2021 OCTOBER
MARKET REPORT - PART 3 Short Read
Written by : Andrew Sia
China’s Industrial Subsidies is Drawing the US Attention – WSJ, September 11, 2021
China’s Industrial Subsidies is Drawing the US Attention
Fewer Shipping Options Amidst the Bottleneck of Shipping
Italy Bans Cruise Ships to Venice to Protect its Ecosystem
The World’s Situation on the Driverless Cars
China’s Economy Recovery Is Slower than in July
Shipping Cost Rising Has Not to be Neglected
Retailers are Fighting to Stock Up Inventory for Holiday
Laos is Looking into Crypto Mining
Global Warming is Highly Likely to Exceed 1.5° C By 2025
World Economic Forum in Davos in January 2021
The Latest Move by China Relating to the Trade
Germany, the 3rd Largest Economy is Reelecting its Ruling Party
China’s Careful Planning for the CPTPP Bid
Establishing Carbon Pricing for Emissions in the EU
Container Shipments Are Still Stuck Outside LA
Vietnam is taking the Hard Stance During the Covid
China’s Electric Power Crunch
India is Facing Severe Power Shortage
Death Toll of the US Tops 700,000 as the Delta Variant Pushes Through
China’s Industrial Subsidies is Drawing the US Attention – WSJ, September 11, 2021
China’s industrial subsidies have given its companies an edge over its foreign competitors. Biden’s administration is considering to launch an investigation into China’s subsidies under Section 301 of the US trade law. The White House is going to team up with Japan, the Asian allies and rally support within the WTO to look into this matter.
Under the Phase One accord negotiated by the Trump administration to boost China’s purchase of American goods by $200 billions for 2020 and 2021. But those targets were fall short for about 40% in 2020 and 30% in 2021.
But it is already mentioned by people who are familiar with China that it is unlikely Beijing will negotiate seriously on subsidies.
Fewer Shipping Options Amidst the Bottleneck of Shipping – WSJ, September 13, 2021
The shipping consolidation in the past five years has caused constrains to the supply-chain due to the Covid-19 outbreak which further delayed the movement of shipments around the globe. Now there are only six large container ship operators than half a dozen more than six years ago who were moving the containers around.
These top six operators are in control of 70% of all container capacity. Today there are fewer routes, less ports and not enough shipping vessels, and on top of all these, the pandemic is disrupting the shipping operation. As a result, there is the cost which is four times more and it also takes longer shipping time.
The consolidation also came after the 2008 financial crisis when the shipowners were all facing a global recession and freight rates at that time could not cover fuel costs and they were all operating at deep losses.
The bigger shipping companies began to form shipping alliances that share ships, cargo and port calls to bring their business more effective. As the result, the operation was streamlined with fewer but bigger ships call in at specific Asian ports. This further limited unused shipping spaces and reduced warehousing expenses for shippers.
At this time during the Covid-19, the shortage of labor, trains, trucks and warehouses have further caused the constrains on top of the ports’ closure for covid contamination.
In order to secure the shipping capacity, the bigger retailers are chartering their own ships to move their shipments from Asia to the western world.
Italy Bans Cruise Ships to Venice to Protect its Ecosystem – New York Times, Jul 14, 2021
We noticed that Venice has a fragile ecosystem and it is the right move to protect the city’s lagoon. This was for decades the demand from its residence and environmentalists.
It was already in 2019 when UNESCO warned Venice about the damage caused by a steady stream of cruise ships In the recent weeks as they began to return to Venice after the pause imposed by the pandemic, and protestors were rallied on small boats and on the waterfront with “No Big Boats” flags. And during the G20 summit, they demonstrated and drawn attention from international news media.
The ban applies to ships that are heavier than 25,000 tons, 590 feet and taller than 115 feet. The cruise ships are diverted to the port of Marghera, a port built for cargo ships, and this can begin a new experience for the tourists.
