COVID-19, a virus that started landing in Wuhan, China in November 2019 and was officially declared as an epidemic by the Chinese authority in late January 2020, has quickly developed into a pandemic in 65 countries, with more than 97, 750 people infected, and more than 3340 death by 5 March 2020. With cities and regions locked down and infected populations quarantined, a series of global panic and several dimensions of damage (social, economic, and mental) have quickly developed in the world of 2020, writes Dr. Ying Zhang, [email protected]
China’s lockdown for almost two months crosses the whole nation, and the strict quarantine policy has significantly slowed down the spread of the Virus but not stopped the Virus. The connection between China and the rest of the world, before and during the onslaught of Covid- 19 in China, has allowed the Virus to travel across oceans and continents.
Each country has issued its policies and procedures to deal with actual or expected outbreaks, with almost all admitting now that they underestimated the influence of Covid-19. The world’s dependence on Chinese manufacture and the downturn of the Chinese market has weighed heavily on the global industrial chain and led to a very vulnerable situation.
It seems the damage of previous economic crises amongst countries, such as the USA-China trade war from 2018 to 2019 and the previous financial crisis in 2008, were not even matching to the damage of this time as a consequence of the battle between human and Virus. Although the World Health Organization still hesitated to qualify Covid-19 as a pandemic, it has been a consensus in the scientific world that the foreseen damage of such a virus has been beyond what we can imagine. Economic and Social damage Let’s list a few facts of industrial and economic damage caused by the breakdown of the global industrial chain.
In the first quarter of 2020, disregarding the singular damage to China from the city lockdown and factories shutdown, China’s GDP growth rate in 2020 is predicted with 3-4%, comparing to the usual 6% before. Taking China’s economic contribution to the world as 19%, this shortfall from China will no doubt give a big hard hit to the global economy this year.
Looking at other countries in the global industrial chain which depends on China’s supply and manufacturing capacity, South Korea, a country known as the one with its competitive advantage of assembling electrical devices and automotive vehicles, for example, has to reduce its automotive manufacture delivery and telecommunication equipment delivery even before the virus outbreak there, by at least 50%, due to the shortage of parts supply from China.
Now with the Covid-19 outbreak in South Korea with 6,593 confirmed cases by March 5th 2020, South Korea has applied a stricter lockdown policy. This chain of events happens not only in South Korea but also in other countries such as the USA, for example, in its pharmaceutical and high-tech sectors. For example, Apple had to warn its investors that it would not reach the quarter’s sales estimates due to the short of manufacturing supply from China and reduced sales in China.
This had led Apple’s market value to drop by more than $100 billion by February 2020. Sectors such as tourism have been facing significant losses from its usual annual income of $8.8 trillion, and the aviation industry is poised to lose at least $29bn. Travel slowdown to and from major Asian travel hubs and select European destinations (e.g., France and Italy) coupled with a significant decrease in Chinese tourism spend ($277Bn, 16% of international tourism spend in 2019), likely to reduce demand globally (up to 40% decline 2020 output) until Covid- 19 is under control. Several EU and APAC countries (e.g., Italy, Thailand) are highly dependent on tourism (with roughly 7-20% of national GDP) and will probably have negative economic growth this year, in addition to the local damage of Covid-19 outbreak there.
The Walt Disney Company takes a large hit due to closing the Hong Kong and Shanghai Disney parks. Its estimation of loss would be a $175 million hit from the outbreak ($135m on Shanghai Q2 earnings and $40 for HK), if they remain closed for two months (+ Tokyo Disneyland and Disneysea for two weeks), especially 4 as the outbreak occurred around the Chinese Lunar New Year when the parks typically see a large surge in tourists and occupancy levels. More severe, recently, the declaration by CDC of an expected Covid-19 outbreak in the United States has created a panic in the American stock market.
