Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom from an Indian interests perspective.
I. Tricky Recovery & Narrative Contest
Once again, there are multiple strands to the Covid-19 outbreak story from China. There’s official reports of no new domestic cases; steps at reviving the economy; international outreach and propaganda; and much more.
Official Case Data: Caixin reports that Chinese health authorities reported no new confirmed or suspected cases in the outbreak epicenter of Hubei for the second straight day on Friday. A total of 39 new infections were reported Thursday on the mainland, all imported from overseas, bringing the total number of imported cases to 228. What’s more the death toll in Italy now has surpassed the death toll in China. Yet that doesn’t mean that the things are all clear in China. For instance, Shao Yiming, a prominent virologist who is chief HIV/AIDS expert at the Chinese Center for Disease Control and Prevention, says that “Covid-19 is ‘smarter’ than SARS and MERS, with a relatively low fatality rate, more mild cases and a longer incubation period. It also has a very important characteristic ― high infectivity…” this along with other features “means it’s difficult to eradicate at once and may come back seasonally.”
Leadership Priorities: Second, as restrictions get lifted and people go back to work, there could be greater transmission of the virus. The leading group on COVID-19 met on Thursday, calling for medical treatment, community-based prevention and control and follow-up work in Hubei and Wuhan, along with actions to prevent the risk of virus outbreak rebounding in other areas. There’s essentially an effort to ensure that international travelers undergo checks and quarantines. For instance, international travelers coming into Beijing will now face a 14-day quarantine at their own expense.
Some of the key points to take away from the meeting. There’s a focus on sharing epidemic containment experience and facilitating the sale of medical materials from China. Officials want to restore normal work and life in full in low-risk provincial regions. Finally, there is a need to streamline bureaucratic processes, i.e., health certificates should be recognized nationwide, and obstacles for personnel and goods flow across low-risk areas should be eliminated.
Much of this flows from a PSC meeting chaired by Xi Jinping a day earlier. During that, he told the leadership that “the positive trend in preventing and controlling the epidemic has been constantly consolidated and expanded, and the restoration of normal production and everyday life has been quickened. However, new situations and problems, especially the overseas spread of the virus and its negative impacts on the world economy, have brought new challenges.” He added: “We should never allow the hard-won and continuous positive trend to be reversed.”
Also noteworthy aspect of Xi’s remarks were the need to balance epidemic prevention with the target of building a moderately prosperous society. This is going to be a long-term challenge through this year. Earlier in the week, Li Keqiang chaired a State Council meeting. Here’s what the meeting outlined, while emphasising the need to keep employment stable. “More market-oriented approaches to facilitate employment and entrepreneurship for key groups of labor such as college graduates and migrant workers, while encouraging national scientific research projects to recruit more college graduates. It also called for more support to small and micro enterprises, such as easing their financing difficulties, cutting rent for collectively owned housing, ensuring supply of power and water, and waiving overdue fines.”
Another key area of focus is major projects. The statement following the State Council’s meeting says that “more emphasis should also be put on advancing the start and work resumption of large investment projects…” The State Council will “expedite the issuance and utilization of local government special bonds and urge for solid preparation works of 4,000 new projects scheduled to break ground this year. A ‘green channel’ will be established to accelerate the approval process of major projects.”
Historic Contraction: This is all of course critical because data from January and February are dire. Official data says that the unemployment rate jumped to 6.2%, with 5 million people losing jobs. Retail sales plunged 20.5% over the same period in 2019, industrial output was down 13.5%, fixed asset investment fell by nearly 25%, real estate construction slid 44.9%, home sales fell 34.7% and investment in the real-estate sector was off 16.3%. according to the National Bureau of Statistics. The shock of all of this is likely to last for some time, i.e., a recovery won’t be rapid or easy.
Goldman Sachs says that the Chinese economy will likely shrink 9% in the first quarter, way down from a previous forecast of 2.5% growth, citing “strikingly weak” economic data in January and February that was reported on Monday. It also lowered its full-year GDP forecast to 3% growth from an earlier estimate of 5.5%. On the other hand, the Economist Intelligence Unit has revised its forecast for real GDP growth in China in 2020 to 2.1%, from 5.4%.
Their assessment reads: “We believe that the Chinese government will succeed in localising further coronavirus outbreaks that emerge during the return-to-work period and through imported cases. This will limit domestic economic disruption, but the persistent risk of fresh outbreaks will encourage policy caution. China’s economy is set to record a sharp contraction of 7% year on year in the first quarter of the year. The slump will be concentrated in February, when the country came to a standstill. Against this low base, factory activity will pick up in March, as manufacturers move to clear orders, and subsequently, as the government engages in monetary and fiscal stimulus focused on preserving labour market stability. Nevertheless, against the backdrop of a deteriorating global economic picture and demand slumps in the US and the EU, the recovery in China’s economy will be more U‑shaped than V‑shaped.”
Outreach & Propaganda: Managing the economy is going to be a long-term issue. In the near term, Beijing is doubling down on its outreach efforts and propaganda campaign in order to defend itself from criticism and portray China as a responsible international power in managing the crisis. This NYT report (Video & Tweet thread) offers a fascinating insight into the propaganda effort. Scanning thousands of tweets by state media and officials, it found that there were three key messages that China was projecting, i.e., Spinning Optimism; Protecting China’s Image and Disputing the Virus’ Origin. (Quick Thought: The optimism part of this is evident by visiting any state media website, where images of cheerful medical workers returning from Hubei or people going back to work are being highlighted. The entire mood is upbeat. There’s no mourning the deceased or anger against systemic failure that led to this crisis.)
None of this is to say that Beijing isn’t actually providing support to countries. As part of its outreach, Xi spoke to Putin this week to talk about the Covid crisis. Wang Yi spoke to foreign ministers of Japan and South Korea. Xinhua reports China’s provision of supplies to Iran and provision of assistance by Jack Ma Foundation and Alibaba Foundation to European countries. WSJ reports that a group of 300 Chinese intensive-care doctors began to arrive in Italy on Wednesday, one of several Chinese offers to support epidemic-stricken European countries. China has sent supplies to Serbia; this is important because of the appeal by Serbian President Aleksandar Vučić on Tuesday. Vučić lambasted the idea of European solidarity as a “fairy tale on paper.” In contrast, he told Beijing that “we need your help and support. That is why I am asking that you send us anything you can. Money is not a problem, we need everything, from masks, gloves to ventilators, literally everything, and most of all we need your knowledge and people who would be willing to come here and help…All my personal hopes are focused on and directed toward China and its president.” Brussels has also thanked China for offering to provide more than two million medical masks and 50,000 coronavirus testing kits. Ursula von der Leyen, European Commission president, said she spoke to Li Keqiang, China’s premier, on Wednesday and agreed with him that the two powers should “support each other in times of need.” Angela Merkel was more careful, calling Beijing’s support “reciprocal assistance.”