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Regional cooperation to bring clean air to South Korea

Cho Eun-hye takes a rest while walking her Korean Jindo dog, both wearing masks, on a poor air quality day in Incheon, South Korea, 15 March 2019 (Photo: Reuters/Hyun Young Yi).

Author: Tae Yong Jung, Yonsei

South Korea’s air quality has improved remarkably over the past 20 years. The annual average concentrations of particulate matter (PM) of 10 micrometres or less in diameter (PM10) nationwide and of PM2.5 in Seoul have decreased. The concentration of fine dust has also gradually decreased but still remains twice as high as other developed countries and the number of days with high concentrations of fine dust has been increasing.

In response, the government has implemented a variety of emergency fine dust reduction measures, such as restricting the operation of vehicles in high-density cities since 2018. But there is a limit to how much air quality can improve when such one-off measures are taken because the concentration of fine dust has already increased and is partly caused by winds blowing foreign sources in from the west of the Korean Peninsula.

The unprecedented disaster-level fine dust outbreak on 1 March 2019 led the National Assembly to call for the establishment of a national organisation for coping with dust and climate change through international cooperation. President Moon Jae-in’s administration officially launched the National Council on Climate and Air Quality (NCCA) on 29 April. Key policy measures in three major source sectors — industrial, power generation and transport — are being implemented.

The industrial sector consumes the most fossil fuel energy after the power generation sector and emits the highest amount of pollutants. Large workplaces emit 62.7 per cent of total industrial pollutants. To investigate these large workplaces, a public-private joint inspection team of over 1000 people focussed on 44 industrial complexes and densely populated areas.

Strong financial support and customised technical support teams were planned to help some small- and medium-sized businesses to reduce fine dust and harmful gases. Taking into consideration the characteristics of each industry, a concrete reduction plan by industry type was designed. Periodic evaluation and real-time disclosure of results began last December to build public trust and spur further reductions in PM emissions.

The power generation sector could be regulated through the shutdown of coal-fired plants, adjustment of operation rates and management of demand, especially during high concentration seasons. Power generation accounted for 12 per cent of South Korea’s total fine dust emissions in 2016, mostly from coal-fired power plants. The government is working to eliminate old coal power plants, reduce operation of all coal power plants and promote policies to prohibit the construction of new coal power plants in favour of liquefied natural gas (LNG) instead. The tax system for bituminous coal and LNG has been adjusted to be more advantageous for LNG power plants.

The transportation sector accounted for 29 per cent of total PM emissions in 2016. Diesel vehicles, construction machinery and ships are the main sources of emissions, accounting for over 90 per cent of the sector’s emissions. Central and local governments are limiting vehicle operations and implementing an automobile emissions rating system to reduce air pollution. The government classifies all vehicles into five grades based on pollutant emissions by age and fuel type. The Seoul Metropolitan Government designated Hanyang Doseong (downtown) as a green traffic promotion zone and restricts the operation of emission level five vehicles that emit a lot of fine dust in the area.

Fine dust and air pollution are transboundary issues that require regional cooperation. But in Northeast Asia, regional cooperation measures similar to the European Convention on Long-Range Transboundary Air Pollution are unlikely to be applied in the short term. In order to establish institutional multilateral cooperation, it is necessary to first recognise that regional cooperation is needed to solve the fine dust problem at the local, national and regional levels.

Various collaborative measures have already been arranged between China and South Korea. The two countries have carried out cooperative projects based on agreements signed between 1993–2019 including the Korea–China air quality joint research group and operation of a real-time sharing system of air quality information. Future efforts should be made to establish a joint action cooperation system.

