January-February: COVID-19 unfolds
Secondary and tertiary effects of the virus are now global. Political divisions are being amplified in regions both near and far, and not least in the US. To safeguard value chains and diversify investment exposure, firms and governments are being forced to consider ‘decoupling’, ‘China+1’ and similar formulae. The installation of a leading group of Party heavyweights (meeting almost daily) to direct the response is, like the postponement of major political meetings, a major sign.
Focus on the epidemic in recent weeks has been massive, indeed exclusive, if secondary and tertiary aspects are included. Hewing to the superiority of Party governance, the administration noted in passing that ‘shortcomings’ persist, above all in rolling out a response. Party media seemed convinced that biomedical security and restoring business as usual could both be priorities. It is fair to say that they have failed to carry their audiences with them.
China’s economy was brought to a standstill following the Spring Festival lull. Growth will take a nosedive, but activity is gradually resuming, and encouraging it is the top priority. Government staff, service agencies and SOEs are back at work, though far from full capacity. SMEs are balancing the cost of firm-wide outbreaks against the expediency of getting back to work. Given uncertainties, migrant workers are hardly rushing back, their reluctance impacting SMEs, the manufacturing sector and above all supply chains. Cutting social security payments, rolling over debts, and setting up special transport for workers are among the policy measures to ease burdens.
The national legislature on 24 February inveighed against illegal trade in, and consumption of, exotic animals: amending the Wildlife Protection Law is now on the agenda. Xi Jinping also urged speeding up the Biosecurity Law. The first of its kind, it covers issues from emerging infectious diseases to bioterrorist attacks. Meanwhile, the state scientific apparatus has been thrown into overdrive: the public health emergency response system promptly published COVID-19's genetic code, while Ministry of Science and Technology leads a special cross-agency R&D working group to get solutions flowing. The need to conquer the disease and safeguard economic activity is fuelling digitisation across the board, with the lead thrown to the IT giants. Debates are brewing over whether the state should speed up overall reforms and step up industrial upgrading efforts. Data security is a secondary concern for now.
The crisis has brought food security to the fore. The rural sector was already severely pressured by African swine fever, fall armyworm, the soybean war, and lately more avian flu outbreaks and the threat of locusts. Clampdowns on flows of people and goods only worsen the situation, as the leadership, and Xi himself, call for an all-out focus on spring planting. The crisis overshadows the annual agricultural setpiece: the 2020 Central No.1 Document. Drafted in late 2019, it was surprisingly released around the usual time on 5 Feb 2020, as if all was business as usual. Failing to mention the epidemic, the Document’s focus on poverty alleviation, rural development bottlenecks and prescriptions against agricultural risk seems bizarrely misplaced.
Food security gaps are expected to be filled via imports, with customs barriers reduced for a range of ag products. Restrictions on Chinese goods by countries such as Indonesia are however hitting trade. The Sino-US deal signed 15 January, meanwhile, saw the US drop some tariffs and China broadly commit on tech transfer, IPR and trade expansion. But the purchase of US products will, said Vice Premier Liu He 刘鹤, be ‘based on market conditions'. Rolling this out faces much uncertainty, not least given the epidemic. Longer-term structural damage caused to foreign trade caused by the virus is a mounting concern: MNCs aside, domestic firms are known to be considering relocating offshore. The state is responding by directing work resumption in leading exporters and concentrated supply chains; but logistics issues and the dearth of migrant workers are yet to go away.
january-february policy movers
policy professionals in and out of the establishment
Shang Chongsheng 尚重生 | Wuhan University Centre for Urban Security and Social Management vice director
An outspoken scholar working on a range of social and political issues, he was approached by central state media as early as 9 January 2020, he has revealed, for advice on dealing with 'a public health emergency.' Officials must not miss the window of opportunity, he urges; their first-hand data should allow localities to issue policy.
Zeng Guang 曾光 | Chinese Centre for Disease Control and Prevention chief scientist
Veteran in public health Zeng is on NHC’s expert panel and advises the WHO. He has been an optimistic voice in the fight against COVID-19, suggesting regions outside of Hubei not overreact. But the epidemic, he admits, is evolving very quickly: if concentrated outbreak takes place, as in Wuhan, control is quickly lost. Those who gave early warnings in December 2019 he deems ‘admirable’; such allegations however must have scientific backing. Zeng attributes Wuhan's tardiness to defects in their science; not all agree.
