Eye on China: Wuhan’s Deaths – Q1 Views – Covid Diplomacy – India FDI Rules – Racism – US Acrimony

Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom from an Indian interests perspective.

I. In China

There’s been so much news from within China regarding the pandemic over the past week. I’m covering all of that in different parts of this section.

Wuhan Death Toll Revised: Chinese authorities revised the number of Covid-19 deaths in Wuhan this week. The toll has been revised from 2,579 to 3,869, that’s a massive jump of 1290 deaths. The official explanation of the revision is that “some of them did not happen in a hospital and thus were not inputted into the disease control and prevention information system. The others were either reported late or not reported by medical institutions.” Another important aspect of the official explanation is this: “All statistics about the COVID-19 pandemic do not just represent people’s life security and physical health, but also concern the government departments’ public credibility.”

China’s foreign ministry says that the revision does not imply a cover-up. The WHO held a press conference soon after the revision of numbers, arguing that this wasn’t unusual. Maria van Kerkhove, the WHO’s Covid-19 technical lead told reporters that “this is something that is a challenge in an ongoing outbreak: to identify all of your cases and all of your deaths. I would anticipate that many countries are going to be in a similar situation where they will have to go back and review records and look to see: did we capture all of them?”

That might be the case, but a 50% revision seems a bit much. Perhaps, it also tells you a bit about the pressure created by domestic and international criticism along with charges of concealing the true nature of the outbreak. Some of the good pieces to read are this NYT story. It has a good round-up of key events. This SCMP story with views from Wuhan residents also provides a sense of the anger in the city, as does this NYT piece, which sheds light on how social media users have mourned the passing of whistleblowing doctor Li Wenliang.

While we’re talking about social media, this Maria Repnikova piece is a must read. She says that while conventionally one might view China’s propaganda operations “as a rigidly ideological top-down affair or a clumsy spectacle,” during this crisis, they have shown that “they are interactive, and they readily engage with public opinion.” Here’s one excerpt: “China’s propaganda has matured — but so have its targets. Instead of delivering diktat and defensiveness, the government now engages in selective dialogue with its audiences and their criticisms, featuring those views in its own storytelling, or its retelling of them. So far, this seems to have played to the Communist Party’s advantage, partly by forcing it to keep adapting its messaging. But the public, in China and abroad, in turn is reinterpreting the propaganda, and further testing the party’s agility.”

Finally, one more important data point with regard to the outbreak in Wuhan. WSJ reports that authorities have started testing for antibodies among thousands of people returning to work, and others without symptoms. The report says: “The good news is that the proportion of people with antibodies is considerably higher than that of confirmed cases, suggesting many people here were infected without realizing it, developed mild or no symptoms, and could now be immune. The bad news is that the number of those with antibodies still falls far short of “herd immunity”—levels above 50% typically needed for the virus to die out. And there could still be thousands of unidentified asymptomatic cases in the city of 11 million, the results suggest.”

Six Days of Inaction: The Associated Press reports that based on official documents that it has accessed, “the head of China’s National Health Commission, Ma Xiaowei, laid out a grim assessment of the (outbreak) situation on Jan. 14 in a confidential teleconference with provincial health officials. A memo states that the teleconference was held to convey instructions on the coronavirus from President Xi Jinping, Premier Li Keqiang and Vice Premier Sun Chunlan, but does not specify what those instructions were. ‘The epidemic situation is still severe and complex, the most severe challenge since SARS in 2003, and is likely to develop into a major public health event,’ the memo cites Ma as saying.”

The story adds: “Under a section titled ‘sober understanding of the situation,’ the memo said that ‘clustered cases suggest that human-to-human transmission is possible.’ It singled out the case in Thailand (reported on Jan. 13), saying that the situation had ‘changed significantly’ because of the possible spread of the virus abroad.” January 14 was, of course, the day when the WHO shared the now infamous tweet about the lack of evidence for human-to-human transmission. It was only on January 20 that the first official statement from Beijing acknowledged the possibility of human-to-human transmission.

Political Meetings: The National People’s Congress Standing Committee will be meeting for a 3-day session from April 26-29. Seven bills are on the agenda, including a bunch of laws that are linked to the Covid-19 outbreak, such as biosecurity, animal protection, etc. Revisions to the People’s Armed Police Law are also on the agenda, given the changes in the force’s reporting and operations. There, however, is no word on the annual NPC and CPPCC sessions yet.

Meanwhile, Xi Jinping chaired two key meetings this week. First, the Politburo Standing Committee met on Wednesday, which was followed by a broader Politburo meeting. Xinhua says the focus of both was on the twin tasks of epidemic control and economic management. Key outcomes from the meeting”

“While the positive momentum in China’s epidemic response is being consolidated, the task remains formidable, requiring control measures on a regular basis and strengthened efforts to guard against both imported infections and domestic rebounds.”In Hubei and Wuhan, they will continue “extensive nucleic acid testing among key population groups and those who volunteer to get tested.” At the same time, they will strengthen “epidemic prevention and control work in Beijing.” On the economy, the statement said that the country “will have to take the initiative to advance work resumption at all fronts with regular COVID-19 epidemic prevention and control measures.”