The two countries need to establish an action system to reduce fine dust during high concentration seasons by establishing a network to actively share information on high concentration forecasts,…

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China coronavirus could hit Beijing’s ability to meet US trad…

The rapid spread of the deadly coronavirus through China could sharply curtail Beijing’s ability to meet the purchasing agreement elements of the trade deal struck with the United States earlier this month, analysts said.As part of the phase one deal signed on January 15, China is obliged to buy US$200 billion in additional US imports over two years on top of pre-trade war purchase levels.However, with the outbreak driving down commodity prices and placing huge swathes of Chinese territory on…

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ASEAN’s RCEP and sustainability challenges and achievements

ASEAN Secretary General Lim Jock Hoi delivers his speech at the ASEAN Secretariat in Jakarta, Indonesia, 10 January 2020 (Photo: Reuters/Ajeng Dinar Ulfiana).

Author: Kaewkamol Pitakdumrongkit, RSIS

As the end of 2019 drew near, Thailand hosted two ASEAN summits under the theme ‘Advancing Partnership for Sustainability’. Looking at how the meetings unfolded, one may ask: what were ASEAN’s major economic achievements in 2019? And what key challenges remain for 2020?

Last year ASEAN made important economic gains in trade and sustainable development. The biggest trade accomplishment was the conclusion of negotiations for the Regional Comprehensive Economic Partnership (RCEP) in November by 15 nations — 10 ASEAN member states and five ASEAN dialogue partners (Australia, China, Japan, New Zealand and South Korea). According to the Joint Leaders’ Statement at the third RCEP Summit, the 15 members ‘concluded text-based negotiations for all 20 chapters and essentially all their market access issues; and tasked legal scrubbing by them to commence for signing in 2020’.

Although faced with some criticism, the conclusion of RCEP was a success.

First, while critics assert that RCEP is not as ambitious as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the former is a ‘living document’ whose details and quality can improve over time. The deal will provide firms with greater market access, enhancing transnational production networks and thereby enabling consumers to enjoy a broader range of goods.

Second, India’s absence from the agreement should not be seen as a failure because the door has been left ajar to join in future. Even without India, the agreement is set to be signed this year, making RCEP the world’s biggest trading bloc by both population and economic weight. Still, the pact will be smaller than envisaged — it will create a combined market of 2.2 billion people (down from 3.6 billion) and will account for 29 per cent (down from 33 per cent) of the world’s GDP.

Third, the conclusion of RCEP will restore market confidence to its 15 signatory countries, including the 10 ASEAN members. It showed the market that these economies will band together against the backdrop of rising uncertainties and escalating US–China tensions.

Fourth, RCEP enables ASEAN to inch closer to completing the ASEAN Economic Community 2025 (AEC 2025) — an economic integration project among 10 Southeast Asian countries. RCEP will help these states better integrate into the world’s economy and achieve a ‘Global ASEAN’. This is one of AEC 2025’s objectives.

ASEAN’s also made great strides in promoting sustainable development in 2019. Last year, ASEAN members agreed to launch the ASEAN Centre for Sustainable Development Studies and Dialogue (ACSDSD), aimed at facilitating collaboration on sustainable development between ASEAN and its development partners. ACSDSD can augment ASEAN leadership in promoting international collaboration on sustainable development by providing a platform for ASEAN to bring together various stakeholders to exchange their views on the issue. The Centre will help ASEAN to meet the United Nations’ Sustainable Development Goals by 2030.

Despite these accomplishments, ASEAN still has challenges to face in 2020. The first concerns India’s participation in RCEP. Indian involvement in RCEP would not only expand the combined regional market but also strengthen regional transnational services supply chains. In short, as services increasingly take up a greater share of the global economy, the bloc would grant Indian services firms access to larger markets. This will enable businesses in other RCEP countries to work with Indian firms to bolster their region’s competitiveness in services trade.

Strong domestic opposition in India means this is easier said than done. Many fear that the agreement will lead to import surges, which they argue could exacerbate India’s US$105 billion trade deficit, undermine domestic farmers and industries and crush the ‘Make in India’ initiative.

