It’s just a moment, a single sentence on this Thursday, but words can trigger a lot in diplomacy. “I believe that with joint efforts of both sides, the ‘better angels’ in China-US relations will be able to overcome evil forces,” says Beijing’s foreign office spokeswoman Hua Chunying, congratulating Joe Biden on taking office. May relations between America and China now get “back on the right track”.
Are these new tones even conciliatory? Hardly. The world powers won’t back down in the clash of interests. Biden has long since made it clear that he has no intention of reversing his predecessor’s China policy. And Beijing managed to inflame relations with threats of sanctions against Trump’s Secretary of State Mike Pompeo just seconds after the new US president swore his hand on the Bible in front of the Capitol on Wednesday.
Ursula von der Leyen promised EU parliamentarians nothing less than “the highest level” of transparency at the beginning of her term in office – especially regarding trade issues. That is exactly what the EU-China investment agreement (CAI) is all about.
But von der Leyen’s Commission lacks nothing as much as – transparency. For three weeks, MEPs (and not only them) have been waiting for the agreement text. They would have liked to assess who pulled whom across the negotiating table and what China actually promised the Europeans. The paper will be published on Friday, as Amelie Richter and Marcel Grzanna write. But there will be little to evaluate. Because of all things, the detailed “annexes” that the experts are waiting for will probably be missing.
We know that China (like other Asian countries) doesn’t give the coronavirus a chance and locks down entire cities at the slightest sign. Frank Sieren travels to Beijing and Shijiazhuang to investigate the price those affected by this strategy have to pay – especially now, before the wave of travel for the New Year.
There is a shortage of containers in China’s ports – with considerable consequences for German trade. “The situation will lead to enormous economic damage for some importers,” says Guido Hogenkamp from the German import and export company in Bocholt (DIG). Among other things, the company imports garden furniture and kitchen appliances from the Far East. Like any scarce commodity, transport capacity from China to Europe now becomes more expensive. “Not everyone can afford a five-fold increase in freight rates,” says Hogenkamp.
The shipping lines know the background of the container shortage and the rising freight prices. Niklas Ohling, Head of Container Steering at shipping line Hapag-Lloyd in Hamburg, sees the cause in the massive increase in global demand for goods from Asia. The shipping line had even allowed numerous ships to sail without cargo to “evacuate” unused containers from the USA and position them in Asia” – despite the enormous costs that such empty container repositioning incurs.
The mail-order company Otto sees even more reasons for the global container imbalance. According to the Hamburg-based company’s logistics department, the dilemma began after the Chinese New Year in 2020. The coronavirus had China in its grip, with workers not returning to factories and loading points. As a result, container ships were delayed by many weeks. Shortly after that, a boom in demand from Western countries began. British traders stocked up on goods just before Brexit. In Germany, retail sales rose by a good five percent in the Covid year: People equipped themselves for the home office, refurnished their apartments, and generally treated themselves to more orders during the lockdown.
The US also saw high demand for goods from China. “We’ve seen a 20 to 30 percent increase in the flow of goods into the US in each of the months of fall,” said Peter Tirschwell, Head of Shipping and Trade Research at analyst firm IHS Markit. “A lot of containers are now sitting around unused.” They are scattered across the country in logistics centers waiting for onward transport, but that fails to materialize. “There are additional bottlenecks due to high sick leave and stricter hygiene measures,” Tirschwell says. “Loading and unloading are not going as fast as usual.”
This leads to delays, notes Lars Jensen, founder of the Copenhagen-based industry observer SeaIntelligence. As a result, he says, there were about half a million fewer standard containers than usual in Asia in mid-December. “An aggressive repatriation strategy and new orders should have resulted in the inventory returning to normal by the end of January,” Jensen says. However, he said, as demand for goods remains high, the imbalance could increase to one million containers. While exact data on this won’t become available until March, he said, it currently looks like the balance is still waiting. Ohling of Hapag-Lloyd also believes that “the situation will probably continue for the first few months of the year.”
