Easing curbs on goods from China, Chinese supplies surge (so do prices), and revisiting the start of COVID-19

Welcome to today's issue, where I'll be looking at:
- India easing more curbs on Chinese goods as supplies from China surge
- The LAC crisis is one year old now. Where do things go from here?
- China's population census and why India will likely overtake China sooner than previously thought
- A new report revisits the start of the pandemic and early responses

The Economic Times reported on Thursday on its front page:

India could ease curbs on government procurement from countries it shares land borders with such as China for some time to boost emergency supplies as it battles the second wave of Covid-19, said people with knowledge of the matter. Vendors from such countries need prior registration and security nod before they can sell goods or services to the Indian government.

The report reminds us that the last few months have been a hard reality check on the decoupling from China push and moves taken following the border crisis last summer. New numbers bear that out too. From MoneyControl:

Jingoism, anti-China sentiment and policy intervention failed to dent India’s two-way trade with China in 2020-21, even as global trade contracted when nations across the world went into lockdowns to contain the COVID-19 pandemic. India’s imports from China held steady at the previous year’s level and exports soared. India imported goods worth $65.21 billion from China in 2020-21, according to provisional estimates published by the ministry of commerce and industry. Imports in the previous year were worth $65.26 billion. Exports from India to China climbed 27.5 percent from a year ago to $21.19 billion.

Indeed, amid this terrible on-going second wave in India, most of the critical goods being imported, from oxygen concentrators to ventilators, are coming from China. This newsletter previously looked at the complicated optics of supplies coming in from China, which Beijing seems to want some gratitude for and which India is making clear is commercial, and also the broader debate in China on how its responding to the crisis in India.

One issue in focus now is that prices of many have these goods have surged in the past few weeks (which adds to why some in Delhi are peeved at attempts portray this as donations) and Chinese medical suppliers are reporting profits as orders from India surge. From Yicai Global:

Net profit at Yuyue Medical jumped 134 percent to CNY1.8 billion (USD278 million) last year from a year earlier on a 45 percent gain in revenue to CNY6.7 billion (USD1.03 billion). Its respiratory supplies division, which includes ventilators and oxygen concentrators, had revenue of CNY2.3 billion, an 86 percent increase.

India's Consul General in Hong Kong brought up the price issue in an interview with the South China Morning Post on Thursday:

”What I would like say is that our expectation at this point is that the supply chain should remain open and product prices should remain stable,” she said in an interview with the South China Morning Post. “Even if there is a little bit of supply demand pressure, there has to be some stability and predictability to product prices. And there has to be a sense of governmental level support and efforts. I don’t have the information as to how much influence the Chinese government can have in this matter but if they can, then it would be welcome.”

India Today carried this report this morning:

India Today has accessed documents and photographic proof to show how the companies have not only jacked up prices but also altered specifications and components used in making the oxygen concentrators for India, compromising on the quality and life cycle of the machine, which could lead to a medical catastrophe in India.

Different companies are quoting separate prices for the 5-litre and 10-litre concentrators. While the rates vary, most show an increase in the cost in the past weeks. This even as Beijing has been trying to portray the exports as a “humanitarian” gesture.

But, in reality, if you look at the invoices of one of the manufacturers, Yuwell, the prices stood at $340 per piece on April 30. Weeks later, the cost of each container went up to $460 (as of May 12). All these procurements are primarily by companies that are donating to India, but there has been no concession whatsoever.

China's Foreign Ministry spokesperson Hua Chunying addressed this question of rising prices at today's briefing in Beijing:

We have seen the relevant media reports. China is concerned about the epidemic situation in India and feel for what the Indian people are going through. China was among the first countries to offer help and support to India.

We have been encouraging and guiding our companies to facilitate India’s procuring of epidemic prevention materials. Many Chinese companies and NGOs have also been offering help to India in their own ways. To my knowledge, the relevant Chinese authorities have provided assistance in customs clearance and transport for India to bring materials from China to india.

In April, China exported to India over 26000 ventilations and Oxygen concentrators,  more than 15000 monitors and nearly 3800 tons of medicine materials and drugs. The relevant Chinese companies have received orders from India for more than 70000 oxygen concentrators and are stepping up their production for early delivery. In addition, India has a strong demand for raw and auxiliary material for vaccine production. Since the beginning of this year Chinese companies have provided more than 10 tons to India and more than 20 tons are expected to be delivered in May and June.