Shen Yi 沈逸 | Fudan University International Institute for Cyberspace Governance director
The epidemic is a ‘stress test’ for governance, argues Shen, especially in cyberspace. Information is complex and technical, rumours abound, and social media often arouse intense emotions. Officials must get over netizens’ expressing unhappiness through new media. Be more tolerant and patient, Shen urges officials: netizens are ordinary people. New media need to be recruited to the mission of unblocking communications.
policy ticker highlights
gems from our feed of policy releases and domestic debate
global impact
COVID-19: a de-globalisation stress test for world economy
Economic Observer | 13 February
context: The COVID-19 epidemic has caused major disruptions to international travel, trade and global supply chains. The Financial Times described the situation as ‘an experiment in de-globalisation’.
China’s status in global supply chains is irreplaceable, but its dominance may be weakened by the epidemic, argues Chen Jibing 陈季冰 Economic Observer columnist.
The fight against the epidemic is like a forced ‘de-coupling’. It is also a test for the world economy: how will it cope without China, an engine of the global economy and ‘factory of the world’?
disruption to travel and transportation
at least 30 airlines have suspended or reduced China flights
dozens of countries announced travel bans or advisories
tourist destinations hit hard
international freight shipping suffers heavy losses
supply chains disrupted
South Korean and Japanese carmakers suspend production
European and US carmakers may be forced to close in weeks
China is at the centre of supply chains of multiple industries
resumption of production threatened by risk of further infections
drop in Chinese demand hits global commodities market
oil prices decline due to lack of demand
Chinese importers may invoke force majeure
other commodities, such as Australian iron ore, will also be hit
China may defer purchases promised in US Phase 1 deal
impact on global economy much worse than SARS
Asian countries, including Australia, will be hit hardest
may cause instability in oil-producing countries: Russia, Saudi Arabia, Iran
global supply chains will be gradually restored after outbreak
but economic planners will be forced to consider supply chain diversification
governance
People’s Daily cites advantages of China’s governance system in epidemic battle
People's Daily | 20 February
context: While extolling what is working well in the fight against COVID-19, this unsigned and therefore authoritative commentary hints that problems remain, and sanctions criticism of problems in implementation and of some of the measures themselves.
Noting that CCP Chairman Xi Jinping 习近平 personally directed epidemic control and emphasised that the entire nation play a part in disease prevention and control, a People’s Daily editorial states that the advantages of China's governance system are the ability to
adhere to national unity
mobilise the enthusiasm of all parties
concentrate on major issues
Mutual assistance by provinces is 'a vivid embodiment of China's institutional advantages', the editorial maintains. 19 provinces have resolutely obeyed the unified command, coordination and timetable set by Central Committee. They have from the outset
interacted precisely with recipient cities
formulated mutual support work plans
mobilised and dispatched 'special forces'
worked together with local governments to win this ‘war of resistance’
Hubei and Wuhan remain the focus and priority of epidemic prevention and control. All supporting provinces should implement directives from the Central Leading Group for Response to the Epidemic and the State Council. All departments in all regions should not only consider prevention and control needs in their own areas, but also the impact on key regions and on national efforts. Epidemic prevention and control are not only medical and health problems, but all-round work. If their implementation is ineffective, if command and control are violated, or if 'departmentalism' takes hold, officials and agencies must dare to make criticisms and advise the Central Committee to rectify these situations. If the Central Committee has serious problems, it must be held accountable.
macroeconomy
epidemic outbreak prompts structural upgrade
Securities Daily, Caixin | 10 February
context: Making some of the earliest calls for supply-side reform, the New Supply economists argue that demand can be increased with the injection of new supply-side factors such as technology, material, business and management models. Stressing the constant upgrade of supply structure, New Supply economists see a new opportunity brought about by the COVID-19 outbreak.
Despite economic disruption in the wake of the epidemic, an economic upside could be structural transition. Recent interviews by Securities Daily show industry experts and scholars remain optimistic that new supply factors will gain momentum.
With strict quarantine measures impeding the flow of labour, low-end manufacturing and other traditional industries are under stress. Dong Dengxin 董登新 Wuhan University Institute of Finance and Securities director believes labour-intensive industries like construction will suffer in Q1 2020.