Economist Serena Zhou of the financial house Mizuho Securities in Hong Kong even sees container shortages as the current ceiling for Chinese exports, which contribute a decent part to the country’s growth. No wonder the global industry association World Shipping Council promises, “Our ocean liners are fighting the Covid cargo shortage.” It says to resolve the “unprecedented supply chain disruptions,” the industry is pulling out all the stops. Shipowners are already sharing ships across competitive borders to fill capacity. The catchy phrase “Covid cargo crunch” is already circulating.
The next milestone for the industry is the Chinese New Year 2021 on Feb. 12. “Usually, the demand for containers decreases again,” says Ohling. China takes a two-week break in its holiday season, with factories at a standstill. Exports drop accordingly. Containers that migrated to Western countries pre-Christmas period have time to return to Asia. “But this year, this effect may be weaker.” He said production is playing catch-up due to the pandemic, and many retailers are looking to restock their empty warehouses. German retailers such as notebooksbilliger.de could hardly deliver laptops before Christmas because their stocks were almost depleted.
Presumably, prices will not fall again until the second half of the year, according to experts such as Jensen and Tirschwell. From the point of view of mail-order company Otto, the higher freight rates affect the margins for different groups of goods very differently. For 20,000 T-shirts that fit in a container, a tripling of the transportation portion of the cost per item doesn’t make that much of a difference. However, if there are only a few pieces of a cheaply offered but chunky product in the container, it has a sensitive effect. And in a competitive market, such unexpected increases can hardly be passed on to the customers. Otto has booked freight capacities on a long-term basis itself – but that is no use if the shipping does not take place at all.
The cost of transporting a container load at a given point in time depends on supply and demand. Therefore, it is impossible to name a “current” price, but there is one for any point in the near future. The price determination takes place on corresponding exchanges, for example, the Baltic Exchange in London. The corresponding index FBX rose 38 percent in December alone and is currently at a new high of just over $4000 per forty-foot container. Values around $1300 are considered normal. The FBX calculates the average bid for 12 major routes. On the China-USA route, the index has already reached $4260, while in the reverse direction, it stands at $806.
After Beijing’s Chinese schools were already closed this week, international schools will follow next week. The measure was decided after the British mutant of the coronavirus was discovered among about a dozen cases in Daxing, a district in south Beijing. This virus is considered much more contagious. The variant called B.1.1.7 was first found in England in September.
However, this is not the first time the British mutant has been discovered in China. Shanghai was already affected in December last year without a severe outbreak. There was another case in Guangdong province, also without severe consequences so far. On Jan. 5, Shenzhen-based genetics company BGI developed a test kit for the British mutant, which is now used in 26 countries worldwide.
Nevertheless, Chinese authorities are very cautious. The relevant districts in Beijing have been sealed off. For over a week, people in Beijing have only been able to enter public buildings and restaurants if they take a temperature and register with a health app. Although masks are not mandatory outdoors, most people in Beijing are now wearing them again. Anyone who buys fever-reducing drugs from a pharmacy must register, and the pharmacy must report within two hours. The same applies to customers with suspicious symptoms.
Another measure by Beijing is the tracking of potentially infected people. People who have been in the same restaurant as a known Covid case, for example, are contacted and visited by a medical team, which conducts a Covid test and takes samples from their homes. A major car sales center was closed for two weeks after traces of the virus were found on spare parts in the workshop.
Meanwhile, the central government has called on cities nationwide to prepare for mass testing. Cities with less than five million people must each manage the tests within two days. Larger cities will be given three to five days, as was decided by the State Council. Positive tests must be passed on to the authorities within two hours. Of particular interest: Local authorities are now obliged to report cases immediately to the central government and to hold a public press conference to provide information on the latest status.
Since Wednesday, a large quarantine center has been under construction in Shijiazhuang, one of the cities already sealed off, to accommodate up to 4,000 patients. Nearly 3,500 people, additional medical personnel, have been ordered to the provincial capital. More than 1,200 were recruited from outside the province. About eleven million people live in the greater Shijiazhuang area. Food is distributed through supply stations and can be ordered online or offline through the neighborhood committee, which also organizes and maintains the lockdown in each apartment block. This eliminates the need for police patrols on a large scale. Quarantine refusers are – unlike in the West – a major exception.
Shijiazhuang is the capital of Hebei province, which surrounds China’s capital Beijing. The province has a population of around 75 million and reported 20 Covid cases yesterday.
