Category Archives: China

(Reuters) China to use ‘counter-cyclical’ measures to curb FX volatility

(Reuters) China’s foreign-exchange regulator said on Thursday it was well-equipped to keep currency markets stable amid intensifying trade frictions with the United States and prepared to counteract cross-border capital outflow volatility if it arises.

Wang Chunying, spokeswoman at the State Administration of Foreign Exchange (SAFE), told reporters the regulator would bolster “macro-prudential management” and “micro-level market supervision” and use “counter-cyclical” measures to deal with instability.

While Wang did not elaborate on details of such counter-cyclical measures, analysts see her comments as a warning that the central bank would not tolerate aggressive one-way speculation against the currency.

“We will make counter-cyclical adjustments to cope with short-term volatility in foreign exchange markets to maintain stability in the financial system and balance in international payments,” she told a media briefing.

The remarks did not appear to halt the decline in the yuan in onshore CNY=CFXS or offshore CNH=D3 markets, where the currency has weakened about 7 percent against the dollar since the end of the first quarter and continued to slip on Thursday.

The yuan’s declines have come as Washington and Beijing stepped up their tit-for-tat exchange of tariffs and threats of tariffs on eachother’s goods.

As of 0805 GMT, the onshore spot was trading at 6.7583, 378 pips or 0.56 percent weaker than the previous late session close. Its offshore counterpart was trading 0.41 percent weaker than the onshore spot at 6.7860 per dollar.

Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, said Wang’s remarks signaled that the foreign exchange regulator still had many tools at its disposal to deal with yuan depreciation expectations.

“If the yuan falls too fast over too short a period of time, the central bank would still take some action and make some comments,” Cheung said.

He added, however, that Thursday’s comment was not as strong as what the People’s Bank of China (PBOC) governor Yi Gang offered when the yuan hit 6.7 per dollar two weeks ago, which had a calming effect on the market.

“(The comments) shouldn’t affect the market until the day when the policy is implemented,” said a trader at a foreign bank in Shanghai, referring to counter-cyclical measures.

Traders and economists have been on alert for intervention or other attempts to slow the yuan’s slide since it posted its worst month on record in June.

Wang said SAFE is paying close attention to cross-border capital flows and that it had been improving “contingency plans and policy reserves”.

While her comments about “counter-cyclical” measures did not make reference to specific market tools, some analysts have speculated in recent weeks that authorities may re-apply a “counter-cyclical factor” in their daily foreign exchange management to dampen depreciation expectations and slow the yuan’s latest downtrend.

In May 2017, after a period of decline for the yuan, the PBOC added the secret counter-cyclical factor to its formula for calculating the midpoint reference rate for trading of the currency. The central bank effectively removed the x-factor at the start of this year, as the yuan rebounded.

Policy insiders told Reuters earlier this month that Beijing was expected to make use of other tools it has honed since 2015 to curb speculation and volatility in the yuan.

SAFE spokeswoman Wang said on Thursday the foreign exchange regulator could adjust its tool kit for managing cross-border capital flows, which includes the previously used FX risk reserves.

China’s central bank implemented reserve requirements for financial institutions settling foreign exchange forward yuan positions in July 2016 before scrapping the requirements last September, when Beijing was anxious to quash one way bets on the yuan as outflows ease and exporters face strain.

Wang told the briefing that China’s foreign debt levels were under control and that SAFE would closely monitor any changes and provide policy guidance as needed.

(EurActiv) China set to fully control Portugal’s power grid amid Europe’s inertia

(EurActiv)

The case could be a game changer when it comes to foreign investments in the EU, considering that currently the Commission lacks the proper legal framework to “protect”EU common interests. [Chiu Ho-yang/Flickr]

China is set to make further inroads into European infrastructure, as a state-owned company attempts to gain full control of Portugal’s power grid.

The case could be a game changer when it comes to third country foreign investments in the EU. Currently, the Commission lacks the proper legal framework to “protect” EU common interests and it could be a wake-up call to speed up the procedure to establish an investments screening mechanism.

In 2011, Portugal’s government was required to sell its stake in the country’s power grids as part of the terms of its €78 billion bailout programme, organised by the European Commission and International Monetary Fund.

China Three Gorges (CTG) quickly snapped up the 21.35% share of Energias de Portugal (EDP) for €2.7 billion but reportedly committed in 2012 to remaining a minority shareholder.

EURACTIV was informed that the CTG purchase was not notified to the European Commission and, as such, no assessment was carried out.

But the company is now pursuing a majority stake in EDP that, combined with shares owned by other state-owned enterprises (SOEs), would give China near full control of an EU country’s power system.

EU mechanism to veto foreign investment ‘not on the cards’

EU leaders will discuss on Friday options to “screen” foreign investment in strategic sectors, but a more far-reaching proposal that would allow blocking takeovers at EU level remains off the table for now.

EDP is also a big player in renewable energy, as it is the majority owner of EDP Renewables, the world’s fourth largest wind energy producer, which aligns with China’s own impressive forays into clean energy.

