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UNCTAD: The impacts of Covid-19 on global production networks

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5 years ago

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On Thursday (5 March), the United Nations Conference on Trade and Development (UNCTAD) released a report which explains the economic impacts of the Coronavirus (COVID-19) on global production networks. The report further highlights the slow down in Chinese manufacturing and exports, the data sources and methodology employed, and the outbreak’s impact on the global value and supply chains. Below presents the summary of the report.

The People’s Republic of China has become an integral part of the global production networks as well the world’s largest exporter. In recent times, China was widely known as a main supplier of components and inputs for many goods such as medical equipment, cellphones and automobiles, among others.

China’s Purchasing Manager’s Index (PMI) recorded its lowest value since 2004 at 37.5, which captures a sharp fall in its manufacturing over the previous month. This annual fall in output by 2 per cent is a direct impact stemming from the spread of COVID-19.

The global economy is now rippling with the impact from the 2 per cent decline in China’s output and it has been estimated that countries are experiencing loss of around US$50 billion (S$69.30 billion), the report suggests. Sectors such as communication equipment, precision instruments, automotive and machinery are some of the most affected sectors.

GLOBAL TRADE IMPACT OF COVID-19

The novel Covid-19 virus not only poses danger to human life, but it can also threaten to slow down the world economy as well as the Chinese economy. Because China is now a central manufacturing hub of numerous global business operations, which means that any disruption in Chinese output will likely impact the regional and global value chains.

Based on the latest data from the National Bureau of Statistics of China, there has been a substantial fall in output. In February, China’s PMI dropped by 22 points (Figure 1a). PMI has high correlation with exports, and a drop in PMI suggests that exports also decline by around 2 per cent on an annualized basis. Therefore, the decline in February spread across the year is identical to a -2 per cent of intermediate goods supply, the report notes.

Based on the indicators on shipping, Chinese exports also declined in February (Figure 1b). The first half of February saw markedly lower container vessel departures from Shanghai whereas there was an increase in the second half. Despite this, there is continuous decline in the Shanghai Containerized Freight Index, signalling lower demand for container vessels but excess shipping capacity.

METHODOLOGY

The report uses data from the United Nations Statistics Division trade data encompassing around 200 countries and 13 manufacturing sectors to identify countries and economic sectors which are most vulnerable to Chinese disruption of intermediate input exports.

The Grubel-Lloyd Index (GLI) of intra-industry trade captures the extent of integration of each industry and country with the Chinese economy. Specifically, the GLI functions as a proxy for the percentage of a country’s exports in each industry which is susceptible to the disruption of supply in China.

The report’s analysis assumes that supply disruptions occur only in China. Possible output disruptions in other countries from the outbreak are not considered in the analysis. Other assumptions include a constant supply capacity in the rest of the world economy and that the results should be interpreted as short-run effects. Only manufacturing output is considered in the analysis and not minerals and commodities. The impact on the trading partners of China from the lower Chinese import demand is also not accounted for.

IMPACT ON GLOBAL VALUE CHAINS

China has only become more important to the world economy over the last 20 years. The reason is not just because of the country’s status as an exporter and manufacturer of consumer goods, but also as a primary supplier of intermediate manufacturing inputs globally. Around 20 per cent of global trade in manufacturing intermediate goods come from China currently (4 per cent higher than in 2002).

Sorted by GLI, Figure 2 shows China’s integration in global value chains across sectors. Substantial disruption in China’s supply chain will affect many sectors globally such as automotive and communication equipment, precision instruments and machinery. Many firms all over the world are worried at the measures implemented by China to contain the outbreak, such as the restriction imposed on the movement of people and economic activities, as this can severe the supply chain of Chinese production as well as those firms.

IMPACTED COUNTRIES

Depending on how reliant a country’s industries are on intermediate goods imports from China, a decline in the supply of Chinese intermediate inputs can affect the exports of that country. For example, Japanese companies may struggle with obtaining the component items for assembling digital cameras and European vehicle manufacturers may face shortage of auto-parts. Most companies that operate with a lean and just-in-time manufacturing process will experience limited use of inventories, leading to shortages which will in turn affect their overall exports and production capabilities. Table 1 below shows the potential impact of Covid-19 on exports by sector for countries most vulnerable to Chinese supply disruptions.