Historic Q1 Contraction: The economic story is critical to broader regime stability. And this week, the numbers were not good, as expected. China on Friday reported a 6.8% year-over-year contraction in its economy for the first three months of the year—the first quarterly decline in gross domestic product since official record-keeping began in 1992. State media’s been putting on a brave face. Xinhua has a positive spin on all of this, saying that while the economy was bent, it wasn’t broken. Among the key indicators, Caixin reports:

  • Fixed-asset investment, a key driver of domestic demand that includes government-driven infrastructure spending, shrank 16.1% year-on-year (link in Chinese) in the first quarter, narrowing from a 24.5% drop in the first two months.
  • Value-added industrial output, which measures production at factories, mines and utilities, fell 1.1% year-on-year (link in Chinese) in March after sinking 13.5% in the first two months of the year. Retail sales, which include spending by governments, businesses and households, dropped 15.8% year-on-year (link in Chinese) in March, easing from a 20.5% decline in the first two months.
  • China’s surveyed urban unemployment rate remained elevated in March, although it inched down to 5.9% from 6.2% the previous month. Trivium’s Tip Sheet has an interesting note on the limitations of this figure, i.e., that it doesn’t cover SMEs, which provide around 80% of urban employment. Quartz reports that a new survey by Peking and Tsinghua universities in February showed that over 85% of SMEs said they could collapse within three months if they couldn’t get financial help. Despite improvements in March, revenues of SMEs have declined by nearly 60% year-on-year.

So what’s next? The Caixin story adds that economists at Nomura International expect year-on-year GDP growth to remain negative in the second quarter, although the drop will narrow to 0.5%. Iris Pang, chief Greater China economist at ING Bank, is estimating a second-quarter contraction of 3.1% with growth only returning in the fourth quarter of the year. The IMF says that China’s economy will likely grow at 1.2% this year and rebound strongly to 9.2 % in 2021. This Bloomberg story has much more from a range of different economists and analysts.

Few quick thoughts on all of this. First, there is a demand side shock to come over the next few quarters, so a rebound will not be quick or easy. Second, there will be stops and starts as the statement from the Politburo meeting suggests. Third, all of this is going to impact the broader global economy, given China’s centrality to global growth. In 2018, China was the biggest contributor to global GDP growth, accounting for 27.5%. Fourth, there’s clearly a lot of concern among the central leadership with regard to local level reporting but inspections are being eased and so are discipline rules. It perhaps informs of the worries of inaction at local levels as bureaucrats do not want to fall foul of central leaders. This week, the CPC General Office issued a circular urging Party members and officials “to avoid acts flattering the leadership but disappointing the people.” A report on the circular says that it “aims to create a working environment where cadres are encouraged to innovate while fulfilling their duties and their mistakes made in the cause are tolerated.”

Finally, there’s still been no announcement of a stimulus package by Beijing. Following the State Council meeting this week, Premier Li Keqiang said: “The support measures we have rolled out since the start of this year are adequate and robust. What is crucial is to ensure their full delivery.” Clearly, a mega stimulus like other states is currently not in the office in China

So far, as The Economist puts it, there’s been “a hodgepodge of policies that, added up, reach perhaps 3% of its gdp.” The piece adds: “Given China’s heavy debt load, economic authorities have fought to rein in leverage and snuff out financial risks over the past few years. They are loth to see their progress undone. But there is also a more important reason for restraint. Many economists in China have come to the conclusion that it is simply too soon for an all-out push to revive growth.” 

Wolf Warrior Diplomacy: Chinese Foreign Minister Wang Yi delivered a speech this week on Building a Community with a Shared Future for Mankind Through International Cooperation Against COVID-19. He basically defends China’s response to the outbreak and argues that Beijing has “shouldered its responsibilities and provided strong support to other countries.” He views all this in the context of China’s “major country diplomacy.” He adds that with time “more and more countries have come to appreciate and agree with China’s position. It has become a common voice and consensus in the international community to reject any attempt at labeling the virus, politicizing the response, and stigmatizing any specific country.” There are some other useful data points in the speech, but this bit is what caught my attention the most.

Speaking about a “smokeless war,” Wang says, “in face of this situation, we on the diplomatic front have been earnestly implementing the important instructions of General Secretary Xi Jinping and the decisions and directions from the CPC Central Committee and the State Council. We have scaled up efforts to maintain political integrity, think in big-picture terms, follow the leadership core and keep in alignment, to enhance confidence in the path, theory, system and culture of socialism with Chinese characteristics, and to firmly uphold General Secretary Xi Jinping’s core position in both the CPC Central Committee and the CPC as a whole and firmly uphold the CPC Central Committee’s authority and its centralized, unified leadership.”

Yet, there is clearly a brewing debate among Chinese media, foreign policy experts and former diplomats about the so-called Wolf Warrior diplomacy. Here’s Global Times defending the trend: “The days when China can be put in a submissive position are long gone. China’s rising status in the world, requires it to safeguard its national interests in an unequivocal way. After all, what’s behind China’s perceived “Wolf Warrior” style diplomacy is the changing strengths of China and the West. When the West falls short of its ability to uphold its interests, it can only resort to a hysterical hooligan style diplomacy in an attempt to maintain its waning dignity. As Western diplomats fall into disgrace, they are getting a taste of China’s “Wolf Warrior” diplomacy.”

And here’s a critique of the counter-productive nature of such an approach in SCMP. “These kinds of unchecked assertions hyping up mistrust and confrontation will do a lot more harm to China’s manufacturing sector than the virus. The approach championed by wolf warriors is not sustainable because the more strident you are, the more isolated you are and the farther you will be away from the world,” says Shi Zhan, an associate professor and director of the World Politics Centre at China Foreign Affairs University.

The question is what does the central leadership desire? My two cents: There is clearly leeway being provided by the central leadership. This aggression and nationalism will be strategically damaging in the long run. But for now, it’s reflective of the need to stoke nationalism amid questions of epidemic control failures and looming economic problems.

Finally, Xi this week spoke to a bunch of leaders, including his Serbian counterpart Aleksandar Vucic, Kyrgyz President Sooronbai Jeenbekov, Finnish President Sauli Niinisto and Russia’s Vladimir Putin. Here’s one quote from Putin that Xinhua’s put out: The attempts by some people to smear China on the origin of the novel coronavirus are unacceptable. 

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