The news agency Reuters calls the current measures of the Chinese an “organized overkill“. Therese Hesketh, Professor of Global Health at University College London (UCL), on the other hand, calls the authorities’ actions “extremely efficient”. She observed developments on the ground from October to December last year. Reactions in Chinese social media are similar. The measures are criticized, but the consensus is that they are unpleasant but necessary to prevent worse. After about half a year of relative normalcy with no new Covid cases, confidence in the government’s measures is quite high and the population is less “lockdown-weary” than in Germany, for example.
For the government, on the other hand, it is also a cost calculation. It considers the measures’ financial cost to be low compared to the costs that would arise if the economy had to be shut down again. Moreover, the Chinese provincial politicians certainly don’t want to be accused of not having done everything they could to get the situation under control. This is probably the main reason why, despite the few cases, they are reacting with such extreme measures.
This is because the upcoming Chinese New Year travel wave, in particular, poses an immense risk of spreading. Traditionally, around five billion individual trips are made in China during this time. Through the last-minute lockdown last year, the government managed to reduce the traveling wave to 1.5 billion trips. This year, the government expects significantly more travel, as it is discouraged but not banned.
It is a truism that Europe needs to strengthen its role as a geopolitical and geoeconomic actor. But how it can achieve this is far less clear. This is where the strategic report on “Connectivity and EU-Asia relations” comes in, which the European Parliament adopted on Thursday by a very large majority (526 votes in favor, 43 against, 119 abstentions). The Chinese “Belt and Road Initiative” shook us up. But the ‘connectivity’ strategy is not simply a response to BRI, but a strategic perspective in its own right, which admittedly also benefits from the disappointment existing in many quarters about BRI.
MEPs call for more coherence between European foreign, development, trade, and security policies. Networking is actually in the EU‘s genes – but there has been little sign of it in external relations. The Parliament is thus making a series of “governance” proposals, which are about Brussels’ better coordination and European member states being on board. Civil society and business representatives must be involved, and, of course, the strategy needs enough money.
The starting point for our push was the document “Connecting Europe and Asia”, published by the EU Commission and the European External Action Service (EEAS) in September 2018. The paper never became popular, not even in Brussels. Connectivity needs a second breath. At its core, the paper was about physical infrastructure development: ‘bricks and mortar’. But we need to go further. To realize the basic idea of “strength through cooperation” in a contemporary way, more dimensions must play a role: digitization, for example, and contacts between people through exchange programs – priorities such as safety, health, and standardization. We must cooperate much more closely than before with partners who, like us, have an interest in ensuring that multilateralism is not stifled by great power politics. The strategy should be aligned with the EU’s overall objectives, such as the Green Deal, human rights and the UN’s Sustainable Development Goals.
Whereas the 2018 document focused primarily on Asia, the EU Parliament has a global strategy. It identifies a number of partners: A connectivity partnership already exists with Japan and negotiations are underway with India, soon to be at the summit level. We want a partnership with the African Union, if possible, by the end of 2021. Much hope rests on South Korea and Australia, and the EU adopted a joint declaration on connectivity with the Asean Community at the last ministerial meeting.
There is a greater interest in connectivity than Ursula von der Leyen’s EU Commission has realized so far. BusinessEurope, for example, places great emphasis on the topic in its China strategy. The 2019 connectivity conference organized by the Juncker force met with gigantic interest; 1400 participants came, a quarter being from Asia. But there is now to be a new conference in 2021, as the EU Commission has just confirmed. Among the EU member states, France, Germany and Poland have emerged as particularly interested. The current Portuguese EU presidency has a strong focus on digital connectivity and is about to inaugurate the “EllaLink” deep-sea cable for high data transport to and from South America, which incidentally was built with Nokia technology.
Simply put, the emphasis on what a global European connectivity strategy can achieve certainly also helps to ensure that Brussels, Berlin, and Paris do not get too carried away with autonomy narratives. For a geopolitical commission, for an EU that aspires to global politics, it is impossible to dispense with connectivity as a central pillar.
Reinhard Buetikofer has been a Green Member of the European Parliament since 2009. The 67-year-old is the Chair of the European Parliament Delegation for Relations with China and a member of the Committee on Foreign Affairs.