In 2020, the city lost about $237 million due to the blocking of the cruise liners during the covid.
The World’s Situation on the Driverless Cars – New York Times, July 14, 2021
In Hamburg, Germany, a fleet of electric Volkswagen vans operated by a ride-hailing service company roams the streets and picking up and dropping off passengers. The vehicles steer by themselves, with technicians working from a remote-control center keeping an eye on their progress with the help of video monitors. If they spot any threat, they can take control of the car and steer it out of trouble.
The German car manufacturers are considered as the crown jewels of the German industry and with the two major topics now for the industry to evolve—electric cars and autonomous driving, Germany is really keen to get to the forefront. In Germany they have just passed the law for autonomous driving but it also admitted that its technology is not advanced enough to work safely in areas where traffic is chaotic and unpredictable.
In comparison to the US, Germany is a smaller country and to obtain the nationwide approach is very doable compare with the US with patchwork pf state laws. The US government has to issue guidelines for autonomous driving but attempts for establishing mandatory rules for all its 50 states would have to go through Congress amid disagreement among automakers and autonomous driving developers about how the legislation should be phrased. In Germany, Volkswagen has been testing a ride-sharing service in Hamburg and Berlin called Moia. With the new law, it will be easy for Volkswagen to achieve this goal of converting Moia’s electric vans to autonomous operation by 2025.
Technology company, Waymo, a company owned by Alphabet, parent company of Google, is forming partnership with Lyft, has been testing the first driverless ride on public roads. Toyota invested billions of dollars in autonomous driving technology but it has yet to turn into anything that can be profitable. Uber pushed very hard in this area and in an accident killed a pedestrian in Tempe, Arizona in 2018. It sold its operation.
Raj Rajkumar who leads the autonomous program at Carnegie Mellon University in Pittsburgh, produced many leading scientists in the field. He showed his concern that both Europe and the US would fall behind China in technology and regulations. He pointed out that China, the authoritarian country can pass any legislation, unlike the western world’s long process.
Farming Subsidies Will Need to Reform to Fight for Climate Change – FT, September 15, 2021
The world has spent $540 billion in farming subsidies and it is accounted for 15% of agriculture’s total production value globally. But this number will grow by triple to $1.8 trillion by 2030 if the subsidies is still growing at the present pace.
But we have to know that agriculture is a big greenhouse gas emitters due to its deforestation, manure, agricultural chemicals, rice cultivation, and burning of the crop residues.
Farming subsidies include tariffs, price support and subsidies for items like fertilizers.
Richer countries are consuming more dairy and meat, but in less developed countries they are using more grains. But as much as 17% of the food being produced is either lost or wasted. Conservation of land for agricultural use has led to 70% reduction in global biodiversity and half for all tree cover.
Food production is about a quarter of all greenhouse gas, a big polluter of air, freshwater and oceans. The United Nations estimated that such hidden cost totaled about $12 trillion a year. This included $6.6 trillion in health problem caused by obesity, undernutrition and pollution, $3.3 trillion on climate and environment, and $2.1 trillion on wasted food and fertilizer leakage. There are better ways to support agricultural production. It is a matter how to have a better planning and control. And yet its farmers are venerable to the climate change which can be avoided.
China’s Economy Recovery Is Slower than in July – WSJ, September 16, 2021
A new outbreak of the Delta variant and tighter government regulations on the property market hit consumer spending and the housing sector. Retail sales rose 2.5% in August compared with one year ago, but down sharply from July’s 8.5%.
Home sales falling 19.7% by value in August compared with a year ago. China’s property market has been a key drive of the country’s growth. Its policy makers are still comfortably on pace with their full-year growth of at least 6% with its first six month’s GDP growth of 12.7% year-on-year.
Shipping Cost Rising Has Not to be Neglected – WSJ, September 17, 2021
Normally the shipping cost is only a small fraction of the overall cost, but it is becoming a hurdle now as companies are paying more for the raw materials and labor already. This pandemic has driven up the transportation cost and some feared that it will stretch into 2023.
