks. However, over the course of the last four months, the behemoth of the crypto-market gradually climbed to reclaim its supremacy. Today, weaving through national acceptance to market recognition, bitcoin could be the gateway to normalizing the elusive crypto-world in the traditional global markets: particularly the United States.
The recent bullish development is the launch of the ProShares Bitcoin Strategy ETF – the first Bitcoin-linked exchange-traded fund – on the New York Stock Exchange. Trading under the ticker BITO, the Bitcoin ETF welcomed a robust trading day: rising 4.9% to $41.94. According to the data compiled by Bloomberg, BITO’s debut marked it as the second-highest traded fund, behind BlackRock’s Carbon fund, for the first day of trading. With a turnover of almost $1 billion, the listing of BITO highlighted the demand for reliable investment in bitcoin in the US market. According to estimates on Tuesday, More than 24 million shares changed hands while BITO was one of the most-bought assets on Fidelity’s platform with more than 8,800 buy orders.
The bitcoin continued to rally, cruising over the lucrative launch of BITO. The digital currency rose to $64,309.33 on Tuesday: less than 1% below the all-time high valuation. In hindsight, the recovery seems commendable. The growing acceptance, albeit, has far more consequential attributes. The cardinal benefit is apparent: evidence of gradual acceptance by regulators. “The launch of ProShares’ bitcoin ETF on the NYSE provides the validation that some investors need to consider adding BTC to their portfolio,” stated Hong Fang, CEO of Okcoin. In simpler terms, not only would the listing allow relief to the crypto loyalists (solidifying their belief in the currency), but it would also embolden investors on the sidelines who have long been deterred by regulatory uncertainty. Thus, bringing larger, more rooted institutional investors into the crypto market: along with a surge of capital.
However, the surging acceptance may be diluting the rudimentary phenomenon of bitcoin. While retail investors would continue to participate in the notorious game of speculation via trading bitcoin, the opportunity to gain indirect exposure to bitcoin could divert the risk-averse investors. It means many loyalists could retract and direct towards BITO and other imminent bitcoin-linked ETFs instead of setting up a digital custodianship. Ultimately, it boils down to Bitcoin ETFs being managed by third parties instead of the investor: relenting control to a centralized figure. Moreover, with growing scrutiny under the eye of SECP, the steps vaguely intimate a transition to harness the market instead of liberalizing it: quiet oxymoronic to the entire decentralized model of cryptocurrencies.
Nonetheless, the listing of BITO is an optimistic development that would draw skeptics to at least observe the rampant popularity of the asset class. While the options on BITO are expected to begin trading on the NYSE Arca Options and NYSE American Options exchanges on Wednesday, other futures-based Bitcoin ETFs are on the cards. The surging popularity (and reluctant acceptance) amid tightening regulation could prove a turn of an era for the US capital markets. However, as some critics have cited, BITO is not a spot-based ETF and is instead linked to futures contracts. Thus, the restrain is still present as the regulators do not want a repeat of the financial crisis. Nevertheless, bitcoin has proved its deterrence in the face of skepticism. And if the BITO launch is to be marveled at, then the regulations are bound to adapt to the revolution that is unraveling in the modern financial reality.
Is Myanmar an ethical minefield for multinational corporations?
Business at a crossroads
Political reforms in Myanmar started in November 2010 followed by the release of the opposition leader, Aung San Suu Kyi, and ended by the coup d’état in February 2021. Business empire run by the military generals thanks to the fruitful benefits of democratic transition during the last decade will come to an end with the return of trade and diplomatic sanctions from the western countries – United States (US) and members of European Union (EU). US and EU align with other major international partners quickly responded and imposed sanctions over the military’s takeover and subsequent repression in Myanmar. These measures targeted not only the conglomerates of the military generals but also the individuals who have been appointed in the authority positions and supporting the military regime.