It’s just a moment, a single sentence on this Thursday, but words can trigger a lot in diplomacy. “I believe that with joint efforts of both sides, the ‘better angels’ in China-US relations will be able to overcome evil forces,” says Beijing’s foreign office spokeswoman Hua Chunying, congratulating Joe Biden on taking office. May relations between America and China now get “back on the right track”.
Are these new tones even conciliatory? Hardly. The world powers won’t back down in the clash of interests. Biden has long since made it clear that he has no intention of reversing his predecessor’s China policy. And Beijing managed to inflame relations with threats of sanctions against Trump’s Secretary of State Mike Pompeo just seconds after the new US president swore his hand on the Bible in front of the Capitol on Wednesday.
Ursula von der Leyen promised EU parliamentarians nothing less than “the highest level” of transparency at the beginning of her term in office – especially regarding trade issues. That is exactly what the EU-China investment agreement (CAI) is all about.
But von der Leyen’s Commission lacks nothing as much as – transparency. For three weeks, MEPs (and not only them) have been waiting for the agreement text. They would have liked to assess who pulled whom across the negotiating table and what China actually promised the Europeans. The paper will be published on Friday, as Amelie Richter and Marcel Grzanna write. But there will be little to evaluate. Because of all things, the detailed “annexes” that the experts are waiting for will probably be missing.
We know that China (like other Asian countries) doesn’t give the coronavirus a chance and locks down entire cities at the slightest sign. Frank Sieren travels to Beijing and Shijiazhuang to investigate the price those affected by this strategy have to pay – especially now, before the wave of travel for the New Year.
There is a shortage of containers in China’s ports – with considerable consequences for German trade. “The situation will lead to enormous economic damage for some importers,” says Guido Hogenkamp from the German import and export company in Bocholt (DIG). Among other things, the company imports garden furniture and kitchen appliances from the Far East. Like any scarce commodity, transport capacity from China to Europe now becomes more expensive. “Not everyone can afford a five-fold increase in freight rates,” says Hogenkamp.
The shipping lines know the background of the container shortage and the rising freight prices. Niklas Ohling, Head of Container Steering at shipping line Hapag-Lloyd in Hamburg, sees the cause in the massive increase in global demand for goods from Asia. The shipping line had even allowed numerous ships to sail without cargo to “evacuate” unused containers from the USA and position them in Asia” – despite the enormous costs that such empty container repositioning incurs.
The mail-order company Otto sees even more reasons for the global container imbalance. According to the Hamburg-based company’s logistics department, the dilemma began after the Chinese New Year in 2020. The coronavirus had China in its grip, with workers not returning to factories and loading points. As a result, container ships were delayed by many weeks. Shortly after that, a boom in demand from Western countries began. British traders stocked up on goods just before Brexit. In Germany, retail sales rose by a good five percent in the Covid year: People equipped themselves for the home office, refurnished their apartments, and generally treated themselves to more orders during the lockdown.
The US also saw high demand for goods from China. “We’ve seen a 20 to 30 percent increase in the flow of goods into the US in each of the months of fall,” said Peter Tirschwell, Head of Shipping and Trade Research at analyst firm IHS Markit. “A lot of containers are now sitting around unused.” They are scattered across the country in logistics centers waiting for onward transport, but that fails to materialize. “There are additional bottlenecks due to high sick leave and stricter hygiene measures,” Tirschwell says. “Loading and unloading are not going as fast as usual.”
This leads to delays, notes Lars Jensen, founder of the Copenhagen-based industry observer SeaIntelligence. As a result, he says, there were about half a million fewer standard containers than usual in Asia in mid-December. “An aggressive repatriation strategy and new orders should have resulted in the inventory returning to normal by the end of January,” Jensen says. However, he said, as demand for goods remains high, the imbalance could increase to one million containers. While exact data on this won’t become available until March, he said, it currently looks like the balance is still waiting. Ohling of Hapag-Lloyd also believes that “the situation will probably continue for the first few months of the year.”