The cost of transportation is part of the supply chain and it includes the shipping cost across the ocean, the dock clearance, any dock storage, truck drivers on the road, and whatever comes with it, which for instance the cost of diesel is part of it.
We found that the spot rate of container shipping rates from Asia to the US West Coast were five times higher last week compared with the same time last year. The scary part are those rates are more than 14 times higher than the same time in 2019.
There are ways to get around this, for instance, making seasonal purchases at least a month earlier than usual, being flexible with arrival and departure ports, and use dedicated space on chartered space on chartered cargo ships for a longer term period of commitment.
Retailers are Fighting to Stock Up Inventory for Holiday – WSJ, September 17, 2021
Retailers have strong confidence and for instance Walmart’s consolidated inventories reached nearly $47.8 billion in the quarter ended July 31, a 16% increase from the year before and up 8% from the same quarter in 2019. But its inventories were down 4.6% between the second quarter of 2021 and that of 2020.
On the whole, the retailers are showing strong confidence in consumer demand when during the Delta variant and the tough supply-chain situation.
But some specialty apparel sellers have kept their inventory lean and focused on their profit margins by avoiding discounts.
Laos is Looking into Crypto Mining – FT, September 16, 2021
Laos, a landlocked country under the communist ruling over its 7 million people and a debt-laden country, has s surplus of hydroelectric power. Not to forget that in December this year a railway line will run from Kunming, China to Vientiane and it is going to add more financial burden to the country.
This move to crypto mining comes from the result of the loss of tourism revenues caused by Covid-19. Its hydropower was the result of its hefty borrowing to build the dams on the Mekong River and its tributaries resulted the abundance of power-generation which does not have much demand for it internally.
The use of hydropower to mine crypto allows Laos to manufacture it as a carbon-neutral industry when the carbon footprint of the cryptocurrency is coming under the growing international criticism.
But what will follow from this trade is the criminal activities as bring by the gangsters, but it is perhaps just another opportunity as the country is known for operating casinos in between its border and China.
Global Warming is Highly Likely to Exceed 1.5° C By 2025 – FT, September 17, 2021
The lockdown caused by the pandemic led to a short-term emissions reduction, but we are going to exceed
1.5° C of warming since pre-industrial times. The findings was published by leading weather organizations and scientists. This is very much in line with the 2015 Paris Agreement’s goal of keeping the temperature at well below 2° C.
The United Nation Climate Summit in Glasgow in early November will put pressure on global leaders to improve national emissions reduction commitments. In the meantime, more than 35 leaders will convent in New York on September 20 at the UN General Assembly to discuss climate goals.
World Economic Forum in Davos in January 2021 – FT, September 17, 2021
It will be held in Davos on January 17-21, 2022. Its last event in Davos was in January 2020 when the world leaders and business leaders came to realize that the Covid-19 could become a challenge beyond China. Since then the World Economic Forum was grounded.
The coming event would address economic, environmental, political and social fault lines exacerbated by the century pandemic.
The Latest Move by China Relating to the Trade – WSJ, September 20, 2021
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) formerly known as TPP, was started during the administration of US President Barack Obama, and this was designed to limit China’s influence in the region. For the countries to join, they would require the observation in relating to intellectual property, state subsidies and state-owned enterprises.
The original signatories signed in 2016 under the original name of Trans-Pacific Partnership (TPP) were signed by the US, Australia, New Zealand, Japan and seven other countries. When Donald Trump came into the office in 2017, he abandoned the trade pact.
It was since last November China expressed their interest to join and it was on September 17 that China, through the embassy of New Zealand, submitted their application. The current chair of CPTPP is Japan, and it will go around all the eleven states to determine if they will accept China as the member.
The eleven members are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. And the UK has formally applied in the beginning of the year is still under pending.
