China: The Army Retreats


February 26, 2020: The coronavirus, now officially known as covid19, appears to have been contained with most of the cases, and deaths in Hubei province, where it all started about 80 days ago. So far there have been at least 80,000 cases and 2,800 dead worldwide. Some 90 percent have been in China, mainly in Hubei province. While cases are showing up, in much smaller numbers, in other parts of the world, there are already vaccines developed and entering human trials (after working on primates) within the next two months. The biggest danger is long-term economic damage, which translates into more poverty and unrest.

Treatments have now been developed to handle those infected and keep down the death rate everywhere but Hubei. The death rate is now about one percent worldwide because the genetic makeup of East Asians makes them more susceptible to dying from covid19. As a result the death rate in China is still over two percent. Actually the situation is worse than that in one area. Outside of Hubei province, the death rate is less than one percent. The death rate is much higher (nearly three percent) in Hubei. No one can officially explain that. Hubei residents believe the high death rate is the result of the government underreporting the number of cases, but not being able to fake data on how many died. People still have their cellphones and Internet access. Even with heavy Internet censorship the truth, especially in cases like this, eventually gets out.

Another unfortunate development is that catching covid19 does not seem to always provide immunity to catching it again. That is how viral diseases tend to work. About 14 percent of those who recover from the covid19 are later found to be infected again. Moreover, the current virus is worse than the 2003 SARS outbreak in terms of disruption. Covid19 infects more people than SARS and, compared to 2003,  China now accounts for twice the percentage of worldwide manufacturing capability. That means twice as many firms worldwide depend on China for components to make cars, aircraft, ships, electronics and all sorts of major items. SARS was disruptive to this supply chain then and covid19 is much more disruptive now and not yet over.

Many firms can find another supplier, although production cannot always increase fast enough to minimize the disruptions. In many cases replacing Chinese components is much more expensive and time-consuming. Many foreign firms were already moving production out of China because of rising costs and labor shortages. Then there is its increasingly aggressive foreign policy, especially in East Asia. The South China Sea dispute is but the largest of many.

Economists believe the coronavirus impact on the Chinese economy will cut annual GDP growth for 2020 from six percent to as little as three percent. That assumes the virus problem does not get a lot worse and that companies are able to restart their businesses now that the government has lifted travel and quarantine restrictions in most of China. Currently, 24 of China’s 34 provinces report that they have no new covid19 infections and these provinces are gradually returning to normal. That is important because, in provinces that still have new infections local governments and unofficial citizen groups are often not cooperating and millions of workers are still unable to return to work. This pushes many (at least a third) of firms dangerously close to bankruptcy. The government now promises low-interest loans to help deal with that.

Economists expect the economy to make a “V” shaped recovery but that depends on how long the outbreak lasts, how many foreign firms move operations out of China and how many foreign customers shift to non-Chinese suppliers. It could be a “U” shaped recovery or worse. It’s not just the virus outbreak but various other problems with doing business in or with China. Whatever damage is done to the Chinese economy will be felt more now than in previous crises. Since 2008 Chinese economic growth has comprised 37 percent of global GDP growth. China has become like the U.S. (the world’s largest economy); crucial to global economic health and growth. If the covid19 economic disruptions continue for another month or two that could trigger a worldwide economic recession and long-term damage to Chinese exporters. It is the enormous economic growth during the last three decades than enabled China to create a modern, well-trained military that is increasingly being used to threaten neighbors.

Other nations, especially the Koreas, Japan, Taiwan, Iran and many African nations where Chinese workers are numerous, are trying to contain the spread of covid19. Success depends on the living standards in each nation and the extent of local medical care. For nations less well equipped to handle an epidemic, like North Korea, Iran and African nations, the infection and death rates could be substantial. Getting medical aid into some of these areas is difficult, especially with North Korea and Iran.

