The China Signal - March 12
Beijing's 14th five year plan, LatAm's 5G smartphone market, Chancay port, vaccine efficacy vs. vaccine diplomacy
G’day and welcome to The China Signal! This week - what Beijing’s 14th five year plan means for Latin America, Chinese firms’ movements in the region’s 5G smartphone market, environmental protests in Peru over the planned Chancay port, vaccine efficacy competes with vaccine diplomacy, plus more.
Also, I’m thrilled to share a recent podcast interview I did with Fernanda Alvarez for the London School of Economics’ Grimshaw Club. I discuss what’s driving China and Latin America’s growing engagement, and how the pandemic is prompting another evolution in the relationship. Listen below, or via your preferred channels here.
China’s plans 🇨🇳
This week China’s National People’s Congress concluded. The annual meeting of China’s legislature is a rubber stamp process, formalising Xi Jinping and the senior leadership’s plans for the coming year. This year was significant for its approval of the 14th five year plan, the leadership’s economic objectives for 2021-25. In a break from previous plans, the 14th didn’t outline an average yearly economic growth target, in what is viewed as a tacit acknowledgement of the macroeconomic uncertainty the pandemic still presents, and anxiety over the United State’s power to clip China’s growth through economic sanctions and political isolation.
For Latin America, the 14th five year plan still contains commitments that drive China’s political and economic engagement with the region - a commitment to economic growth, albeit on vaguer terms, buttressed by a continued focus on domestic infrastructure development. This means ongoing demand for commodities, which is the crux of the region’s exports to China.
The Party’s desire for a “dual-circulation strategy” of continued international trade while developing domestic consumption and productive capacity underscore’s their eagerness to diversify and deepen their trading relationship with regions such as Latin America. This is an insurance policy against the rising risk of political isolation from some markets. As Latin America undergoes an economic recovery from the pandemic in the coming years, it will increasingly be viewed as an export destination for more sophisticated Chinese goods. China’s eagerness to develop the electric vehicle and 5G telecommunications market in Latin America is an indication of this.
However, it’s vital to remember that this is a plan only, subject to the material constraints of reality. This plan will be challenged by their U.S. rivalry, and the stability and sustainability of China’s economic growth. The plan also commits to trimming the country’s debt to GDP ratio, which, as The Economist points out, could limit government spending on infrastructure should the ratio climb to an unacceptable level. The Chinese economy’s falling productivity is also a concern, particularly as their demographic profile wanes with an ageing population. Beijing’s commitment to carbon neutrality by 2060, with peak emissions by 2030 is also light on detail, leaving uncertainty hanging over where Beijing’s trade-off between unabashed economic growth and environmental sustainability lies. This won’t impact China’s demand for Latin American energy exports immediately, but it will begin to weigh on the economic relationship in the next five years.
All of these constraints should be monitored, as this is what will influence China’s economic and political engagement with Latin America over the next five years.
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The most significant mention of the region during the week was from foreign minister Wang Yi’s press conference. These are carefully choreographed affairs, with journalist questions typically “Dorothy Dixers” as we say in Australian politics - a friendly, pre-planned question to let the respondent discuss a topic. The Latin American Dorothy Dixer was from Cuba’s state-run media outlet “Prensa Latina”:
State Councilor and Foreign Minister Wang Yi Meets the Press - March 8, 2021
Prensa Latina: How does the future of the ties between China and Latin America and the Caribbean hold in the post-COVID-19 scenario? What specific steps will China take to help Latin American and Caribbean countries to overcome the COVID-19 pandemic?
Wang Yi: Last year marked the 60th anniversary of the establishment of diplomatic ties between China and Latin America and the Caribbean. The two sides have stood alongside and supported each other in COVID-19 response and economic recovery. Our cooperation best illustrates that "a bosom friend afar brings a distant land near".
Since the onset of COVID-19, President Xi Jinping has exchanged letters and phone calls with many Latin American and Caribbean leaders to guide our joint efforts to fight the coronavirus and promote economic growth. China has donated over 34 million items of much-needed medical supplies and equipment to 30 Latin American and Caribbean countries, held over 40 video conferences to share experience, and is providing vaccines to 12 countries in need in the region.