The US, in according to the administration of Biden, is still having its labor and environmental concern with the CPTPP, and China is trying to steal it away now. But it seemed that China is not busy enough with its challenges from the trade war that is looming on the horizon.
A new investigation into China’s subsidies under sector 301 of the Trade Pact of 1974, and this can lead to new tariffs or a valid case that can be brought before the World Trade Organization with the allies.
Its performance under the “Phase One” of the 2019 Sino-US agreement has shown that China is only on track in its buying of around 70% of the US goods agreed upon for 2021.
But China’s relation with Japan and Australia has deteriorated in recent months and its application can run aground.
The CPTPP has very tough provisions prohibiting most subsidies for industrial state-own enterprises which are owned by majority from the government. China’s state capitalist model has been extended to private sectors in recent months under the increasing political pressure from its government.
China is looking at the evacuation of the US force from Afghanistan which surprised the European allies and the latest of selling the nuclear submarines to Australia which resulted the cancellation of their orders with the French for their 12 diesel-electric submarines, as China’s opportunity to enter into the Pacific theatre.
It seemed that it is still not complicate enough for the members of the CPTPP, and Taiwan, the self-governing island, has expressed its intention to join. This will create an awkward issue with Beijing as it known to block Taiwan from joining any international bodies and we have yet to see how this is going to bring us.
Germany, the 3rd Largest Economy is Reelecting its Ruling Party – New York Times, September 17, 2021
Angela Merkel has been Germany’s chancellor for 16 years and she is stepping down and this will follow by the national election on September 26. Without any question that Merkel successfully waded through the near meltdown of the euro debt crisis that began in 2010 that nearly destroyed the currency that Germany shared with 18 other European countries. She was able to keep the hardliners on her side,
the Christian Democratic Union, and asked the European Central Bank to print money to help debt stricken countries like Greece, Italy and Spain.
Under her, the former East German states caught up with the reform during her tenure. When she took over the office from her predecessor Gerhard Schröder, the unemployment was more than 11%, but it is now down to 4%. We have to admit that today’s Germany is the engine for Europe, enjoying its prosperity and the near full employment even under the pandemic. But going forward, the challenge is looming on its horizon. And we can go through the challenges as we continue with our report.
The economists said that during Angela’s tenure Germany neglected to build a world-class digital infrastructure, failed to expand the country’s network for renewable energy, and over depending on the trade with China.
For the first one, Germany has not invested enough in education and in emerging technologies like the artificial intelligence and electric vehicles. And since 2016, Germany has slipped from 15th to 18th place in rankings of digital competitiveness by the Institute for Management and Development in Lausanne, Switzerland, which attributed the decline partly to inferior training and education as well as government regulations. Between 40 to 50% of all German workers will need to retrain in digital skills to keep their jobs in the coming decade. It is discovered that most German schools are lack of broadband internet and teachers are reluctant to use digital learning tools. This has exposed its weakness especially during the pandemic lockdown.
The country’s exit from nuclear power plant to switch to the use of renewable energy is inadequate. This resulted Germany has to pay for a higher cost for its electricity.
Germany’s industry is built on its luxury car manufacturing—Mercedes-Benz, BMW, Audi and Volkswagen. Its engineering and machine tooling it is still its powerhouse and it has been equipping Chinese factories. Germany’s trade with China dwarfs all other member states, and because of this it has neglected the issues on the human rights of China and plays the lead from all the other European states.
But Germany is beginning to pay its price as slowly China picked up the skills and compete with them and the most significant is in their electric vehicles—Nio and BYD, both are selling their electric vehicles to the other European countries. And after Germany, China is now the number 2 exporter of industrial machinery.
In the longer run, Germany is going to lose to the competition of the US and China as the future is shaped by technology. In the field of the electric vehicle, Germany would have to put its act together especially in the technology as the industry is entering into a revolution that Germany must have not to neglect.