The most impacted economies will be Vietnam (communication equipment). European Union (machinery, automotive, and chemicals), Taiwan Province of China (communication equipment and office machinery), United States (machinery, automotive, and precision instruments), Republic of Korea (machinery and communication equipment), and Japan (machinery and automotive).

CONCLUDING KEY POINTS

Although uncertainty still surrounds the extent of impact of the virus on China’s productive capacity, latest statistics do hint at a substantial downturn, the report highlights. The full impact of the outbreak on global value chains will manifest itself more clearly as the months pass. A particular point of importance is how the global economy will be affected by the disruption in Chinese supply of intermediate inputs.

According to the report, firstly, although the impact from Covid-19 is contained mainly within China, the impact does reach outside China’s borders to East Asian, European, and American regional value chains, as evidenced by Chinese suppliers being critical for many firms across the globe. Depending on the changes in the supply sources and the containment of the outbreak, the estimated global effects may also change.

Secondly, the spillover effects of disruption in Chinese supply will be different across economic sectors, determined by the containment measures in China as well as the geographic localisation of the outbreak. For instance, if the automotive industry is nearer to the source of the Covid-19 outbreak, the automotive intermediate exports may decline more. The report stresses that it does not address this scenario due to the shortage of information. The possible impact on the various global value chains will be more certain when sectoral data on Chinese output becomes available.

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WP Engine banned from WordPress.org amid escalating legal fight with Matt Mullenweg

Following Matt Mullenweg’s ban on WP Engine from accessing WordPress.org resources, many WP Engine customers are left vulnerable, as they can no longer access plugin updates or security features. Mullenweg urged users to seek alternative hosts, escalating the legal conflict between the two companies.

Published

7 days ago

on

27 September 2024

By

In a sharp escalation of tensions, WordPress co-founder and CEO Matt Mullenweg has publicly criticized WP Engine, a popular hosting provider, while also cutting its access to WordPress.org’s resources.

The dispute centres on legal and trademark issues, with Mullenweg accusing WP Engine of both profiteering off WordPress’s open-source platform and damaging its community.

On 25 September, Mullenweg posted a scathing blog on WordPress.org, stating that WP Engine no longer has free access to the platform’s resources and calling for customers to avoid the service.

He also detailed that WP Engine’s recent actions disrupted thousands of websites. “WP Engine broke thousands of customer sites yesterday in their haphazard attempt to block our attempts to inform the wider WordPress community,” Mullenweg claimed.

The conflict appears rooted in WP Engine’s use of WordPress’s open-source platform while allegedly not contributing to its development or upholding community standards.

At the core of the dispute is WP Engine’s practice of locking down a WordPress feature that tracks revision history for posts. According to Mullenweg, this undermines a crucial aspect of WordPress’s promise of data transparency and protection.

WP Engine, in turn, has argued that Mullenweg is trying to coerce them into paying millions to license the WordPress trademark, a claim Mullenweg denies.

The host provider WP Engine has faced harsh criticism for disabling certain features in WordPress core, which, according to Mullenweg, is central to protecting user data.

“WP Engine wants to control your WordPress experience,” Mullenweg wrote, accusing the company of exploiting WordPress’s free services while making billions of dollars in revenue.

WP Engine’s inability to provide security updates and other resources leaves customers vulnerable, Mullenweg suggested, urging users to consider alternative hosting options.

Additionally, Mullenweg argued that WP Engine would need to replicate WordPress’s security infrastructure independently.

He emphasized that WordPress.org has collaborated with hosting providers to address vulnerabilities at the network layer, a service WP Engine can no longer access freely. “Why should WordPress.org provide these services to WP Engine for free, given their attacks on us?” he asked.

The ban leaves WP Engine in a precarious position, as customers who rely on WordPress plugins and themes may face significant difficulties accessing the latest updates.

These restrictions have raised alarms in the community, as outdated plugins are often the target of cyberattacks. Hackers frequently exploit vulnerabilities in WordPress plugins, potentially compromising millions of websites globally.

The dispute between WordPress and WP Engine has been simmering for some time.