CTG, which boasts one of the world’s largest dams among its assets, has already tabled an offer for the EDPR shares not controlled by EDP, meaning if its offer for the parent company is accepted, it would control both entities.

EDP is currently considering a third offer that sources say is in excess of €10 billion. The Portuguese government does not oppose the sale.

If accepted, China would control the generation and distribution of Portugal’s power, as well as holding 25% of the management company that runs both the electricity and gas grids, Redes Energéticas Nacionais (REN), which is also held through a separate SOE.

The Portuguese case comes at a portentous time for the EU, which is currently trying to broker an agreement between the Commission, Council and Parliament on investment screening, after France, Germany and Italy asked the EU executive to act in February 2017.

Many European economies are concerned that if large-scale investments by third parties like China are not controlled, assets could be “looted”, according to French Finance Minister Bruno Le Maire.

Chinese SOEs already control significant stakes in the Italian power grids, British gas network and Greece’s grid operator. The Port of Piraeus is also partly controlled by another state-run outfit.

A source close to the issue told EURACTIV that China’s “discretion” was getting dangerous. “They are patient. In most cases, they buy initially a small share with an aim to increase it in the long run,” the source said.

A first round of trilateral talks on investment screening kicked off on 10 July and EU trade boss Cecilia Malmström hopes for a final deal on the “priority file” before the end of the year.

Cecilia Malmström

@MalmstromEU

First Trilogue meeting with @EU2018AT and @EP_Trade on investment screening. Agreement that this is a priority file. We will do everything possible to finish this by the end of the year. @berndlange

When amending the Commission’s proposal, which was published last September, the Parliament decided that if one-third of EU member states judge that an investment screening process affects their interests, their views must be taken into account by the country in question.

In Portugal’s case, it is unlikely that other member states would trigger that option, given the isolated nature of the Iberian peninsula from the rest of Europe.

 

Portugal breaks 100% renewables mark but remains isolated

Portugal produced more power from clean energy sources in March than it actually needed, marking the first time in the 21st century that renewables have topped 100% of its production. But a dearth of energy connections with the rest of Europe remains problematic.

EURACTIV understands that Italy, Germany and France are pushing for an investment screening deal while some Visegrad countries, the UK, Croatia and Cyprus have expressed reservations.

Hungary’s Permanent Representation to the EU was asked to comment on the case but it declined to do so.

Under Commission scrutiny

Under its current investment policy instruments, the Commission does not assess individual FDI cases.

In a statement recently, Commissioner Malmström said that in its FDI proposal, the EU executive did not establish a country-by-country list of strategic sectors, but seeks to establish a coordination framework under which member states and the Commission may provide comments and opinions on FDI likely to affect security or public order.

EURACTIV asked about the role of the Commission, as coordinator of the bailout programmes, when it comes to privatisation of critical assets. Particularly, it asked whether the wider long-term political implications for the EU as a whole are considered when EU countries under bailout are forced to sell critical assets such as in the energy sector.

A source said that from a programme perspective, the primary interest of privatisations – apart from improving the performance of SOEs and in this way reducing fiscal risks – was to reduce the financing needs of the state and to improve debt sustainability.

To the extent that relevant EU law was respected, programme partners did not have a mandate or the capacity to look into all the terms of privatisation procedures implemented during the programme period, the source explained.

As for the strategy to purchase a small number of shares and then expand gradually to full takeover, the same source noted that the Commission had to approve acquisitions of control under the EU merger regulation when the companies involved meet certain thresholds.

“Those thresholds are based on the turnover of the companies involved and ensure that only deals of a certain size have to be notified and approved. The requirement to obtain Commission approval applies regardless of the sector and regardless of the nationality of the acquirer. It therefore also applies to acquisitions by Chinese SOEs in the energy sector,” the source said.

The same source added that although acquisitions of control had to be approved, acquisitions of a non-controlling stake in a company do not have to be notified and approved to the Commission.

“However, this does not mean the EU Merger Regulation can be circumvented by acquiring a company gradually, through purchases of a small number of shares.”

If a company first acquires a non-controlling stake and then later increases its stake to a level where it can exercise control, the acquisition of the additional stake will trigger a review under the EU Merger Regulation. This also applies to Chinese SOEs.”

“In other words, if a Chinese SOE were to first acquire a non-controlling stake, this would not be notifiable. But as soon as the stake is increased to a level where the Chinese SOE acquires control, the acquisition would have to be notified and approved by the Commission,” the source concluded.

What the EU Parliament says

On 20 March 2017, ten MEPs from the European Peoples’ Party (EPP) put forward a proposal for a Union act on the Screening of Foreign Investment in Strategic Sectors.

Swedish MEP Christofer Fjellner (EPP) told EURACTIV that electricity and gas infrastructure had to be considered critical EU infrastructure, and it ought to be protected by the investment screening mechanism.

“I think the issue should be addressed at the upcoming EU-China Summit. However, I believe that a much bigger problem is Gazprom, Nord Stream and the dependence of Russian gas,” he added.