China’s Careful Planning for the CPTPP Bid – Nikkei Asia, September 23, 2021
It was during November 20, 2020 when Xi Jinping spoke to a virtual meeting at Asia-Pacific Economic Cooperation (APEC) that China would “favorably consider” to join the CPTPP. And on last week, exactly 300 days later, on September 17, China handed in its application through New Zealand, even when Japan is the current chairman. We have to know that the four founding members—Brunei, Chile, Singapore, and New Zealand who was one of them.
China is already a central member of the Regional Comprehensive Economic Partnership (RCEP) and we can see that China is trying to flex its muscle to show its influence in the region already.
China has been lobbying New Zealand, Singapore and Malaysia and it is believed that the countries in the Southeast Asia will not object to China’s joining. Beijing also took up the US situation in Afghanistan and the Greater Middle East as its hurdle, and for the US to join the CPTPP is not on their priority list at this moment, although the latest situation in Afghanistan is unexpected.
But lately, the China’s current political situation is somewhat self-contradictory for China to announce its bid for CPTPP as at home they have make some drastic changes to the social media, education, the IPO in the US stock exchange and the sticky situation with Evergrande, its largest property developer.
Now China will try to block Taiwan’s application into the CPTPP.
To use the word “chaos” to describe China is not exaggerating after all.
Establishing Carbon Pricing for Emissions in the EU – FT, September 14, 2021
EU is interested to push ahead a plan to extend carbon pricing on emitters with the bloc. It also promised to protect the domestic industry with a carbon border tax on imported goods, such as steel and cement. Setting a price for carbon is widely considered as the best way to drive down fossil-fuel emissions. For the three biggest carbon emitters—the US, China and India, can be effectively taxed for the carbon they emit.
The OECD is taking up this matter in forging agreement between countries for a carbon pricing. But the trade partners of EU is looking at this as the trade tariffs. It will take a while and perhaps a lot of effort for the world to come into terms.
Container Shipments Are Still Stuck Outside LA – The Guardian, September 23, 2021
Southern California has a record number of container ships outside the ports of Los Angeles and Long Beach to unload the goods. This time it is caused by the shortage of trucks and drivers to pick up the containers.
As of September 22, there were 62 container ships waiting to unload their containers, earlier on during the weekend, there were 73 ships waiting to enter into the ports.
The Los Angeles-Long Beach port complex, the largest in the US and sixth largest in the world, is handling 40% of the container shipments in the US for the imports and 30% for the exports. It is the key gateway for imported goods from Asia.
With the imported consumer products surging, and the US buying strength getting stronger, the coming of the holiday shipping season would put a lot of pressure on these two seaports.
The ports have set new records since last summer and the Long Beach port is on pace to process more than 9 million container units this year, which is exceeding last year’s 8.1 million units. This is setting the record of the port’s 110-year history. The Los Angeles port in June became the first western hemisphere port to process 10 million contain units in 12 months.
This all happened during the pandemic which created a buying boom for home improvements but on the other hand the pandemic hampered the global supply chain. On one hand there is the demand of the goods, but we have the shortage of goods and containers to ship, this has created the rising cost for the shipments. Now all this have passed on to the consumers.
Vietnam is taking the Hard Stance During the Covid – WSJ, October 1, 2021
During the US-China trade war, many companies shifted their sourcing of products to Vietnam. This was also in part of its lower labor cost and friendlier gesture to foreigners. But this time the strict lockdown to contain the covid wave has damaged the manufacturing flow since July. Big names like Nike and Lululemon are starting to shift their production to other countries and they also begin to rethink about their heavy reliance on factories in Vietnam.
Nike has about half of its footwear made in Vietnam. It said that because of the lockdown, it lost 10 weeks of production there. And those ten weeks can mean 100 million pairs of Nike shoes lost in the production. This will affect its availability of its products to the market for the next eight months.