Economist Serena Zhou of the financial house Mizuho Securities in Hong Kong even sees container shortages as the current ceiling for Chinese exports, which contribute a decent part to the country’s growth. No wonder the global industry association World Shipping Council promises, “Our ocean liners are fighting the Covid cargo shortage.” It says to resolve the “unprecedented supply chain disruptions,” the industry is pulling out all the stops. Shipowners are already sharing ships across competitive borders to fill capacity. The catchy phrase “Covid cargo crunch” is already circulating.
The next milestone for the industry is the Chinese New Year 2021 on Feb. 12. “Usually, the demand for containers decreases again,” says Ohling. China takes a two-week break in its holiday season, with factories at a standstill. Exports drop accordingly. Containers that migrated to Western countries pre-Christmas period have time to return to Asia. “But this year, this effect may be weaker.” He said production is playing catch-up due to the pandemic, and many retailers are looking to restock their empty warehouses. German retailers such as notebooksbilliger.de could hardly deliver laptops before Christmas because their stocks were almost depleted.
Presumably, prices will not fall again until the second half of the year, according to experts such as Jensen and Tirschwell. From the point of view of mail-order company Otto, the higher freight rates affect the margins for different groups of goods very differently. For 20,000 T-shirts that fit in a container, a tripling of the transportation portion of the cost per item doesn’t make that much of a difference. However, if there are only a few pieces of a cheaply offered but chunky product in the container, it has a sensitive effect. And in a competitive market, such unexpected increases can hardly be passed on to the customers. Otto has booked freight capacities on a long-term basis itself – but that is no use if the shipping does not take place at all.
The cost of transporting a container load at a given point in time depends on supply and demand. Therefore, it is impossible to name a “current” price, but there is one for any point in the near future. The price determination takes place on corresponding exchanges, for example, the Baltic Exchange in London. The corresponding index FBX rose 38 percent in December alone and is currently at a new high of just over $4000 per forty-foot container. Values around $1300 are considered normal. The FBX calculates the average bid for 12 major routes. On the China-USA route, the index has already reached $4260, while in the reverse direction, it stands at $806.
After Beijing’s Chinese schools were already closed this week, international schools will follow next week. The measure was decided after the British mutant of the coronavirus was discovered among about a dozen cases in Daxing, a district in south Beijing. This virus is considered much more contagious. The variant called B.1.1.7 was first found in England in September.
However, this is not the first time the British mutant has been discovered in China. Shanghai was already affected in December last year without a severe outbreak. There was another case in Guangdong province, also without severe consequences so far. On Jan. 5, Shenzhen-based genetics company BGI developed a test kit for the British mutant, which is now used in 26 countries worldwide.
Nevertheless, Chinese authorities are very cautious. The relevant districts in Beijing have been sealed off. For over a week, people in Beijing have only been able to enter public buildings and restaurants if they take a temperature and register with a health app. Although masks are not mandatory outdoors, most people in Beijing are now wearing them again. Anyone who buys fever-reducing drugs from a pharmacy must register, and the pharmacy must report within two hours. The same applies to customers with suspicious symptoms.
Another measure by Beijing is the tracking of potentially infected people. People who have been in the same restaurant as a known Covid case, for example, are contacted and visited by a medical team, which conducts a Covid test and takes samples from their homes. A major car sales center was closed for two weeks after traces of the virus were found on spare parts in the workshop.
Meanwhile, the central government has called on cities nationwide to prepare for mass testing. Cities with less than five million people must each manage the tests within two days. Larger cities will be given three to five days, as was decided by the State Council. Positive tests must be passed on to the authorities within two hours. Of particular interest: Local authorities are now obliged to report cases immediately to the central government and to hold a public press conference to provide information on the latest status.
Since Wednesday, a large quarantine center has been under construction in Shijiazhuang, one of the cities already sealed off, to accommodate up to 4,000 patients. Nearly 3,500 people, additional medical personnel, have been ordered to the provincial capital. More than 1,200 were recruited from outside the province. About eleven million people live in the greater Shijiazhuang area. Food is distributed through supply stations and can be ordered online or offline through the neighborhood committee, which also organizes and maintains the lockdown in each apartment block. This eliminates the need for police patrols on a large scale. Quarantine refusers are – unlike in the West – a major exception.
Shijiazhuang is the capital of Hebei province, which surrounds China’s capital Beijing. The province has a population of around 75 million and reported 20 Covid cases yesterday.
