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China and the New Coronavirus: challenges of an interconnected world -

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A Fundação Fernando Henrique Cardoso (FFHC) e o Centro Brasileiro de Relações Internacionais (CEBRI) convidam para o webinar:

China and the New Coronavirus: challenges of an interconnected world

Neste evento, o economista Arthur Kroeber, diretor da Gavegal Dragonomics, empresa de consultoria global com foco na economia chinesa, apresentará sua visão sobre o impacto da pandemia do Covid - 19 na China e na economia mundial. Apoiado em ampla base de dados e reconhecida capacidade analítica, traçará cenários para o futuro imediato e de médio prazo, considerando as dimensões do desafio e as respostas dadas até aqui pelo governo da China, dos Estados Unidos e da Europa.


PALESTRANTE

ARTHUR KROEBER
Sócio Fundador e Chefe de Pesquisa da Gavekal, foi co-fundador do serviço de pesquisa Dragonomics, com foco na China, em 2002, em Pequim, e é o editor-chefe do China Economic Quarterly. Desde a fusão da Dragonomics em 2011 com a Gavekal Research, ele foi chefe de pesquisa da operação combinada. Antes de fundar a Dragonomics, ele foi de 1987 a 2002 um jornalista especializado em assuntos econômicos asiáticos, e reportou da China, Índia, Paquistão e outros países asiáticos. Ele publicou amplamente em jornais, revistas e periódicos acadêmicos e é membro do Brookings-Tsinghua Center em Pequim.

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China and the New Coronavirus: challenges of an interconnected world -