However, the generals and their cronies own the majority of economic power both in strategic sectors ranging from telecommunication to oil & gas and in non-strategic commodity sectors such as food and beverages, construction materials, and the list goes on. It is a tall order for the investors to do business by avoiding this lucrative network of the military across the country. After the coup, it raises the most puzzling issue to investors and corporate giants in this natural resource-rich country, “Should I stay or Should I go?”
Crimes against humanity
For most of the people in the country, war crimes and atrocities committed by the military are nothing new. For instances, in 1988, student activists led a political movement and tried to bring an end to the military regime of the general Ne Win. This movement sparked a fire and grew into a nationwide uprising in a very short period but the military used lethal force and slaughtered thousands of civilian protestors including medical doctors, religious figures, student leaders, etc. A few months later, the public had no better options than being silenced under barbaric torture and lawless killings of the regime.
In 2007, there was another major protest called ‘Saffron Uprising’ against the military regime led by the Buddhist monks. It was actually the biggest pro-democracy movement since 1988 and the atmosphere of the demonstration was rather peaceful and non-violent before the military opened live ammunitions towards the crowd full of monks. Everything was in chaos for a couple of months but it ended as usual.
In 2017, the entire world witnessed one of the most tragic events in Myanmar – Again!. The reports published by the UN stated that hundreds of civilians were killed, dozens of villages were burnt down, and over 700,000 people including the majority of Rohingya were displaced to neighboring countries because of the atrocities committed by the military in the western border of the country. After four years passed, the repatriation process and the safety return of these refugees to their places of origin are yet unknown. Most importantly, there is no legal punishment for those who committed and there is no transitional justice for those who suffered in the aforementioned examples of brutalities.
The vicious circle repeated in 2021. With the economy in free fall and the deadliest virus at doorsteps, the people are still unbowed by the oppression of the junta and continue demanding the restoration of democracy and justice. To date, Assistant Association for Political Prisoner (AAPP) reported that due to practicing the rights to expression, 1178 civilians were killed and 7355 were arrested, charged or sentenced by the military junta. Unfortunately, the numbers are still increasing.
Call for economic disengagement
In 2019, the economic interests of the military were disclosed by the report of UN Fact-Finding Mission in which Myanmar Economic Corporation (MEC) and Myanmar Economic Holding Limited (MEHL) were described as the prominent entities controlled by the military profitable through the almost-monopoly market in real estate, insurance, health care, manufacturing, extractive industry and telecommunication. It also mentioned the list of foreign businesses in partnership with the military-linked activities which includes Adani (India), Kirin Holdings (Japan), Posco Steel (South Korea), Infosys (India) and Universal Apparel (Hong Kong).
Moreover, Justice for Myanmar, a non-profit watchdog organization, revealed the specific facts and figures on how the billions of revenues has been pouring into the pockets of the high-ranked officers in the military in 2021. Myanmar Oil & Gas Enterprise (MOGE), an another military-controlled authority body, is the key player handling the financial transactions, profit sharing, and contractual agreements with the international counterparts including Total (France), Chevron (US), PTTEP (Thailand), Petronas (Malaysia), and Posco (South Korea) in natural gas projects. It is also estimated that the military will enjoy 1.5 billion USD from these energy giants in 2022.
Additionally, data shows that the corporate businesses currently operating in Myanmar has been enriching the conglomerates of the generals and their cronies as a proof to the ongoing debate among the public and scholars, “Do sanctions actually work?” Some critics stressed that sanctions alone might be difficult to pressure the junta without any collaborative actions from Moscow and Beijing, the longstanding allies of the military. Recent bilateral visits and arm deals between Nay Pyi Taw and Moscow dimmed the hope of the people in Myanmar. It is now crystal clear that the Burmese military never had an intention to use the money from multinational corporations for benefits of its citizens, but instead for buying weapons, building up military academies, and sending scholars to Russia to learn about military technology. In March 2021, the International Fact Finding Mission to Myanmar reiterated its recommendation for the complete economic disengagement as a response to the coup, “No business enterprise active in Myanmar or trading with or investing in businesses in Myanmar should enter into an economic or financial relationship with the security forces of Myanmar, in particular the Tatmadaw [the military], or any enterprise owned or controlled by them or their individual members…”
Blood money and ethical dilemma
In the previous military regime until 2009, the US, UK and other democratic champion countries imposed strict economic and diplomatic sanctions on Myanmar while maintaining ‘carrot and stick’ approach against the geopolitical dominance of China. Even so, energy giants such as Total (France) and Chevron (US), and other ‘low-profile’ companies from ASEAN succeeded in running their operations in Myanmar, let alone the nakedly abuses of its natural resources by China. Doing business in this country at the time of injustice is an ethical question to corporate businesses but most of them seems to prefer maximizing the wealth of their shareholders to the freedom of its bottom millions in poverty.