The American markets have suffered their worst week since the global financial crisis of 2008 due to fears of the coronavirus outbreak. By the week of February 28, 2020, Dow Jones suffered one of its worst weeks with a 13.56% drop; S&P 500 also suffered an 11.7% weekly decline; Nasdaq was on pace for a weekly decline of 10.47%; S&P sank 0.8%. In general, global indexes are continuing to drop, with London’s FTSE 100 index down 3.2% for the day; Japan’s Nikkei 223 index down 3.7% on 28/02, bringing its total fall to more than 9%; and Shanghai composite index also fell 3.7% on 28/02.
The economist Bruce Kasman from J P Morgan said: “it is so difficult to predict the economy due to the outbreak of Covid-19. The first quarter of the global economy stalls. There is significant damage to the global economy because China’s growth goes down to 4 percent, Italy’s contracts by 2 percent and the Euro Zone’s economy will be stagnant”. Mental damage Following China’s practice in containing Covid- 19 by lockdown and shutdown, many other countries started trying the same, too, for example, South Korea and Italy. The economic and social damage, as aforementioned, is severe; however, the most severe damage is at the mental and psychological level. With almost two months of lockdown practice in China, Chinese citizens have started showing the symptoms of mental stress from months of lacking outdoor activities and offline social interaction.
Even though China is the frontier in 5G infrastructure with almost 100 percent of the whole population covered by mobile data on mobile handsets and supplying intensive entertainment programs online for citizens, the stress level with ordinary citizens are still accumulating overtime with COVID-19. It is not difficult to imagine 5 how severe it will be in other countries if they have to do the same to contain the COVID-19 contagion as what China has done.
Globalization as the reason to break down the global industrial chain In addition to the direct economic impact of the Covid- 19 outbreak in each country, one argument of the severe damaging impact of Covid-19 on the business and economy, particularly in the manufacturing sector, is the interdependence created by globalization. Industries are connected; countries are connected; therefore any virus can be quickly spread. Globalization includes five aspects.
The first two are generally on the focus of (1) trade and transaction; and (2) capital and investment movement; while the other three aspects are (3) migration of people, (4) dissemination of knowledge, and (5) global environmental challenges (such as global warming, cross-boundary pollution, overfishing of the ocean, etc.) are usually less considered in the daily economic activities. With the current focus of globalization mainly on the economic index, the merit of integrating people, companies, and governments worldwide is to achieve capital expansion and integration of local and global markets.
Therefore, globalization cannot thoroughly excel in its positive function over its negative role. Its positive service is that everyone is connected and cooperating due to such a connection. However, its negative manefstion is that no country would be able to survive in such a setting as each country’s competitive advantage was pre defined by the flow of capital. Each state is just ready to be responsible for single expertise in the industrial chain but almost empty-handed in both knowledge and capability in any of the other links. For example, when the United States developed out of the mass manufacturing stage in the 1970s, the majority of the manufacturing capacity started moving out to other developing countries in search of lower labor costs and more substantial profit.
However, in the history of the United States since then, upgrading manufacturing and industrialization were 6 no longer on the agenda of their federal or states governments, nor on the skills and education program for their workers. It is argued that such an inconsiderate set-up of the economic level of globalization was based on the principle of economic, competitive advantage, to maximize efficiency and productivity by economic cooperation and alliances. Countries like the United States could transfer the manufacturing to other lower-income countries to achieve their profit maximization so that the home countries could focus on other investments such as Research and Development.
However, this model neglects sustainability and long-term prosperity in two ways. First, the home countries such as the United States could miss the opportunity to continue upgrading their industrialization but left room for politicians’ excuse for unfair international trade with other countries. Second, once severe events like COVID-19 happen, countries like the United States, even with the best talents in the world and technology, will find it challenging to find a replacement for manufacturing supply from other countries.