Our economic and trade cooperation continued to bear fruits in the past year. Two-way trade has exceeded US$300 billion for three years in a row. Exports from the region to China expanded despite the disruptions of COVID-19. According to the UN Economic Commission for Latin America and the Caribbean, cooperation with China has become an important driver for economic stability and growth in the region. The pandemic has not hindered our cooperation. Instead, our peoples have grown closer and are bound by broader common interests.
The Chilean poet Pablo Naruda wrote, eternal friendship makes you believe in good things in the world and convinces you that there is a door ready for you to open. China will continue to strengthen friendship and cooperation with our Latin American and Caribbean friends. Together, we will build a community with a shared future between the two sides, and deliver greater benefits to our two peoples.
5G
Broader Latin America 🏔🏝
In Latin America, Xiaomi became the third-largest brand for the first time in the fourth quarter of 2020, behind Samsung and Motorola, according to a separate report by Counterpoint last week. It came in fourth in the region for the whole year.
Huawei was still the third-biggest smartphone brand in Latin America for all of 2020, but it fell out of the top five in the fourth quarter.
“Samsung, Motorola and Xiaomi all took advantage of Huawei’s weakening position,” said Counterpoint analyst Tina Lu.
Even after the initial US sanctions against Huawei in 2019, it was able to fend off rivals. The Shenzhen-based company’s hardware was widely praised and it benefited from nationalist pride at home. Being cut off from Google apps and services bruised international sales, but that was not a problem in China, where Google is blocked and Google Play Services are not preloaded on Android phones. However, tightening US sanctions last year banned foreign chip makers that use US technology from selling to Huawei without approval, cutting the company off from foundries needed to make its high-end Kirin processors, leading the company to sell its budget smartphone brand Honor to a consortium of partners in November.
“The good thing for Huawei in China is that the lack of Google services is not an issue there, but the company still faces a diminishing stockpile of smartphone components,” said IDC vice-president of client devices Bryan Ma. “Even if it can secure new agreements with suppliers this year, those will likely be for older technologies like 4G rather than leading-edge parts that it could’ve used to show that it is ahead of the curve.”
Counterpoint’s Mishra said Huawei’s decline will continue in 2021, with other smartphone makers continuing to fill the gap.
Huawei’s fall last year was precipitous. Just last summer, the company briefly became the world’s top smartphone seller, wresting the crown from South Korean giant Samsung Electronics. But new sanctions from the US in August quickly took a toll, effectively cutting off Huawei from most global chip suppliers.
Huawei is forecast to be able to produce only 70 to 80 million handsets this year, according to a report by Nikkei, a significant decline from the 189 million units that IDC shows the company shipped last year. Research company TrendForce predicts that the smartphone maker will fall to seventh place globally in 2021.
Mining
Peru 🇵🇪
Peruvian civil organizations are warning of the serious impact on human health and the environment that could result from the construction of the Chancay Multipurpose Port Terminal, a project led by Chinese company COSCO and by a Peruvian extractive company, Volcan CompañíaMinera.
In early 2019, COSCO acquired 60 per cent of Volcan's stake at the Chancay port, which is worth 225 million U.S. dollars, according to Chinese state media Xinhua and China Daily. It is now the first terminal project controlled by COSCO in South America.The port operations are expected to start in 2023 and includes multi-purpose terminals, container terminals and related infrastructure facilities, with a total annual designed capacity of one million TEU. This would make for a mid-size port, considered a big leap for the region.
After a series of protests that started in 2019, local activists and residents called for modification of the construction planning in August 2020. A few months later, COSCO and Volcan presented some changes. Yet, despite the continued criticism, the Peruvian authorities approved the construction in December 2020. Upon obtaining the green light, COSCO will further invest 1.3 billion U.S. dollars to carry out the first stage of the project—construction is set to start in April this year.
Local organizations claim that the consulting company hired by COSCO and Volcan concealed the magnitude of the hazardous impact of the new port.
Vaccine diplomacy
Brazil 🇧🇷
This is a preliminary study that hasn’t yet been peer-reviewed, but Latin America’s economic recovery hinges on their ability to mobilise vaccinations, largely supplied by China. The effectiveness of China’s vaccine diplomacy in the region depends on Coronavac’s efficacy against new strains of the virus, particularly Brazil’s more contagious P1 strain.