The news agency Reuters calls the current measures of the Chinese an “organized overkill“. Therese Hesketh, Professor of Global Health at University College London (UCL), on the other hand, calls the authorities’ actions “extremely efficient”. She observed developments on the ground from October to December last year. Reactions in Chinese social media are similar. The measures are criticized, but the consensus is that they are unpleasant but necessary to prevent worse. After about half a year of relative normalcy with no new Covid cases, confidence in the government’s measures is quite high and the population is less “lockdown-weary” than in Germany, for example.
For the government, on the other hand, it is also a cost calculation. It considers the measures’ financial cost to be low compared to the costs that would arise if the economy had to be shut down again. Moreover, the Chinese provincial politicians certainly don’t want to be accused of not having done everything they could to get the situation under control. This is probably the main reason why, despite the few cases, they are reacting with such extreme measures.
This is because the upcoming Chinese New Year travel wave, in particular, poses an immense risk of spreading. Traditionally, around five billion individual trips are made in China during this time. Through the last-minute lockdown last year, the government managed to reduce the traveling wave to 1.5 billion trips. This year, the government expects significantly more travel, as it is discouraged but not banned.
It is a truism that Europe needs to strengthen its role as a geopolitical and geoeconomic actor. But how it can achieve this is far less clear. This is where the strategic report on “Connectivity and EU-Asia relations” comes in, which the European Parliament adopted on Thursday by a very large majority (526 votes in favor, 43 against, 119 abstentions). The Chinese “Belt and Road Initiative” shook us up. But the ‘connectivity’ strategy is not simply a response to BRI, but a strategic perspective in its own right, which admittedly also benefits from the disappointment existing in many quarters about BRI.
MEPs call for more coherence between European foreign, development, trade, and security policies. Networking is actually in the EU‘s genes – but there has been little sign of it in external relations. The Parliament is thus making a series of “governance” proposals, which are about Brussels’ better coordination and European member states being on board. Civil society and business representatives must be involved, and, of course, the strategy needs enough money.
The starting point for our push was the document “Connecting Europe and Asia”, published by the EU Commission and the European External Action Service (EEAS) in September 2018. The paper never became popular, not even in Brussels. Connectivity needs a second breath. At its core, the paper was about physical infrastructure development: ‘bricks and mortar’. But we need to go further. To realize the basic idea of “strength through cooperation” in a contemporary way, more dimensions must play a role: digitization, for example, and contacts between people through exchange programs – priorities such as safety, health, and standardization. We must cooperate much more closely than before with partners who, like us, have an interest in ensuring that multilateralism is not stifled by great power politics. The strategy should be aligned with the EU’s overall objectives, such as the Green Deal, human rights and the UN’s Sustainable Development Goals.
Whereas the 2018 document focused primarily on Asia, the EU Parliament has a global strategy. It identifies a number of partners: A connectivity partnership already exists with Japan and negotiations are underway with India, soon to be at the summit level. We want a partnership with the African Union, if possible, by the end of 2021. Much hope rests on South Korea and Australia, and the EU adopted a joint declaration on connectivity with the Asean Community at the last ministerial meeting.
There is a greater interest in connectivity than Ursula von der Leyen’s EU Commission has realized so far. BusinessEurope, for example, places great emphasis on the topic in its China strategy. The 2019 connectivity conference organized by the Juncker force met with gigantic interest; 1400 participants came, a quarter being from Asia. But there is now to be a new conference in 2021, as the EU Commission has just confirmed. Among the EU member states, France, Germany and Poland have emerged as particularly interested. The current Portuguese EU presidency has a strong focus on digital connectivity and is about to inaugurate the “EllaLink” deep-sea cable for high data transport to and from South America, which incidentally was built with Nokia technology.
Simply put, the emphasis on what a global European connectivity strategy can achieve certainly also helps to ensure that Brussels, Berlin, and Paris do not get too carried away with autonomy narratives. For a geopolitical commission, for an EU that aspires to global politics, it is impossible to dispense with connectivity as a central pillar.
Reinhard Buetikofer has been a Green Member of the European Parliament since 2009. The 67-year-old is the Chair of the European Parliament Delegation for Relations with China and a member of the Committee on Foreign Affairs.