Therefore, if any part of the global industrial chain breaks down, the whole global chain might be going into paralysis like what we are currently experiencing under COVID-19. Such a set-up, in the previous literature and economic argument of globalization, was labeled as the golden principle for multinationals to expand capital with the advantages of ownership, localization, and internalization (OLI model). The negative side of this model of globalization is due to us without considering the other perspectives of globalization, such as labor immigrating, knowledge dissemination, and environmental sustainability. These perspectives are essential as they are the guardians of us acting within the boundaries of morality. Without applying them, the current set up could easily lead us to an inconsiderate design where globalization only considers the simple economic output. Therefore, a new version of globalization requires us to define a new balanced relationship between localization and globalization.
Firstly, local stakeholders must master how to sustain local and develop capability with the least resource to achieve the maximum output in various ways, so as to achieve sustainability. Second, globalization can not only take the principle of competitive advantage to arrange which country should have which kind of competitive advantages. For example, low-income countries are supposed to work at the lower end of the value chain and miss the chance to frog leap. Instead, sustainability should be imported into the equation of globalization so that the local stakeholders learn to sustain the local community by smartly using innovation, technology, talent resource, and environmental tools. By such, global stakeholders (the sum of all local ones) can connect with each other at the level of knowledge dissemination and migration of people, with the primary consideration of environmental challenges.
Globalization: Knowledge and Information dissemination One crucial reason why COVID-19 can cause so much economic-social and mental damages is the fact that we do not have the whole package of correct information and knowledge about COVID-19, meaning that the information has not been globalized. In its lead, disinformation seems to grow around the globe. For example, there are three different categories of information channels for COVID- 19.
(1) the information from the public institutions;
(2) the information from media (traditional media and social media) which tries to dig out more information that governments missed or did not declare; and
(3) the information published at academic outlets by scientists. The past two months of reality have manifested that either countries do not care about what has been happening about COVID-19 before they have no any confirmed cases or they underestimated the damage of it once the outbreak started there.
For instance, the epidemics of COVID-19 in Italy and the Middle East.
Failure in disseminating real information is reflected by the stubborn attitude of many countries in not taking other countries’ best practices seriously into their consideration. For example, the effective practice of using AI, big data, robots, and technology to track the virus carrier and spread, and to look after patients in hospitals, or to incorporate traditional Chinese medicine and acupuncture into the treatment packages was not disseminated and applied in most of the developed countries. Even more hilarious, the second example, wearing masks, which can significantly reduce contagion and virus spread, however, still in many European countries, is claimed by governments as of no use.
It is shocking to see that such information that lacks basic scientific knowledge could spread widely and be taken seriously by the majority of European citizens. Of course, it might be with another reason behind that the governments are afraid of panic from purchasing masks by people. The third example is the readiness of organizational transformation. With COVID-19, converting offline activities to online format has helped significantly constrain the spread, particularly in schools, offices, and for large events.
However, it still cannot be accepted and applied in many developed countries in Europe. Governments are hesitating to advise organizations to do so because governments do not like to intervene private decisions and market orders in the liberal market, while the majority of organizations and employers do not want to do so because of the foreseen economic damage. Thus, the in-time declaration can be delayed; populations are not informed in-time for cautiousness and preparation; therefore, long-term damage to people’s health and safety is rampant. All of these are the reflection of those lacking the essential humanity factors of compassionate, sympathetic, and generous behavior or disposition. Courage and leadership seem absent in the “liberal world”.
Finally, due to the failure in knowledge dissemination, scientific knowledge cannot be easily translated to the natural language and caught by media, public, and private stakeholders. For example, interpretation of the reproductive rate of the COVID-19 and the different nature of COVID-19 (in terms of fast human-human contagion and complicated composition of RNA linkage) have been often disinformed by the media, governments, and ordinary citizens.
Therefore, the majority still consider Covid- 19 as a virus same as the regular flu one or not even as severe as the flu. Delayed and wrong information dissemination in the early stage of the pandemic caused not only panic but also economic-social and mental damage. The barriers of information reading are similar to tariff barriers in the economic globalization in international trade and capital flow, which led to tagging the business or Virus with a label and country name, for example, Wuhan virus or Chinese virus, or now Italian virus.
