Caixin
Dec 10, 2018 08:07 PM
FINANCE

Caixin View: Fentanyl May Give China a Quick Fix in Trump’s Trade War

Presidents Donald Trump and Xi Jinping hammered out something of a trade war truce over dinner on the sidelines of the G-20 meeting in Buenos Aires. Listed at the top of the U.S. statement about the meeting was President Xi’s “wonderful humanitarian gesture” to crack down on the synthetic drug fentanyl, an extremely powerful opioid blamed for the deaths of 29,000 U.S. citizens in 2017. Although there is some pessimism that Beijing will take serious action to curb production of the drug, dealing with the opioid crisis is one of Trump’s signature domestic policies. Consequently, cooperation on counternarcotics provides China with an opportunity to give the U.S. president a quick but important win, something not to be underestimated given how tough it will be to reach agreement on the other issues on the table.

Background

According to U.S. authorities, production of fentanyl and its variants is cheap, extremely profitable, and spread among thousands of illegal small-scale operators in China. The drug’s strength allows small amounts of it to be fairly easily smuggled by hiding it among other goods. Producers can be found without much difficulty via websites in multiple languages, and can be paid using cryptocurrencies. China has previously questioned claims that large quantities of fentanyl are produced in the country, but has cooperated with the U.S. in combatting fentanyl trafficking. The two countries worked together on two recent cases where the U.S. indicted Chinese citizens for the illegal manufacture and smuggling of the drug.

What the U.S. wants

The specific claim made in the U.S. account of the meeting — that Xi would designate fentanyl a controlled substance, punishable by the highest possible penalty under the law — has already technically been fulfilled. Fentanyl, and several of its variants, are controlled substances in China, and illegal possession of 125 grams of the drug is technically grounds for the death penalty under 2016 regulations. So China will now have to demonstrate progress on other aspects of the problem. Based on reports from the U.S. Drug Enforcement Administration and from the U.S.-China Economic and Security Review Commission, it’s likely China will need to do some or all of the following to satisfy the U.S.:

● Improve “scheduling”: this is the official list of controlled substances. Fentanyl has a multitude of chemically distinct variations with similar effects. Currently, they are put on the list one by one, so producers just have to alter their manufacturing process slightly to create a technically legal variant.

● Unify responsibilities that are currently fragmented among different regulators.

● Strengthen enforcement.

What China has said

Though China’s statement after the Xi-Trump meeting did not match that of the U.S., it did show a clear shift in the country’s position on fentanyl, saying that China will increase controls on “all varieties” of the narcotic and adjust regulations accordingly. Statements made at a joint security dialogue in November, for example, were much vaguer, just saying that China will “continue to advance communication” in the abuse and smuggling of fentanyl, among other issues.

What might happen

In the short term, at least before the March 1 deadline for negotiations to reach a consensus, it’s in Beijing’s interests to give Trump some evidence that it’s taking action. It can do this in several ways:

● Weak enforcement: criticisms can, at least temporarily, be met by making control of the drug more of a priority — for example by busting more illegal labs in the next few months as symbolic show of cooperation. Decreasing the minimum amount of fentanyl that can lead to the highest possible punishment is also possible. Currently, morphine has a lower threshold amount, even though it’s a far weaker drug — fentanyl is reportedly 50-100 times stronger than morphine.

● Scheduling system: criticisms of China’s “whack-a-mole” approach can be dealt with most easily by mimicking the U.S.’s temporary solution to the problem. Introduced in November 2017 and still in effect, this designates both fentanyl and its “analogues” as controlled substances, which gives broader powers to law enforcement agencies.

● Regulation: China can respond to criticisms of fragmented regulation by pointing to reforms made since March 2018’s regulatory shakeup that have unified several agencies into a State Administration for Market Supervision. Another option to deal with the problem is to create a “coordinating small group.” China has many such groups, ad hoc bodies set up to deal with cross-agency problems.

Long term, we are less optimistic about China’s efforts to satisfy the U.S. that it is dealing with the problem. As the U.S. side has indicated, making fentanyl, its variants, and other synthetic drugs can be relatively cheap and highly profitable. China’s chemical industry has thousands of registered firms, and many more nonregistered ones, which makes dramatic improvements to enforcement tough. One key problem is that, so far, China itself does not report having a significant domestic problem with fentanyl use. Demand from the U.S. drives the industry. Consequently, there’s much less incentive for the government to try to stamp out the industry with as much zeal as it musters to deal with, for example, methamphetamine, a drug far more commonly used in China.

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