Second, RCEP will not render ASEAN states immune from the impacts of US–China rivalry. On 15 January, Washington and Beijing inked the ‘phase one’ agreement, in which the former would not impose or reduce tariffs on still swathes of Chinese products while the latter would selectively eliminate tariffs on some US products to meet purchase requirements of US goods. However, this arrangement does not address Chinese government subsidies given to state-owned enterprises and increased US restrictions on Chinese investment. As a result, 2020 may witness continued clashing between these states emerging from these issues. The two…

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Coronavirus Outbreak Could Reduce China’s GDP by 1-2 Percent


The short term economic impact from the rapidly spreading coronavirus that has infected nearly 600 and killed 18 could reduce China’s GDP by 1-2 percent, if it is similar to the 2003 SARS outbreak.

The World Health Organization called an Emergency Committee Meeting for Jan. 23 to address the potential pandemic risks associated with novel coronavirus, designated “2019-nCoV,” that through its fourth generation mutation can now spread via person-to-person transmission among close contacts such as in families or in health care settings.

Some coronaviruses don’t infect humans, others do but cause only minor illness, and some can cause severe illness in a high proportion of those infected. The coronavirus responsible for China’s 2003 outbreak of severe acute respiratory syndrome (SARS) sickened more than 8,000 people globally, and killed about 800.

The 2019-nCoV strain is believed to have originated in the Chinese city of Wuhan, but has officially been reported as spreading to Thailand, Japan, South Korea, Taiwan, Singapore, Vietnam, Canada, and the United States. But the contagion has probably been exported by thousands of travelers to dozens of countries. China is trying to limit the damage to its economy by quarantining train and air travel into and out of Wuhan, a city of 11 million that is larger than New York City. Officials have also quarantined nearby Huanggang and Ezhou in Hubei Province.

International confidence in China’s ability to stabilize the coronavirus outbreak is being undermined by its credibility in disclosing public health threats in the past. After the 2003 SARS outbreak, independent reporting forced China to admit dishonesty in under-reporting the scale of infections and deaths to the World Health Organization. China later admitted 5,327 probable SARS cases and 343 deaths, ten times its initial reporting.

An economic analysis by the Massachusetts Institute of Technology’s Center for International Development found that SARS had “significant negative impacts” to China’s economy. The tourism industry lost 50-60…

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What will it take to refuel China’s slowing economy?

A woman walks past the headquarters of the People’s Bank of China (PBoC), the central bank, in Beijing, 24 June 2016 (Photo: Reuters/Jason Lee).

Authors: Jiao Wang, University of Melbourne and Ran Li, World Bank

China has been experiencing a gradual and persistent slowdown in economic growth from an average of 10 per cent over 1980–2010 to below 6.5 per cent in 2019. Chinese President Xi Jinping described this as the ‘new normal’ for the Chinese economy in May 2014. The economic slowdown has triggered worries and speculation about further slowing and even economic collapse. China plays an important role in global supply chains and in supporting demand for commodities and intermediate goods from resource-intensive economies, including Australia. It is therefore crucial to gain a better understanding of the causes of China’s economic slowdown.

What are the sources of this slowdown since 2010? From an international perspective, rapidly growing economies slow down when per capita incomes reach about US$17,000 by PPP — a level China is currently around. From a business cycle perspective, the Global Financial Crisis (GFC) could be responsible for accelerating the slowdown process. The cyclicality of Chinese growth dynamics suggests the possibility that the observed slowdown since 2010 could also be a temporary phenomenon connected with the downswing phase of this cycle.

Sources of business fluctuations in China, especially fluctuations in output therefore need to be better understood.

This requires an understanding of the rules governing China’s monetary policy. The People’s Bank of China (PBoC) is not an inflation-targeting central bank like many other modern central banks. Its objectives extend far beyond price stability, including promoting economic growth, supporting employment and achieving balance of payments equilibrium. And there is no consensus on the form of policy rules the PBoC has been employing, let alone whether such rules can achieve their objectives.