China is committed to smooth global industrial and supply chains and hopes that all parties can work together to ensure stability of global industrial and supply chains  instead of disrupting the openness and stability of these chains for political purposes.

On prices, to my knowledge, we have learnt from the relevant manufacturers. Just taking oxygen concentrators as an example, the demand in India has soared by several times in just a short period of time and the raw materials are also in shortage. Further, the Indian side has also raised their demand through different channels, which has led to excessive demand in the market and driven up prices. The Chinese manufacturers even have to import some of the raw materials from other countries.

We have faced similar problems before. We hope all parties can work together to ensure openness and stability of the supply chains.

COMMENT: Hua's reference to India "placing demand through different channels" perhaps refers to India's insistence on entirely procuring supplies from China on a commercial basis and placing orders through companies and refusing official assistance. Does it perhaps also suggest, reading between the lines, Beijing is saying once India declined Chinese government assistance it shouldn't expect the same government to step in and sort out commercial problems now?

Amid this terrible surge, the border situation has understandably faded from attention but last week marked one year of the LAC crisis, which is by no means over. I spoke to Sushant Singh for The Hindu's In Focus podcast yesterday (you can also find us on iTunes / Spotify) in case you might find the conversation interesting. Sushant presented a very sobering look at what a newly “live” LAC means for India dealing with two fronts and discussed his recent briefing paper for the Stimson Center which you can read here.

On a related note, a great piece by Robert Barnett in Foreign Policy on China's stepped up border village construction programme. This focuses on Bhutan but has implications for India too with at least some being built along the Arunachal border too:

In October 2015, China announced that a new village, called Gyalaphug in Tibetan or Jieluobu in Chinese, had been established in the south of the Tibet Autonomous Region (TAR). In April 2020, the Communist Party secretary of the TAR, Wu Yingjie, traveled across two passes, both more than 14,000 feet high, on his way to visit the new village. There he told the residents—all of them Tibetans—to “put down roots like Kalsang flowers in the borderland of snows” and to “raise the bright five-star red flag high.” Film of the visit was broadcast on local TV channels and plastered on the front pages of Tibetan newspapers. It was not reported outside China: Hundreds of new villages are being built in Tibet, and this one seemed no different.

Gyalaphug is, however, different: It is in Bhutan. Wu and a retinue of officials, police, and journalists had crossed an international border. They were in a 232-square-mile area claimed by China since the early 1980s but internationally understood as part of Lhuntse district in northern Bhutan. The Chinese officials were visiting to celebrate their success, unnoticed by the world, in planting settlers, security personnel, and military infrastructure within territory internationally and historically understood to be Bhutanese.

China's once-in-ten-year population census was out earlier this week. Interesting comments from Chinese demographer Huang Wenzheng to Hindustan Times’s Beijing correspondent Sutirtho Patranobis:

China’s latest census on Tuesday revealed that its population increased by only about 72 million in the last decade to reach 1.41 billion compared to India’s 1.37 billion. The world’s most populated country is now staring at a shrinking labour force, an ageing population dependent on social welfare, and falling demand in the years ahead.

“Population is a boon, not a bane,” said Huang Wenzheng, a demography expert at the Beijing-based think-tank Centre for China and Globalisation, indicating that India should not put in place any strict birth-control measures.

For China, Huang said the situation is going to get “worse and worse” as “demand shrinks, labour force shrinks, and the burden of pension goes up”. Huang added, “India is in a much better situation. Now and in the future. If you look at the number of births, India has twice as many as China’s children per year. I am very jealous of India frankly.”

“Population is positive, future population is strength. Not weakness,” said Huang, who has studied and researched on demographics at Johns Hopkins and Harvard universities in the US.

Yi Fuxian, a scientist at University of Wisconsin-Madison, has long argued that India’s population has already overtaken China’s because officials here had overestimated the number of births between 1990 and 2016 by almost 90 million. In an email interaction with HT, Yi shared a paper he had written on China’s latest census.

“On May 22, 2017, I was invited to speak at a seminar on demographic situation and economic development organised by Peking University. I said at the symposium that China’s population was overestimated by 90 million (100 million if taking account of Chinese migration to other countries), and India’s population had already overtaken China’s,” he wrote in the paper. India has maintained a fertility rate of around 2.3, which indicates that its population may surpass China’s by 2023 or 2024, He Yafu, an independent demographer told Chinese state media on Tuesday, which is sooner than a UN prediction in 2019 that this would happen by 2027. Some Chinese demographers also predicted that India’s population may overtake that of China as early as in 2022.  