It is said that for the reopening of the covid-affected factories would take months to ramp up the production to its full scale. In the southern part of the country where the production is concentrated, they have a protocol where the “three-in-one” means the workers would work, eat and sleep in their workplace. But for clothing and shoes manufacturing plants where thousands of workers are there and it is hard to keep those of workers in the dormitories inside the factory area. The factories would have to reduce its headcount accordingly. Perhaps Vietnam would have to blame themselves for not having a vaccine policy and their slow in purchasing the vaccines resulted only to have 9% of its people fully vaccinated, unlike their neighbor in the region, Cambodia who has 65%.
Bottomline is, we cannot depend on one single country for our supply, but to have to learn how to diversify our risks accordingly.
China’s Electric Power Crunch – WSJ, October 2, 2021
Currently China is struggling with widespread power shortfalls, it is a hard blow to the world’s second-largest economy that is going to erupt the world’s already fragile supply chain, and now it has heightened inflation around the world. There are many reasons behind the power crunch, first of all, the shortage in supply of coal domestically, and cutting back from imports from Australia and Mongolia have drove the price of the coal up by 300%. The coal-fired power stations are making losses already and this surge in the cost prompted them to reduce output to avoid bigger losses.
Demand for electricity in China has soared since the end of April 2020 as factories increased their production while the rest of the world was in lockdowns. The post pandemic recovery also add pressure to the power supply. As a result, the global market will face a shortage of almost everything, from textiles, toys and semiconductor related goods.
Already 22 of the total of 34 provinces in China, have faced different levels of power squeeze resulting factories to work three to four days a week only. This will reduce the production output. This has also extended to households and this situation has not been experienced in decades.
It was in September 2020, Xi Jinping pledged that China would strive to reach peak carbon emissions before 2030. Coal, being 60% of China’s power is under the restriction by environmental and safety standard.
Furthermore, China is suffering the lower-than-usual supply of renewable energy has exacerbated shortfalls in some provinces. Take for instance the hydropower in the southwestern province of Yunnan has been in struggle with droughts throughout the year, and in the northeastern part of China where the output of the wind farms was low due to the weather.
Although Chinese government has put a cap on how much the utilities can translate into electricity, and in the international standards they are low. As a result of the increase of coal, about 70% of the coal-fired power plants are losing money. Now the manufacturing hub of Guangdong is allowed to increase their rate by 25%.
China’s Economy planning agency, the National Development and Reform Commission is announcing to ramp up its coal production, increase import, increase both domestic and international gas supply and pass the increasing cost to those end-users. On the other hand, to control excessive consumption from high energy-consuming industries like aluminum, steel, cement and petrochemicals.
China is known for prioritizing its objectives especially during the crisis, but the lack of an overall planning will not solve their problems.
India is Facing Severe Power Shortage – FT, October 4, 2021
India is also facing the severe power crisis that threatens to undermine its economy recovery. There are 135 thermal power plants in India, Asia’s third-largest economy had just four days of coal supply.
India has found to be caught in the same situation like China. Coal’s price has surged because of the global demand and take for instance that a ton of coal in Indonesia which was $60 per ton, and now it is $200 per ton. Indonesia is one of India’s major supplier for coal.
India’s domestic coal supply accounted for 80% but it is inefficient and failed to keep up with the domestic demand. The power consumption in August and September rose sharply to 124.2 billion units, up from 106 billion units in the same months two years ago.
Now this shortage will result with the large-scale power cuts and a higher prices to the consumers.
India is depending to 66% of the coal power generation.
Death Toll of the US Tops 700,000 as the Delta Variant Pushes Through – New York Times, October 2, 2021
An overwhelming majority of Americans who have died in recent months were unvaccinated. The US has still the highest recent death rates of any country with an ample supply of vaccines. The chart shows you for every 100,000 of deaths, the duration it took. The slowdown is probably due to the available of the vaccines.