  1. 1. GavekalResearch April 2020 The Month That Changed Everything Arthur Kroeber
  2. 2. GavekalResearch 2 Impact of an epidemic •  Covid-19 impact is sweeping across the globe and is creating a severe worldwide recession. Short-term decline in economic activity will be massive and recovery will be slow. •  China’s experience with the virus provides a template for understanding what will happen elsewhere. •  Geopolitically, the most worrying impact of the epidemic is that it is widening rather than narrowing the US-China rift.
  3. 3. GavekalResearch 3 I. Dimensions of the disease
  4. 4. GavekalResearch 4 What we know and don’t know about Covid-19 1.  Severity and spread of Covid-19 Ø  True fatality is unclear: case fatality rates differ widely by region and change over time. Ø  But we do know that it is severe enough, and spreads fast enough, to cripple public health systems if left unchecked. Ø  Public health responses are being designed to prevent repeats of the Wuhan and Lombardy disasters. 2.  Extent of public health measures Ø  Singapore, Taiwan and South Korea acted early, using testing and targeted tracking and isolation (less disruptive). Ø  China acted late and resorted to mass shutdowns lasting five to 10 weeks. Ø  The US and Europe are acting even later than China. 3.  Effectiveness of public health measures Ø  The good news: social distancing works promptly. China’s Jan 23 lockdown largely flattened the ex-Hubei curve in two weeks and Hubei’s in four. Ø  The bad news: to prevent a resurgence, social restrictions need to stay in place for one to two months after the curve begins to flatten.
  5. 5. GavekalResearch 5 The epidemic continues to spread rapidly
  6. 6. GavekalResearch 6 The US and EU were far slower to react than East Asian countries and are paying the price in bigger epidemics with far more deaths. Neither region has achieved the curve-flattening that China did in mid-February and South Korea did in early March. Social distancing and business closures took effect in most European and US regions between March 15-25. These could well lead to a peak in new daily infections and deaths by mid-April. After initial delays, China instituted nationwide social distancing, travel restrictions and business closures on January 23. It did so as the country headed into its lunar new year holiday. So Beijing needed just to amplify and lengthen a regularly scheduled slowdown. In February South Korea instituted huge testing, tracing and isolation of suspected cases. Both the Chinese and Korean responses rapidly brought the epidemic under control. The US and EU were far slower to react than East Asian countries and are paying the price in bigger epidemics with far more deaths. Neither region has achieved the curve-flattening that China did in mid-February and South Korea did in early March. Social distancing and business closures took effect in most European and US regions between March 15-25. These could well lead to a peak in new daily infections and deaths by mid-April. US and European cases and fatalities will rise a lot more
  7. 7. GavekalResearch 7 Mathematically, an epidemic is an exponential function. To spot when an epidemic is being brought under control, we need to look at the“jolt”, or change in the acceleration of total cases (or fatalities, where new case data is uncertain). When this change in the daily growth rate gets on a smooth downward path, moving consistently from 20% down to 10% and lower, the epidemic is controlled. (Control measures must stay in place long after this path is established.) China’s epidemic began to be controlled in early Feb (mid-Feb for Hubei); South Korea’s in mid-March. This is what success looks like
  8. 8. GavekalResearch 8 Case data is unreliable: many Covid-19 cases are symptom-free and/or go untested. Deaths are a more reliable indicator. They suggest that after a month of lockdown Italy is close to a sustainable slowdown; the rest of Europe is a few weeks behind. Two weeks into partial lockdowns, the US has higher growth rates in fatalities but is also trending in the right direction. General conclusions: •  By mid-April, the US and Europe could be where China was in early/mid-February. • Because they started later and let the disease spread, US and European recovery will be slower than China’s. US and Europe are not there yet
  9. 9. GavekalResearch 9 In the US, New York is by far the biggest hot spot, accounting for nearly 60% of all recorded US fatalities. Fatalities are likely to keep growing rapidly in New York for another two weeks; the key question is whether social controls got put into place soon enough in the rest of the country to bend the curve. Until recently the overwhelming majority of Covid-19 fatalities in Europe were in Italy. Now fatalities are slowing in Italy, probably thanks to the extreme social controls imposed there in early March. Meanwhile fatalities in Spain, France, the UK and even Germany (which previously had a low death rate) are growing at double-digits. In the US, New York is by far the biggest hot spot, accounting for nearly 60% of all recorded US fatalities. Fatalities are likely to keep growing rapidly in New York for another two weeks; the key question is whether social controls got put into place soon enough in the rest of the country to bend the curve. Where the deaths are
  10. 10. GavekalResearch 10 Fatality rates must be treated carefully. The true fatality rate is deaths/total infections. Since measuring total infections for a disease like Covid-19 (as with seasonal flu) is almost impossible, the true fatality rate can only be estimated after the fact by statistical modeling. The case fatality rate is deaths/confirmed cases. It varies due to local conditions (e.g. health care quality; demographics) and change over time. • China Hubei vs ex-Hubei shows the difference social controls can make. • Rising CFRs in the US and Europe (ex-Italy)are a source of concern. Fatality rates are hard to interpret
  11. 11. GavekalResearch 11 But….this scenario makes some Big assumptions: •  All states implement tight social controls and business closures by April 1 •  All social controls remain in place through end-May This study is therefore a best-case scenario, assuming perfect compliance with strict controls in all states. Even in this scenario, median expected deaths are 82,000, double the total expected for this year’s seasonal flu. A best-of-all-possible worlds view for the US is in a recent modeling study by the University of Washington. The US CDC is using similar data. This model estimates Covid-19 cases and fatalities, and the resulting extra demand for ICU beds and ventilators. It suggests that daily fatalities will peak around April 15, and total ICU bed demand (led by New York) a bit earlier. By late May, fatalities and ICU bed demand will be back to mid-March levels. But….this scenario makes some big assumptions: •  All states implement tight social controls and business closures by April 1 •  All social controls remain in place through end-May This study is therefore a best-case scenario, assuming perfect compliance with strict controls in all states. Even in this scenario, median expected deaths are 82,000, double the total expected for this year’s seasonal flu. Best possible outcome: If whole US does everything right, a mid-April peak
  12. 12. GavekalResearch 12 General conclusions 1.  China is a good template for understanding Europe and the US. Ø  All three regions reacted late and were forced to impose massive social controls, at great economic cost. Ø  China imposed its controls on January 23. Full controls on Hubei stayed in force for two months. Many residual controls remain in place. By March 31 the economy was operating at ~75% of normal capacity. Ø  Social controls imposed in Europe and the US in mid/late-March are likely to stay largely in place until mid/late-May. 2.  There are no silver bullets. Ø  Viral infections are hard to treat; promising Covid-19 treatments (chloroquine, remdesivir) have yet to have large-scale clinical trials on live subjects. A vaccine is a minimum 12-18 months away. There is no convincing evidence that the virus weakens in warm weather. 3.  Exit strategies will be designed with caution. Ø  In the next two weeks, cases and deaths will rise sharply, but leading indicators (jolts) will start falling. Countries will then have about a month to figure out how to relax social controls without re-igniting the epidemic.
  13. 13. GavekalResearch 13 II. Economic impacts
  14. 14. GavekalResearch 14 China: a historic shock to growth
  15. 15. GavekalResearch 15 Growth will also collapse in the US…
  16. 16. GavekalResearch 16 …and Europe
  17. 17. GavekalResearch 17 China’s recovery is happening, but slowly and unevenly
  18. 18. GavekalResearch 18 China’s exports will take a big hit from the global slowdown
  19. 19. GavekalResearch 19 Small businesses are in trouble and restoring employment will be tough
  20. 20. GavekalResearch 20 Moves by Chinese policymakers have been fairly restrained compared to the actions in Western countries. This reflects different lessons learned from the 2008 crisis: the US and EU want to avoid a repeat of their under- reaction then, while China wants to avoid a repeat of its over-reaction. While China is likely to step up monetary easing with deposit-rate cuts and other measures, the People’s Bank of China is being reactive not proactive. As usual, fiscal policy centers on infrastructure investment: current trends point to a bounce to ~10% growth but the government could juice that up to nearly 20%. This will replace some lost export demand, but not all. Implicitly the government is accepting it will not be able to offset the whole growth shock from the global outbreak. Even Chinese brokerages, who rarely deviate from the official line, are now forecasting 2-3% GDP growth for 2020. Monetary and fiscal response has been surprisingly tame
  21. 21. GavekalResearch 21 III. Long-run implications
  22. 22. GavekalResearch 22 A lot will change •  Economic models Ø  Massive interventions to support incomes and businesses will permanently increase government role in economy. Ø  Efficiency-driven economic model tarnished; resiliency and redundancy become more important. •  Supply chains Ø  Chaos and bottlenecks in getting essential medical equipment (often from China) to the US creates overwhelming pressure for localized pharma/medical equipment supply chains. Ø  Other supply chains are harder to move but will also face pressure. •  Geopolitics Ø  Covid-19 has widened the US-China rift rather than healing it. Ø  Despite efforts to increase short-term cooperation, US political elites increasingly see China as an untrustworthy and a dangerous adversary.
  23. 23. Gavekal Ltd Head Office Suite 3101 Central Plaza 18 Harbour Road Wanchai, Hong Kong Tel: +852 2869 8363 Fax: +852 2869 8131 Gavekal Dragonomics China Office Room 2110, Tower A Pacific Century Place, 2A Gongti Beilu Beijing 100027, China Tel: +86 10 8454 9987 Fax: +86 10 8454 9984 For inquiries contact sales@gavekal.com www.gavekal.com

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