Huang said that in the future, India will experience a sharp decline in fertility rate. “When India gets richer, I think you also need to handle this problem. But now I think the people in India have the mindset of China 30 years ago, which is that we have too many people. That’s not the case,” he said.

Nikkei reports on Beijing's "secret chip-making champions" emerging amid the trade war, the piece is worth reading in full:

The result has been an unprecedented flourishing of chip-related companies within China. Dozens of Chinese companies, with specializations mirroring U.S. incumbents in key areas from ion implantation to etching, have sprung into prominence over the past few years, accelerating as the state realizes the enormity of the self-sufficiency project.

"The clock is ticking because they still know that the U.S. could hit the local industry hard," said Roger Sheng, a chip analyst at consultancy Gartner. "New chip competition is evolving as all the major economies, not just China, now recognize the importance of semiconductors."

"Previously, when China talked about self-sufficiency, they were thinking about starting to cultivate some viable chip developers that could compete with foreign chipmakers," a chip industry executive told Nikkei. "However, they did not expect that they would need to do all that, starting from fundamentals.

"It's like when you want to drink milk -- but you not only need to own a whole farm, and learn how to breed dairy cows, and you have to build barns, fences, as well as grow hay, all by yourselves."

For Chinese chipmaking tool and material makers -- mostly little known, with limited presence in the industry -- the trade disputes serve as the once-in-a-lifetime opportunity to grow business, a chip executive with Kingstone Semiconductor Joint Stock Co., a local ion implanter maker, told Nikkei.

"Not only is our production capacity fully booked for 2021 and needs to expand ... but also many of our peers' capacities are fully reserved," the executive said.

Other domestic champions have done similarly well. Naura Technology Group, China's largest chip equipment maker, generated a record profit in 2020, up more than 73% from a year earlier. Meanwhile, despite being added to the U.S. trade blacklist in late 2020, the earnings for AMEC, the etching machines maker, hit a record high last year.

Previously a third choice at best, Hwatsing Technology's chemical-mechanical planarization equipment has already been widely adopted by Chinese chipmakers like SMIC, Hua Hong Semiconductor Group and YMTC, according to the prospectus it released late last year as it filed an application to list on Shanghai STAR stock market, China's version of the Nasdaq.

Shanghai Micro Electronics Equipment, under majority control by the Shanghai government, has been cemented as a key local player that China's government hopes to one day compete against global chip lithography machine builders of ASML, Nikon and Canon, several people with knowledge told Nikkei.

And finally….

The Wall Street Journal reports on the new report from The Independent Panel for Pandemic Preparedness and Response on the initial delays in dealing with the outbreak in early 2020:

The World Health Organization should be given the power to swiftly investigate threatening pathogens in any country, a review board established by the United Nations agency’s leadership said, saying the agency took too long to declare Covid-19 a public-health emergency in early 2020.

The report, which was conducted by a panel of politicians and experts established by WHO Director-General Tedros Adhanom Ghebreyesus with the aim of examining early efforts to halt the pandemic, provided little criticism of China’s government or its clampdown on Chinese whistleblowers who raised the alarm about the spread of Covid-19 cases in late 2019....

U.S. officials said they were hoping the report would provide a detailed chronologyshowing how China’s efforts to muffle domestic discussion of the coronavirus helped the pathogen spread within, and then beyond, its borders. The panel had access to WHO internal emails that could show how long it took for the agency to get clear and accurate answers from Chinese counterparts, said Andrew Bremberg, U.S. ambassador to the WHO under President Trump.

“The focus of this was supposed to be on, how did this start?” said Mr. Bremberg. “But because that question is so closely focused on China, at every step of the way, they kept expanding it to, let’s look at everything.”

The panel’s report, however, doesn’t directly criticize China and instead praises it for the efficacy of its lockdown measures. It mainly attributed the WHO’s struggles to understand the nature of the virus to the limited powers of the U.N. agency to extract information from member states or issue warnings.  It said that the agency first learned of the outbreak from Taiwan, from news articles, a public bulletin, and from an automated alert system that scans the internet for mentions of unexplained pneumonia.  The report doesn’t mention Chinese authorities’ efforts to prevent medical staff and health officials from sharing information on the emerging disease.