Evidence from a structural estimation approach suggests that the PBoC employed a hybrid monetary policy rule over the period 2001–17 — considering both a quantity component, money supply, and a price component, the consumer price inflation rate. Over this period, the PBoC conducted monetary policy by adjusting the policy rate according to the real money level, inflation rate, output level and output growth in the economy with different levels of importance assigned to each of these factors.

Both recently and during the GFC, policymakers have discussed the necessity of reforming monetary policy towards more price-based practices. But estimates using data over this period suggest that greater weight was attached to the quantity component of the monetary policy rule after rather than before 2009, indicating that the GFC had a measurable impact on how China’s monetary policy is implemented. Despite public speeches by policymakers about moving towards more price-based practices, the PBoC’s actual monetary policy rule still places more weight on the quantity movements of real money in the economy.

Given such a monetary policy environment, the main sources of business fluctuations in output and consumption growth rates were nationwide, neutral technology shocks and household consumption preference shocks, with exogenous demand shocks also of importance for output. In comparison, fluctuations in investment and loans were driven primarily by investment-specific technology shocks and net worth shocks.

Over 2001–2017, while consistently positive net worth shocks explain the steady growth of investment, negative nationwide neutral technology shocks have been the main contributor to the slowing of China’s GDP growth since 2010. The evidence suggests that there was a structural break in neutral technological development — from consistently positive over 2001–07 to consistently negative over 2010–17 — that has been the primary driver of the slowing of China’s GDP growth since 2010.

There was a drastic fall in output growth from about mid-2008 to early 2009 corresponding to the onset of the GFC. The sudden meltdown of the global financial system and then of the real economy may have affected technology and production through trade and financial channels. The current phase of the slowdown is arising from a structural change in the nation’s productivity, rather than a cyclical fluctuation, and policies that favour reform and industrial upgrading to address the change should be given higher priority at the leadership level.

After more than 30 years of high-speed economic development, the growth potential of technological advancement has shown clear signs of slowing. There…

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Fiat Chrysler in Talks With Foxconn to Develop Electric Cars

Fiat Chrysler is in talks with the Taiwanese company Foxconn to develop and manufacture battery-powered vehicles, the U.S.-Italian automaker said on Jan.17.

Fiat Chrysler is in the process of merging with France’s PSA Peugeot, which is 12 percent owned by Chinese company Dongfeng Motor Co. Both Fiat Chrysler and Peugeot have lagged in developing electric powertrains and also have been struggling to increase sales in China, the world’s biggest auto market.

It was unclear what impact Fiat Chrysler’s proposed joint venture with Foxconn, formally known as Hon Hai Precision Ind. Co., Ltd., would have on the broader merger, due to be completed in the next year or so.

If a deal with Foxconn is reached, a joint venture will focus first on China, the biggest market for electric cars with 1.2 million vehicles sold last year—half the global total.

“The proposed cooperation … would enable the parties to bring together the engineering and manufacturing and mobile software technology to focus on the growing battery electric vehicle market,″ Fiat Chrysler said in a statement.

Talks were aimed at reaching a binding agreement “in the next few months,” the company said.

Automakers around the world have announced a series of electric vehicle partnerships to share the soaring cost of technology development.

Companies including General Motors Co. and Toyota Motor Co. have electric vehicle joint ventures with Chinese partners to take advantage of their experience at making low-cost vehicles.

The Chinese government has a credit-based system that encourages automakers to sell electric vehicles, leading to a proliferation of brands. But industry analysts expect high development costs to drive many of them to merge.

The trend has led to a complicated mix of ties among competitors.

Daimler AG’s Mercedes Benz has electric vehicle joint ventures with both BYD Auto, one of the biggest global makers of battery-powered vehicles, and rival Geely Holding, which is best known abroad as the owner of Sweden’s Volvo Cars. Geely also has two separate electric brands, Geometry, and…

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US-China trade rapprochement round one

US President Donald Trump stands Chinese Vice Premier Liu He after signing

Author: Yao Yang, Peking University

The conclusion of phase one of the trade negotiations between the United States and China has been  welcomed by global markets because it has brushed off many uncertainties caused by the tense relationship between the world’s two largest economies over the past two years.