Earlier in September, Mullenweg described WP Engine as a “cancer to WordPress” during a speech at the WordCamp US Summit, accusing the company of profiting off the platform without giving back.

In response, WP Engine sent a cease-and-desist letter to Mullenweg and Automattic, claiming that Mullenweg’s comments were an attempt to extort the company into paying for a trademark license.

WP Engine’s legal team also accused Mullenweg of threatening a “scorched earth nuclear approach” if they refused to comply with his demands.

The cease-and-desist letter was swiftly countered by Automattic, WordPress’s parent company, which asserted that WP Engine had violated WordPress and WooCommerce trademark policies.

The updated trademark policy on WordPress.org explicitly cautions users against assuming WP Engine is affiliated with WordPress. “Many people think WP Engine is ‘WordPress Engine’ and officially associated with WordPress, which it’s not,” the updated guidelines explain.

The legal dispute has thrown both companies and their customers into uncertainty.

While WordPress operates under a GPL (General Public License), which makes the software free for use, hosting providers like WP Engine must offer services beyond the core platform, such as user login systems, update servers, and security monitoring.

Mullenweg’s decision to sever WP Engine’s access to WordPress.org resources has already caused disruption, with many sites reporting functionality issues and concerns about security vulnerabilities.

WP Engine has pushed back against Mullenweg’s actions.

In a public statement, the company accused Mullenweg of abusing his influence over WordPress to disrupt WP Engine customers’ access to WordPress.org, calling the move “unprecedented and unwarranted.”

The company argued that the ban affected not only its users but also developers who rely on WP Engine’s tools to build and maintain WordPress plugins.

As the dispute unfolds, the wider WordPress community is left to grapple with the implications. Developers and hosting providers have expressed concern over the trademark battle, fearing that similar restrictions could extend to them.

The WordPress Foundation, which holds the trademark, has already filed to trademark “Managed WordPress” and “Hosted WordPress,” sparking debate about how this might affect commercial users.

For now, the WordPress ecosystem is in flux as users, developers, and hosting providers wait to see how the legal battle will unfold and whether WP Engine will regain access to critical WordPress.org resources.

Until then, Mullenweg’s message is clear: if you want the true WordPress experience, WP Engine is no longer the place to find it.

Editor’s note: This publication was previously hosted on WP Engine.

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DPM Gan Kim Yong appointed to GIC board as director

Deputy Prime Minister Gan Kim Yong will join the GIC board as a director from 1 October, enhancing his extensive portfolio that includes serving as Singapore’s Minister for Trade and Industry and Chairman of the Monetary Authority of Singapore.

Published

1 week ago

on

24 September 2024

By

SINGAPORE: Deputy Prime Minister (DPM) Gan Kim Yong will join the GIC board as a director starting on 1 October, according to an announcement from the sovereign wealth fund on Tuesday (24 September).

Mr Gan is also Singapore’s Minister for Trade and Industry.

His appointment adds to his extensive portfolio, which already includes his responsibilities as the Chairman of the Monetary Authority of Singapore (MAS) and his role overseeing the Strategy Group in the Prime Minister’s Office.

He is also a member of key national boards such as the Research, Innovation, and Enterprise Council and the National Research Foundation Board.

In a statement, Lim Chow Kiat, Chief Executive of GIC, welcomed Gan’s appointment, stating, “His wide-ranging experience will add valuable insights to important asset allocation and other strategic decisions.”

Lim expressed optimism about the contributions Gan will make to the board in shaping GIC’s investment strategies.

Gan’s career began in Singapore’s Civil Service, where he worked in the Ministry of Trade and Industry and the Ministry of Home Affairs.

In 1989, he transitioned to the private sector, joining NatSteel, a company that produces reinforcement steel products for the construction industry.

During his time at NatSteel, Gan rose to the position of Chief Executive Officer and President in 2005. His leadership at the company spanned several years, during which he contributed significantly to its development.

In addition to his corporate experience, Gan has had a distinguished political career.

He entered politics in 2001 and has since held various ministerial roles, including positions in the Ministry of Education, the Ministry of Manpower, and the Ministry of Health.

His leadership in these ministries contributed to Singapore’s policy development in areas ranging from workforce management to public health.

Gan holds both Bachelor’s and Master’s degrees in Engineering from Cambridge University.

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