The crisis, therefore, is companied by a crisis of escalated discrimination and populism. In human history, each crisis could expose problems to the existing system. Similarly, with the COVID-19 outbreak, our attitude and behavior presented the issue of our system (the old version of globalization) and the dark side of humanity accordingly. The core of humanity in terms of having a compassionate, sympathetic, and generous disposition are lost on our way of only chasing economic globalization but neglecting the importance of migration of people , knowledge dissemination and environmental challenges.
Thereafter, we embraced too much selfish, careless, and discriminative attitude and behavior. The battle of humans against the Virus is not complicated; the solution and treatment are not complicated either. Same as the fact that our immune system can beat viruses, the bright side of us can overcome the dark side of humans and correct the problems of the our system. Nevertheless, with the current Cov 19, it is not the Virus beating us; it is us beating us.
Dr. Ying Zhang is an associate professor of Entrepreneurship and Innovation, and Associate Dean for China Business and Relations at Rotterdam School of Management, Erasmus University. In 2015, she was awarded as one of 40 best business professors under 40 years old by Poets & Quants. In 2019, she was honoured as one of the Top 30 Thinkers under the Radar by Thinkers50.com. In 2020, she was invited to join the HRBC Mentor Plan for Chinese Industries and Business.
The billion-dollar disaster - China's influence in Montenegro
Montenegro is building its first-ever motorway. Due to a huge loan scandal, it’s now become the country’s highway to hell. 40 bridges and 90 tunnels are expected to be built and financed by the Chinese. However, the project has been hit by corruption allegations, construction delays and environmental tragedies. Today, out of the planned 170 kilometres, just 40 have been completed, writes Juris Paiders.
The motorway is one of the most expensive in the world. It's financed by a loan from China loan. Paying back this money is creating problems. The story starts with Montenegro's former Prime Minister and current President, Milo Dukanović. He conceived the motorway to boost trade in the small Balkan country.
However, lacking funds to start construction, he accepted a billion-dollar loan from China in 2014. Other investors didn't want to get involved. Prior to this, French and American feasibility studies highlighted the risks of such an oversized project. The European Investment Bank and the IMF also announced that it was a bad idea.
Now, with the pandemic crushing Montenegro’s tourism-dependent economy, the country is struggling to find a way to finance the missing stretches of road.
The motorway should link Bar Harbor in the south to the border with Serbia in the north. The first section was scheduled to be finished in 2020, but it still isn't.
Politicians promised that the motorway contraction will boost employment in Montenegro. However, the Chinese contractor brought in its own workers, with no contracts or social security contributions.
An NGO backed by the EU is investigating corruption allegations involving subcontractors. Out of the huge loan from China, 400 million Euros were given to subcontractors, which some of them are linked with President.
In Montenegro people are hoping that there will be justice and someone should pay for this ambitious constructions plan. However, some fear that China has its eyes on Bar's deep-water harbor. When signing the billion-dollar-loan with China, Montenegro agreed to some strange terms, like giving up sovereignty of certain parts of the land in the case of financial problems. Arbitration in this scenario would take place in China using Chinese laws.
A long-term harbor concession would fit nicely into China’s “Belt-and-Road-Initiative”, a global infrastructure project to access markets. Harbor authorities in Bar are already hoping for an economic upturn and have plans for two new terminals.
The Chinese-managed motorway isn’t just mired in cronyism allegations; it’s also accused of damaging the protected Tara river valley. The ecology group 'Green Home', after several monitoring of Tara River, has concluded that impact of incompetent construction on river is disastrous. Sediment from the construction site is trickling into the water, preventing the fish from spawning.
Chinese managers have been accused of ignoring basic EU standards and Montenegro is criticized for failing to supervise construction correctly. Rubble has changed the Tara riverbed, perhaps irreparably.
Environmental experts proposed alternative layouts of the motorway that would have avoided the Tara valley, but they were ignored.