The main report, which you can read here has some interesting details on the start of the outbreak in Wuhan and how the WHO learnt from it. I thought it’s worth reproducing this in entirety (page 23 and onwards):

The evidence of human-to-human transmission of a new pathogen was not definitive in December 2019 but by the end of the month there were signs of it being likely. On 30 December 2019, the Wuhan Municipal Health Commission issued two urgent notices to hospital networks in the city about cases of pneumonia of unknown origin linked to the Huanan Seafood Market. The market was closed and cleaned between 31 December and 1 January. On the morning of 31 December, Chinese business publication Finance Sina reported on one of the notices issued by the Wuhan Municipal Health Commission. This report was replicated and picked up by several disease surveillance systems, including the Centers for Disease Control, Taiwan, China, which in turn contacted WHO via email through the IHR (2005) reporting system, requesting further information. A machine translation of the Finance Sina report was published on the website of the Program for Monitoring Emerging Diseases (ProMED). This report was picked up by the Epidemic Intelligence from Open Sources (EIOS) system and alerted WHO Headquarters to the outbreak. Later in the afternoon of 31 December, the Wuhan Municipal Health Commission issued a public bulletin describing 27 cases of pneumonia of unknown origin. The WHO Country Office in China took note of the bulletin shortly after it was posted and immediately informed the IHR focal point in the WHO Western Pacific Regional Office (WPRO). The Wuhan Institute of Virology sequenced almost the entire genome of the virus on 2 January 2020. On 5 January 2020, the complete genetic sequence was submitted to the open-access website GenBANK from a sample sequenced by the Shanghai Public Health Centre and this was made public on 11 January, and further sequences were uploaded by the China CDC. The China CDC successfully isolated the virus by 7 January 2020. Chinese scientists developed a PCR testing reagent for the virus by 10 January 2020. One of the urgent notices issued on 30 December 2019 by the Wuhan Municipal Health Commission.

These events, as they unfolded in Wuhan in the last two weeks of December 2019 and into January 2020, demonstrate the diligence of clinicians who noticed clusters of unusual pneumonia, sent samples for screening where commercially available next-generation sequencing detected signs indicative of a new SARS-like coronavirus, and escalated their concerns about this cluster of unexplained disease to local health authorities. The local health authorities closed and cleaned the market that was suspected as a potential source of the virus. Within a day of the local alert being issued to hospitals, it was noted in the media. The signal was picked up by other health authorities and by the global epidemic surveillance networks that constantly scour open sources around the world.

There were thus three routes through which WHO became aware of the outbreak on 31 December 2019—the Centers for Disease Control, Taiwan, China contacting WHO through the IHR (2005) reporting system after noting media references to the outbreak; the alert published on the ProMED website and picked up by the epidemic surveillance system; and the WHO Country Office in China noting the public bulletin from the Wuhan Municipal Health Commission. On 1 January 2020, WPRO formally requested further information; and on 3 January it requested verification under the IHR (2005) Article 10 procedures.

The Chinese National Health Commission and the Country Office met for a technical briefing on 3 January and provided initial information about the first set of 44 reported cases during the briefing and by email. The WHO subsequently published a Twitter thread about the cases on 4 January, and on 5 January officially alerted all country governments through the IHR Event Information System, as well as issuing its first Disease Outbreak News notice on the cluster. The Chinese authorities and WHO held a subsequent briefing on 11 January. The Country Office reached an agreement with Chinese authorities on 15 January to visit Wuhan. On 16 January, a further briefing was held, and a more complete list of case information was shared. The first WHO mission to Wuhan took place on 20–21 January. In an announcement on national television on 20 January 2020 Chinese health experts confirmed publicly that human to human transmission was occurring and that health workers were among those who had become infected. Wuhan instituted a drastic population lockdown on 23 January to try to contain the virus, as 830 cases and 25 deaths were reported.

COMMENT: I’m surprised the bit in bold didn’t make more news. I also still can’t get my head around why the Wuhan lockdown of January 23, has drastic as it was — and as effective as it was — didn’t get more attention in the rest of the world. I was in Beijing in January and landed in India to find people were unbothered in February. I flew in from China of all places and all I went through was a disinterested temperature check, no one asked me to quarantine (which I anyway did for two weeks at home). The report describes February 2020 as “a lost month” around the world. You can only wonder how different things may have turned out.

Thank you for reading. Have a safe weekend, and take care.