According to the now publicised text, the deal is a more or less one-sided agreement targeting China. Over the next two years, China will need to increase imports from the United States by US$200 billion. China also needs to take steps to further open its markets, strengthen intellectual property rights protection, get rid of forced technological transfers and increase the transparency of its exchange rate policy.

In return, the United States will cut half the tariffs it imposed in 2019, while keeping the 2018 tariffs intact. This is sufficient for President Trump to claim victory in the trade war. Equivalent to 1 per cent of US GDP, the US$200 billion increase in exports to China will certainly boost his chances of re-election.

Despite its one-sided nature, the phase one agreement is not all bad for China. For one thing, China has geared up on policy reform. It has adopted a new law for liberalising foreign direct investment, banning forced technological transfers and allowing wholly foreign-owned financial institutions to operate in the country.

And the US$200 billion increase in purchases is not necessarily bad for China. Purchasing more US goods will deepen economic ties between the two countries. US voices calling for decoupling with China are growing louder. But the new purchases will strengthen integration in two ways. One obvious way is through the purchases themselves. If the target is reached, China’s imports from the United States will almost double, and if China’s exports to the United States stay the same, the US trade deficit with China will be eliminated.

The second way lies in how the purchase agreement is going to be fulfilled. While China can find ways to increase its imports from the United States — including diverting some imports from other countries — there is a question about how the United States can increase its supply of US$200 billion exports in such a short period of time. The US economy is now in full employment; except in agriculture, there is not much slack in the economy.

One possible remedy is to allow Chinese companies to invest in the United States’ production capacity. For example, liquefied natural gas (LNG) could contribute a large share to new exports, but there are insufficient LNG pipelines and port terminals in the United States. If Chinese companies are allowed to invest in those facilities, US LNG exports to China will be expedited. As a result, the two countries will be even more deeply integrated.

Importing more US products is also good for the welfare of Chinese people. High tariffs have created a large wedge between consumer prices in China and those in the United States. In addition, to fulfill China’s commitment to cutting carbon emissions, and also to increase people’s living standards, China has to cut the share of coal in its energy mix and increase clean energy sources, including natural gas. Importing more gas from the United States will help fulfil that goal.

The conclusion of the phase one agreement shows that the United States has not ‘given up’ on China. Despite some hysteric panic about China, mainstream US politics still favours maintaining normal, if not deeper economic relations with China. After two years of strife, the two countries now enter a new phase of rapprochement.

Last October, 37 scholars from China, the United States and other countries signed a joint statement calling for a pragmatic approach to settle the US–China trade dispute. The starting point was that both countries should leave room for each other to conduct domestic policy to address domestic concerns, as well as respond to the external spillovers of each other’s domestic policies. Beggar-thy-neighbour policies should be corrected, and domestic policies with spillover effects should be negotiated. If negotiation fails, the negatively affected party can use domestic policy to safeguard its interests.

Dividing the negotiations into phases is consistent with this idea. The first phase dealt with issues concerning cross-border trade and investment. The second phase will deal with structural issues, particularly subsidies and state-owned enterprises in China, and restrictions on technological transfers in the United States.

The World Trade…

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China’s plan to slash health care costs sees global pharmaceu…

China’s biggest-ever round of drug price cuts saw global pharmaceutical firms losing most of the nationwide contracts to local rivals, as Beijing aggressively pushes to contain health care costs by an average of 53 per cent decline in latest bulk purchase.Among 33 commonly used medicines in a bidding exercise on Friday, some moneymakers for global pharmaceutical companies had the deepest cuts, with the biggest one being as high as 93 per cent as shown in a government-funded medical procurement…

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