The river Tara is UNESCO protected and it should be forbidden to gravel the soil and sand, but this is happening there because of the construction work.
All over the Western Balkans, Chinese investment has slowed down EU compatible reforms. China’s silk road ambitions are not always in line with EU standards of good governance, environmental protection, rule of law and transparency. Their influence is creating a wedge between the EU and the Balkan states.
The opinions expressed in the above article are those of the author alone, and do not reflect any opinion on the part of EU Reporter.
EU-China investment deal stalls
European Commission Executive Vice President Valdis Dombrovskis confirms that progress on the investment deal with China has stalled following March sanctions.
The EU concluded what Dombrovskis describes as an “asymmetric deal” with China at the end of last year. Known as the Comprehensive Agreement on Investment (CAI), it was presented on 30 December.
Today (5 May) he said: ”There are substantially more new commitments from China as regards market access, with regards to the level playing field and this is something that European companies have been asking us for for many years. So as regards the agreement itself, that technical work is ongoing to prepare the ground for ratification.”
At the time of the agreement Dombrovskis said: “This deal will give European businesses a major boost in one of the world's biggest and fastest-growing markets, helping them to operate and compete in China. It also anchors our values-based trade agenda with one of our largest trading partners. We have secured binding commitments on the environment, climate change and combatting forced labour. We will engage closely with China to ensure that all commitments are honoured fully.”
Wider political context
When asked about whether the deal had been suspended, Dombrovskis said that the position of the European Commission has not changed. He said that the “ratification process of comprehensive agreement on investment cannot be separated from the wider political context. I will repeat that the ratification process cannot be separated from evolving dynamics of the wider EU-China relationship. And in this context, Chinese sanctions targeting among others members of European Parliament and even an entire parliamentary subcommittee are unacceptable and regrettable, and prospects and next steps concerning ratification on comprehensive agreement of investment will depend on how the situation evolves.”
The Commission faced much criticism when the agreement was reached, by appearing to move ahead of the United States, before the new administration had taken office. It was felt by some that the EU should wait to see if there was the possibility of finding common cause with the new Biden team.
There were also accusations that the EU was ignoring China’s human rights record, particularly in relation to the treatment of the Uyghur muslim population in Xianjang province and the crackdown on the democracy protesters and the introduction of the national security law in Hong Kong.
G7 to discuss decisive action to counter threats like Russia and China
Britain on Tuesday (4 May) sought to agree decisive action from G7 partners to protect democracies against global threats like those posed by China and Russia.
Hosting the second day of a foreign ministers' meeting in London designed to lay the groundwork for a leaders' summit in June, Dominic Raab (pictured) will lead talks among the Group of Seven wealthy nations on threats to democracy, freedoms and human rights.
"The UK’s presidency of the G7 is an opportunity to bring together open, democratic societies and demonstrate unity at a time when it is much needed to tackle shared challenges and rising threats," Raab said in a statement.
In addition to the G7 members Canada, France, Germany, Italy, Japan and the United States, Britain has also invited ministers from Australia, India, South Africa and South Korea this week.
Their first face-to-face meeting in two years is seen by Britain as a chance to reinforce support for the rules-based international system at a time when it says China's economic influence and Russian malign activity threaten to undermine it.
On Monday (3 May), having met with Raab, US Secretary of State Antony Blinken said there was a need to try to forge a global alliance of freedom loving countries, though stressed he did not want to hold China down, but make sure it played by the rules. Read more
Tuesday's discussion also covered the coup in Myanmar, urging stronger action against the military junta in the form of expanded sanctions, support for arms embargoes and more humanitarian assistance.
In the afternoon talks will turn to Russia, including how to respond to a troop manoeuvres on the border with Ukraine and the imprisonment of Kremlin critic Alexei Navalny.
Raab said on Sunday he wanted the G7 to consider a joint rebuttal unit to tackle Russian disinformation and propaganda. Read more
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