The Other Threat

The trade war between China and the U.S. caused oil prices to fall below $60 a barrel and covid19 is keeping it down. Even with most Venezuelan and Iranian oil off the market, new production in the U.S. and Canada has more than made up for it. Recently the oil price was further reduced (to near $50) because demand from China, the largest importer worldwide, is still further reduced by economic problems and now the current coronavirus epidemic.

The December 2019 covid19 outbreak in China so disrupted economic activity as to significantly reduce its use of imported oil and fill up its oil storage capacity. Now there are many large tankers stuck off its coast waiting for permission to unload. Until that is done, the petroleum supplier does not get paid. Provinces other than Hubei, the original source of and worst hit by the disease, are returning to normal economic activity. Hubei is still in shutdown mode and the situation is not improving fast enough to get a lot of people back to work. In Hubei, many people have been confined to their homes for over a month and depend on local government to deliver food, and check for new infections.

North Korea is particularly at risk. The government has taken extraordinary measures to keep coronavirus out of the country and prevent news of any infections from getting out So far the official position is that there have been no confirmed cases in North Korea much less any deaths. Suspected coronavirus victims in the capital are effectively quarantined but in the rest of the country, local officials are on their own with orders to cope as best they can and not publicize any people coming down with coronavirus or dying from it. Such information is considered a state secret and is to be treated as such. Covid19 symptoms are similar enough to influenza and other similar diseases that can, up to a point, to be blamed for coronavirus infections and deaths. But if the number of people stricken and then dying reaches unusual levels the local population will do the math and realize they have been lied to and abandoned by their government. North Korea leaders are hoping that does not happen because if it does it will have a major crisis on its hands and few resources with which to handle it. The best protection from the spread of the disease in North Korea is the sorry state of transportation there. The population does not travel much and even less so now after two years of increased economic sanctions.

In early February North Korea halted all Chinese tourism (a major source of foreign currency) and curbed normal (business and government) travel to China. North Korea is also very poor and in no condition to deal with an outbreak of the new virus. Yet North Korea still has a lot of smugglers operating along the Chinese border and in some coastal areas.

The border with China has been closed to major traffic since January 30th and that means bulk imports of food and fuel are not arriving. These are legal imports that China is the major supplier of. North Korea cannot afford to maintain much in the way of food or fuel reserves and what reserves do exist are for the military, in case there is a war or other national emergency. These supplies may already have been released to provincial security forces (soldiers and police) but they won’t last long if the Chines border remains closed.

The South Korean army has thousands of soldiers quarantined until they are cleared of any possible coronavirus infection. All these soldiers had visited China, Hong Kong or Macao recently and the quarantine was just a precaution often applied to any recent South Korean visitors to China. So far South Korea has had 1,200 confirmed cases of the virus and a dozen deaths. Unlike North Korea, the south has the economic and medical resources to handle the virus.

February 25, 2020: The Hong Kong protests continue and the economic costs have the city government worries about long-term damage as more firms shift operations elsewhere. Hotels, restaurants and tourist attractions have suffered greatly over the past year. In response, the city government has tried some economic stimulus. Every adult (over 18) resident will be a one-time cash payment of $1,289 to use any way they want. It is hoped that most of that will be spent in Hong Kong and stimulate the economy. Other measures provide direct assistance to companies most damaged by the year of protests and several months of economic disruption because of covid19, which Hong Kong has managed to contain and limit the number of cases in the city. The national government is distracted by the covid19 crises and the city government cannot act without permission from the national leadership.

February 24, 2020: China imposed a ban on the sale and consumption of illegal wildlife. These animals, who are offered live in large markets, have always been a delicacy in China and the increased number of people who can afford it has meant more, and larger, markets that provide it. Chinese are big fans of exotic food. Cuisine plays a bigger role in Chinese history and life than just about anywhere else on the planet. Wild game is particularly popular and the more exotic the better. Outlawing consumption makes such delicacies even more desirable. Bringing all those different species together so often provides more opportunities for a new disease created by a virus moving from one species to the other via these animals breathing near each other. With the sale of these animals going underground there will be no large markets and less risk of new diseases developing. The transferred virus cannot survive long outside the animal that exhaled them and in the wild there is miniscule chance of such transfers. In crowded markets, where cages containing many wild species are stacked up for people to closely examine, you get more viral transfers that turn very, very bad. Most viral transfers have no impact at all or one that is benign and often not noticed at all. Even with widespread efforts to ignore the ban, the disappearance of the hundreds of large live wildlife markets will help.