Study of Aggressive Covid-19 Strain in Brazil Suggests Limits of China Vaccine - WSJ - March 6, 2021
SÃO PAULO—As an aggressive coronavirus strain from the Amazon ravages Brazil, a preliminary study has provided the first evidence that the country’s principal vaccine, China’s CoronaVac, might not be as effective against it.
The small-scale study, which has yet to be peer-reviewed, comes as doctors warn of a humanitarian catastrophe in Brazil over coming weeks, with surging deaths as the disease overwhelms hospitals across the country.
Researchers from Brazil, the U.K., and the U.S., found that plasma from eight people vaccinated five months ago with CoronaVac “failed to efficiently neutralize” the new Amazonian strain, called P.1. The study didn’t show if CoronaVac can still stop people getting sick from the variant, one of the main goals of vaccination campaigns.
Mr. Yin [Weidong, CEO of Sinovac] said in the interview that Sinovac had found a person’s antibodies drop half a year after vaccination with CoronaVac, adding that the firm was still researching how long protection lasts and would release this data soon.
The variant, which first emerged in the Amazonian city of Manaus late last year, is 1.4 to 2.2 times as contagious as versions of the virus previously found in Brazil, and 25% to 61% more capable of reinfecting people, according to a recent study.
Brazil has asked the Chinese embassy to help secure 30 million doses of a COVID-19 vaccine from China to ensure its inoculation program does not grind to a halt, according to a document seen by Reuters.
In a letter sent to China’s ambassador to Brazil, Yang Wanming, a senior Health Ministry official asked for help in the potential purchase and delivery of the shots from the Sinopharm laboratory in the first half of this year.
So far, Brazil has relied on supplies of the Chinese vaccine Coronavac, made by Sinovac, and AstraZeneca Plc’s vaccine, developed with Oxford University.
Last week, Brazil said it intended to buy 100 million doses this year from Pfizer Inc and 38 million from Janssen, the pharmaceutical subsidiary of Johnson & Johnson.
Mexico 🇲🇽
Mexico leans on China after Biden rules out vaccines sharing in short term | Reuters - March 9, 2021
Mexico is turning to China to fill a vaccine shortfall with an order for 22 million doses, Foreign Minister Marcelo Ebrard said on Tuesday, a week after U.S. President Joe Biden ruled out sharing vaccines with Mexico in the short term.
Keep in mind the United States’ plans with “the Quad” to purchase $1 billion of doses of Johnson & Johnson’s vaccine to distribute through the Indo-Pacific. With the political, financial, and productive constraints that set the parameters for the United States and its allies’ diplomatic efforts, the Indo-Pacific is their first priority.
Ebrard said Mexico has placed an order for an additional 10 million doses of China’s Sinovac COVID-19 vaccine to be delivered between May and July, on top of the 10 million already ordered, which are due to arrive between March and May.
Three million doses of China’s CanSino Biologics Inc COVID-19 vaccine are set to arrive in Mexico on Wednesday and will be sent to Queretaro state where they will be packaged, Ebrard said in a Tweet.
Mexico will also order 12 million vaccine doses made by the state-backed China National Pharmaceutical Group (Sinopharm) once it has been approved by its health regulator, Ebrard added.
Mexico to rely heavily on Chinese vaccines - AP News - March 10, 2021
Sinopharm has claimed its vaccine was 79% effective based on interim data from clinical trials, but like other Chinese firms, it has not publicly released its late-stage clinical trial data.
Experts in Hong Kong have assessed the efficacy of the Sinovac vaccine at about 51%. That shot has already been approved for use in Mexico.
The CanSino vaccine has been approved in Mexico and reportedly has an efficacy rate of around 65.7%,
A total of six vaccines have been approved for use in Mexico, which has received relatively small amounts of each. Mexico has administered only about 4.7 million doses of all vaccines, a tiny amount given the country’s population of 126 million.
China’s soft power
In TCS February 19 I analysed Dialogo Politico’s report “The art of making friends - How the Chinese Communist Party seduces political parties in Latin America”. You can read an op-ed length version in Spanish here for a great overview.