But blows delivered by the epidemic to the old industrial structure also facilitate a new round of structural upgrades, argues Teng Tai 滕泰 Wanb Institute of New Economics dean. Only by transferring resources to new supply factors and business forms can the state truly reduce outdated capacity and complete structural upgrades, the New Supply economists argue.
Sector-wise, the Chinese economy should shift its focus towards public services and medical care, Shao Yu 邵宇 Orient Securities chief economist points out. High-quality growth needs strong innovation and scientific research. The replacement of traditional industries and capacity must therefore be accelerated, Shao contends, expecting the idea of sustainable development to be promoted in 2020.
Agreeing with Shao, Gu Qiang 顾强 Huaxia CFLD Industry Research Institute dean identifies two drivers of future growth
consumption upgrades
though urbanisation rates exceeded 60 percent in 2019, large space remains for urban development over next decade
technology upgrades
demographic dividend is replaced by ‘engineer dividend’
the state’s massive base of sci-tech talent will guarantee growth
the proportion of traditional industries is now still about 70 percent
service sector digitisation and AI integration are promising
China’s huge market helps facilitate new industries and technologies
agriculture
poverty alleviation marching forward despite COVID-19 epidemic
State Council (1), State Council (2) | 18 February
context: The ongoing epidemic will surely have a major impact on poverty alleviation, but central determination to achieve the 2020 target of eliminating poverty has not relented. The No.1 Document continues to emphasise poverty alleviation, and CPAD has promised to step up supervision to ensure objectives are met.
CPAD (State Council Leading Group Office of Poverty Alleviation and Development) and six other agencies jointly released ‘Announcement on launching a campaign on poverty alleviation through consumption’, specifying
general objectives
increasing farmer income through consumption
ensuring food supply for cities
basic principles
combining rural poverty alleviation with urban food supply
integrating government guidance with market mechanisms
piloting innovative measures and establishing long-term mechanisms
using poverty alleviation through consumption to consolidate east-west poverty alleviation cooperation
promoting online and offline sales
major measures
government procurement of agricultural products from impoverished areas
government-established markets for eastern provinces to purchase products from western provinces
selling agricultural products through commercial platforms provided by enterprises
selling agricultural products from deeply impoverished areas on the e-commerce platform of Social Participation in Poverty Alleviation and Development of China
identifying qualified products
local authorities are responsible for identifying qualified poverty alleviation products
applicants should ensure all relevant standards are met
CPAD is responsible for creating a list of poverty alleviation products and updating it annually
enhancing supervision
work requirements
CPAD and MoF (Ministry of Finance) also released an announcement to increase funding and minimise the effects of COVID-19 on poverty alleviation. It specifies
accelerating central funding for poverty alleviation
local authorities may develop their own policies to support impoverished regions impacted by COVID-19
supporting industrial poverty alleviation
rewarding enterprises for keeping jobs
providing social security for impoverished people who cannot work due to COVID-19
improving management of county-level poverty alleviation projects
ensuring the construction of poverty alleviation projects
enhancing supervision
society
precision management the next step for epidemic prevention and control
National Health Commission, State Council, Caixin | 25 February
context: The dilemma of disease control and work resumption continues to worry local authorities. As COVID-19 starts to come under control outside Hubei, central authorities now see the opportunity to reverse some previous measures and gradually encourage the resumption of work.
State Council’s coordinated prevention and control mechanism released ‘Guiding opinions on scientific and precise prevention and control’ on 17 Feb 2020, specifying
local authorities should implement measures calibrated with different levels of danger
differentiating prevention, control and work resumption measures in different counties
enhancing government leadership
NHC (National Health Commission) released ‘Announcement on scientifically, legally and precisely controlling and preventing COVID-19’ on 25 Feb 2020, specifying
general requirements
specific measures
enhancing control of people’s movements, preventing risk of contagion
managing people according to different categories
implementing early discovery, early reporting, early quarantine and early treatment
encouraging electronic health certificates
implementing prevention and control measures in key locations
ensuring community control
ensuring enterprises and schools implement relevant measures
enhancing control and prevention in public places
enhancing control in specific institutions
enhancing control and prevention in rural areas
enhancing government leadership
At a press conference, Ou Xiaoli 欧晓理 NDRC (National Development and Reform Commission) Department of Social Affairs director says counties outside of Hubei and Beijing should be categorised into low, medium and high risk regions, reports Caixin. Different policies should specify
low risk regions
lift transportation restrictions
actively help enterprises resume work
medium risk regions
implement prevention and control measures as people return to work
high risk regions
continue to focus on disease prevention and control, but critical sectors operate normally
He Qinghua 贺青华 NHC Department of Disease Control Grade 1 Inspector says these categories should be frequently reassessed and adjusted. Provinces may also reduce their levels of emergency response. But for low risk regions, people still need to ensure personal protection.