But there are also companies not hesitating to do something right by showing their willingness not to be a part of human right violations of the regime. For example, Australian mining company, Woodside, decided not to proceed further operations, and ‘get off the fence’ on Myanmar by mentioning that the possibility of complete economical disengagement has been under review. A breaking news in July, 2021 that surprised everyone was the exit of Telenor Myanmar – one of four current telecom operators in the country. The CEO of the Norwegian company announced that the business had been sold to M1 Group, a Lebanese investment firm, due to the declining sales and ongoing political situations compromising its basic principles of human rights and workplace safety.
In fact, cutting off the economic ties with the junta and introducing a unified, complete economic disengagement become a matter of necessity to end the consistent suffering of the people of Myanmar. Otherwise, no one can blame the people for presuming that international community is just taking a moral high ground without any genuine desire to support the fight for freedom and pro-democracy movement.
The Covid After-Effects and the Looming Skills Shortage
The shock of the pandemic is changing the ways in which we think about the world and in which we analyze the future trajectories of development. The persistence of the Covid pandemic will likely accentuate this transformation and the prominence of the “green agenda” this year is just one of the facets of these changes. Market research as well as the numerous think-tanks will be accordingly re-calibrating the time horizons and the main themes of analysis. Greater attention to longer risks and fragilities is likely to take on greater prominence, with particular scrutiny being accorded to high-impact risk factors that have a non-negligible probability of materializing in the medium- to long-term. Apart from the risks of global warming other key risk factors involve the rising labour shortages, most notably in areas pertaining to human capital development.
The impact of the Covid pandemic on the labour market will have long-term implications, with “hysteresis effects” observed in both highly skilled and low-income tiers of the labour market. One of the most significant factors affecting the global labour market was the reduction in migration flows, which resulted in the exacerbation of labour shortages across the major migrant recipient countries, such as Russia. There was also a notable blow delivered by the pandemic to the spheres of human capital development such as education and healthcare, which in turn exacerbated the imbalances and shortages in these areas. In particular, according to the estimates of the World Health Organization (WHO) shortages can mount up to 9.9 million physicians, nurses and midwives globally by 2030.
In Europe, although the number of physicians and nurses has increased in general in the region by approximately 10% over the past 10 years, this increase appears to be insufficient to cover the needs of ageing populations. At the same time the WHO points to sizeable inequalities in the availability of physicians and nurses between countries, whereby there are 5 times more doctors in some countries than in others. The situation with regard to nurses is even more acute, as data show that some countries have 9 times fewer nurses than others.
In the US substantial labour shortages in the healthcare sector are also expected, with anti-crisis measures falling short of substantially reversing the ailments in the national healthcare system. In particular, data published by the AAMC (Association of American Medical Colleges), suggests that the United States could see an estimated shortage of between 37,800 and 124,000 physicians by 2034, including shortfalls in both primary and specialty care.
The blows sustained by global education from the pandemic were no less formidable. These affected first and foremost the youngest generation of the globe – according to UNESCO, “more than 1.5 billion students and youth across the planet are or have been affected by school and university closures due to the COVID-19 pandemic”. On top of the adverse effects on the younger generation (see Box 1), there is also the widening “teachers gap”, namely a worldwide shortage of well-trained teachers. According to the UNESCO Institute for Statistics (UIS), “69 million teachers must be recruited to achieve universal primary and secondary education by 2030”.
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