But the risk still remains. For thousands of years, China had the largest population of any political entity on the planet. Most of the people were farmers who lived closely (often the same building during bad weather) with domestic animals like swine and poultry (especially ducks). This led to influenza and periodically new strains of the flu. Less often it brings us SARS or the coronavirus. There are still a lot of farmers and this problem may spur greater efforts to improve the lives of farmers and reduce their frequent interaction with the livestock. This disease creation phenomenon is known to Chinese medical professionals but the government long refused to do anything about the hugely popular wild animal trade. It was a matter of priorities. Now the situation has changed and a permanent ban is in effect. If living standards on farms can be increased and the number of farmers decreased this ancient cycle of devastating new diseases may be disrupted.

February 22, 2020: In the last year the U.S. surpassed China as India’s largest trading partner. Currently, the value of annual trade between the United States and India is $87 billion. Given the proximity of India and China, it was something of a surprise that the Americans should replace China. Within India, it was no surprise. China is considered India’s most dangerous military threat and the Chinese are not trusted. The U.S. has long sought closer diplomatic, military and military ties with India but until the 1990s that was not possible. After independence in 1947, India adopted socialism, which proved to be a major economic disaster. India also declared itself neutral in the Cold War despite buying most of its weapons from Russia and having a large and active local Communist Party. Then the Soviet Union collapsed in 1991 after all the communist governments in East Europe had already done so. At that point, anti-communist sentiment led India to ditch socialism (in theory, anyway) and seek new allies and arms suppliers. The United States and Israel have proved to be the most useful and American firms were eager to do business with India. Millions of Indians who had migrated to the U.S. and become economically successful, and often quite rich, helped encourage Indian firms to check out American suppliers.

Indian emphasis on economic growth since the 1990s has paid off because that growth has been spectacular lately, with GDP nearly doubling in the last decade from $1.7 trillion to the current $2.9 trillion. This made India the fifth largest economy, recently surpassing Britain and France. The rest of the top five are the U.S., China, Germany and Japan.

Chinese GDP growth is slowing although in the last decade it more than doubled from $6.1 trillion to $14 trillion. But for once the annual Indian GDP growth has been faster than in China, where GDP growth rates have been declining over the last five years.

February 20, 2020: The government has ordered its Internet censors to halt the deletion of criticism of Wuhan city and Hubei province officials. Senior leaders in Wuhan and Hubei had recently been replaced because of dissatisfaction about how they had and were handling the covid19 epidemic. Normally the communist government does not allow any criticism of local officials or nations considered friends of China. But that ban can be turned on and off as needed. It is rarely used on senior officials who are still on the job. Officials suspected of corruption or some other misbehavior are another matter, as are countries that have temporarily lost the approval of Chinese leaders. Allowing criticism of Wuhan and Hubei officials now is a means of encouraging the most effective performance. Failure does not mean prison or execution but it does mean the end of a promising career. Success puts an official on the fast track to future promotions and public acclaim as a hero.

Lifting criticism of these officials does not mean the freedom to report embarrassing (to the national government) details of how the coronavirus is being handled or anything that would reflect badly on China in general. In a way, lifting censorship on an official means more work for the censors as they now have to filter criticism to suppress anything that reveals too much about China.