industry and environment
Xi Jinping: improving biosecurity 'governance' capacity
Yicai | 17 February
context: The draft Biosecurity Law was sent to NPC for first review in October 2019. The little discussion generated at that time was largely centred on how to address emerging biosafety threats, for example from biotech misuse. COVID-19 not only added urgency to passing the Law, but also focused legislators' attention on other aspects of biosecurity.
At the 12th meeting of the Central Committee for Comprehensively Deepening Reform on 14 Feb 2020, President Xi stressed
incorporating biosecurity as part of the national security
properly planning national biosecurity risk prevention and control, as well as institution building
Xi also urged speeding up passage of the Biosecurity Law.
In an interview with Yicai, Chang Jiwen 常纪文 State Council Development Research Centre Resources and Environmental Policy Research comments on the progress of the biosecurity legislation.
Drafting the Biosecurity Law is challenging, says Chang, due to its broad scope and the need to reconcile development and protection, as well as addressing long-term institution building and current practical challenges.
Regarding the Biosecurity Law, Chang recommends it should aim to
protect biological resources
maintain ecological balance
promote healthy development of biotechnology
strengthen national biosecurity risk control
promote international dialogue and cooperation on biosecurity
promote harmony between human and nature
clarify the definition of 'biosecurity
clarify the relationship between Biosecurity Law and other special laws concerning biodiversity, national parks, wildlife conservation, food security and animal epidemic
Chang further recommends that
regarding biosecurity supervision and management structure
a biosecurity coordination mechanism be set up under the State Council, as the National Biosafety Management Office under Ministry of Ecology and Environment lacks proper legal status and sufficient coordination capacity
a three-tiered biosecurity supervision structure involving central, provincial, municipal governments be instituted
Party and government officials be held equally responsible
national and local biosecurity expert committees be set up
science and innovation
larger governance role for tech platforms
Ministry of Industry and Information Technology, 21st Century Business Herald (1), 21st Century Business Herald (2), 21st Century Business Herald (3), Xinhua Net | 19 February
context: The platform economy emerged as a focus at the end of 2019. Consumer- and industry-facing online services are not only integral to China's digital economy, but also emerging channels through which China can roll out new regulations, especially relating to internet ecosystem management.
MIIT (Ministry of Industry and IT) issued 'Notice on facilitating epidemic prevention and control and accelerating work resumption with new-generation IT', which instructs local industry and IT authorities to support internet platforms and IT companies. Authorities are to
facilitate e-commerce, reorganise supply chains and mobilise resources supply
logistical companies like SF Express and online grocery platforms like Alibaba's Hema expanded their services, reported 21st Century Business Herald, noting they are much better at arranging deliveries than government departments and SOEs
Hubei epidemic prevention and control headquarters set up an emergency supply chain management platform with JD.com
reinforce epidemic control and work resumption efforts with digital tools
Alibaba Alipay and Tencent WeChat 'health code' systems, which help administrators, officials and enterprises track individual health based on self-reported data, are being rolled out nationwide following State Council and National Development and Reform Commission endorsement, reported Xinhua (CP note: the accuracy of these systems is in doubt)
Alibaba and Tencent mobile and remote work applications support these efforts, argues 21st Century Business Herald, adding that local authorities interested in smart cities should learn from them
e-commerce platforms banned wildlife sales
promote the use of IT applications among enterprises and industries
different platforms' remote and collaborative work applications received a boost since the outbreak, according to multiple reports
conduct epidemic-related scientific research by joining hands with medical institutions
Local authorities, says the notice, should prioritise the resumption of logistics, transportation and other firms that service internet-based producers, and strengthen their synergy with industrial e-commerce firms.
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