February 19, 2020: In Hubei province, two new field hospitals the army created in record time (less than ten days near Wuhan, the provincial capital have not been used much, if at all. It took ten days to build the temporary thousand bed hospital and staff it with 1,400 army medical personnel by February 2nd. The army built a second field hospital nearby, with 1,600 beds, less than a week later. These new facilities are for dealing with the covid19 epidemic. It turned out that the army was unable to deliver all the military medical personnel to staff in both hospitals. Some of the soldiers who built the hospitals came down with the virus and army leaders realized that their medical personnel would be needed at army hospitals if the virus hit a large number of military personnel or immediate family. Wuhan could not spare any medical personnel because over 3,000 local doctors and nurses had come down with the disease and most were still being treated while over a hundred had died. Most of these medical casualties were in Hubei and Wuhan.

The Chinese military was not as active in dealing with the covid19 crises as they usually are with other natural disasters. The military has questionable combat effectiveness but it has proved increasingly useful during natural disasters. There are very few combat opportunities but a steady supply of natural disasters. What you have to deal with you get better taking care of. Yet this time the military leadership made the case that it was more important to keep covid19 away from the troops than it was for the military to get heavily involved. It was still unclear how long and how severe the epidemic would be and became most of the troops live in barracks and train together any virus cases means there has to be isolation of the uninfected and that is difficult to do. So, without any publicity, the military is sitting this one out.

There are other virus related problems for the military. Most military equipment for the armed forces is produced in China many of the local manufacturers have not been able to deliver on time. Deliveries of combat vehicles, aircraft and ships may be delayed months, or worse. If the economic costs of the epidemic are high there will be further cuts to the military budget.

February 14, 2020: In Pakistan has enacted new laws that make it easier for the government to block Internet sources that do not cooperate in identifying who is posing material that Pakistani officials consider supporting or being "terrorism, extremism, hate speech, defamation, fake news, incitement to violence and national security". The new law makes it easier for the government to find and punish dissenting or critical voices. This is nothing new as the military has long been using illegal methods to deal with dissidents it could identify. These new laws enable the government to threaten Internet firms with being blocked from Pakistan if they do not cooperate. Some of these firms will not cooperate, knowing that the critical voices they host will still get through to some Pakistanis because no Internet block is completely effective. For that reason, Pakistan is eagerly accepting help from China to improve Internet censorship and blocking capabilities. Unfortunately for Pakistan to run Internet censorship like China’s is very expensive and Pakistan does not have the cash to fully implement a Pakistani version of the “Great Firewall of China”.

February 10, 2020: The United States announced indictments against Wu Zhiyong, Wang Qian, Xu Ke and Liu Lei for engineering and supervising a 2017 hacking effort that stole personal data on 145 million Americans from a credit rating firm. The four indicted men work for the Chinese military at the 54th Research Institute. This organization specializes in Cyber Warfare and hacking in particular. Many major hacks have been traced back to the 54th and often to individual personnel there. The four men indicted are not in the United States and probably never will be. So they will be prosecuted in absentia (while not present in court) and if convicted will be subject to arrest anywhere the U.S. can do that.

February 9, 2020: In the southeast J-11 fighters and H-6 bombers flew around Taiwan on their way to a training exercise out on the open ocean. Taiwan sent up F-16s to escort the Chinese warplanes lest they get to close to Taiwan. China said it was just another training flight but aerial maneuvers like this are meant to send a message and this time it was apparently a protest against the January re-election of Taiwan’s pro-independence president. The U.S. sent two B-52 bombers through the Taiwan Strait (the 300 kilometer wide water barrier between China and Taiwan) two days later as a response.

February 7, 2020: The military announced it was suspending recruitment efforts for 2020 or until the virus threat was gone. Military recruitment in China is based on the Russian model of two brief (six week) cycles of selecting and putting new recruits into training. The first cycle was supposed to start in a week and is now canceled. The second cycle begins in mid-August. Some senior military officials are known to be in quarantine. Unlike past natural disasters, the troops were not sent in to help. Many units are confined to their bases. The military did provide some medical personnel but these did not arrive in Wuhan until the end of January, two weeks after the coronavirus was recognized as a major health emergency. By early February military transport units were seen moving military and other emergency supplies around. The soldiers operating those trucks wore masks and some were heard complaining about being constantly tested for exposure to coronavirus.




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