For Portuguese MEP Marisa Matias from GUE-NGL, there is no argument that European stockholders are better than Chinese ones.

She added that the government does not make its position clear regarding the issue but explained that it does not want to make it public again.

“The Portuguese state owns no stock in EDP. The company was completely privatised and has no public capital and very few Portuguese (or European) institutional stockholders. 35% of the stock was dispersed which makes it very easy for the Chinese to achieve a dominant position,” she said.

According to Matias, the company has always been a very profitable, even when it was public but prices have soared since it was privatised.

“Our proposal (Bloco de Esquerda) is to nationalise the company. We have also been making proposals to end various rentist conditions that EDP benefits from, at the expense of taxpayers and consumers,” she concluded.

(BBG) China Has Arsenal of Non-Tariff Weapons to Hit Back at Trump

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Donald Trump’s threat to impose tariffs on an additional $200 billion of imported Chinese goods could see China retaliate with a wide range of non-tariff barriers.

Because China only imports around $130 billion worth of goods from the U.S., its ability to match the tariffs dollar-for-dollar is limited. The U.S. imported $505 billion of goods from China last year.

While China may jack up existing tariffs beyond the 25 percent level imposed so far, it could also inflict significant pain by increasing regulatory oversight of American companies, slowing down approvals processes, canceling orders for U.S. goods or encouraging consumer boycotts.

Big American companies including Walmart Inc. and General Motors Co. host large operations in China and have plans for expansion that could be stymied. China has used these tactics before, notably against South Korea and Japan during previous political spats, with carmakers from the two nations among the victims.

QuickTake: Can the U.S. win a trade war with China?

One example: Japanese automakers took a major hit in their China sales in 2012 after the fight over disputed islands in the East China Sea worsened. Another: China put a huge a dent in tourism in South Korea by banning package tours in 2017 amid a dispute over a missile shield.

Then there’s the currency. China has pleased trading partners in recent times by allowing greater appreciation of the yuan, but there is no guarantee it will stick to this. The yuan is the worst-performing currency in Asia since mid-June, sliding more than 3 percent

And of course there’s also the “nuclear option.” While it seems unlikely as China would also suffer greatly, it could offload some of its huge hoard of U.S. Treasuries.

Unless the U.S. and China reach a compromise, the trade war between the world’s two biggest economies looks to be headed for a new level.

(CNBC) Germany and China sign deals, lobby against US trade tariffs

(CNBC)

  • The two countries signed deals worth 20 billion euros ($23.6 billion).
  • In addition to multiple joint cooperation projects between governmental agencies, companies like BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships.
Porsche cars destined for export stand at Bremerhaven port on March 19, 2018 in Bremerhaven, Germany.

Alexander Koerner/Getty Images
Porsche cars destined for export stand at Bremerhaven port on March 19, 2018 in Bremerhaven, Germany.

German Chancellor Angela Merkel and Chinese Prime Minister Li Keqiang stressed their commitment to a multilateral trade system Monday in the wake of Washington’s decision to impose widespread tariffs, saying it was to everyone’s benefit.

Speaking in Berlin after the two countries signed deals worth 20 billion euros ($23.6 billion), Li told reporters the projects demonstrated how nations could work together.

In addition to multiple joint cooperation projects between governmental agencies, companies like BASF, BMW, Volkswagen, Daimler, Siemens and Bosch announced deals and partnerships.

“Free trade plays a strong leading role for both sides and for the world economy,” Li said through an interpreter in the Berlin chancellery.

On Friday, U.S. President Donald Trump imposed 25 percent tariffs on $34 billion of Chinese goods in response to complaints Beijing steals or pressuring companies to hand over technology. China announced retaliatory tariffs on a similar amount of U.S. goods.

Trump has also imposed tariffs on aluminum and steel imports that include the European Union, and has threatened additional tariffs on products like automobiles, singling out Germany in particular.

Bavaria-based automaker BMW has already been caught in the middle of escalating trade strife between the U.S. and China, saying Monday it would have to raise prices on SUVs it builds in the U.S. that it exports to China, after Beijing raised the import tax on cars from the United States to 40 percent from 15 percent.

“We have a lot of direct investment in the United States of America, we have a lot of direct investment in China,” Merkel said.

“It really is a multilateral interdependent system that at its best most likely is really a plurilateral win-win situation when we stick to the rules.”

She also applauded China for relaxing rules on foreign investment, saying that it was important to see “the market opening in China in this area is not only words, but is also being followed by deeds.”

In one deal finalized on Monday, Chinese firm CATL announced that it would build a factory in the German state of Thuringia to build batteries to supply to BMW for use in electric cars.

BMW said it had agreed to purchase 4 billion euros worth of batteries, with 1.5 billion euros of sales in Germany and 2.5 billion in China.

Merkel said the company brings a product and technology to Germany that wasn’t previously available.

She added, however: “If we could do it ourselves, I’d also not be sad.”

(MacauHub) China’s President due to visit Portugal in December

(MacauHub)

The President of the People’s Republic of China Xi Jinping is due to visit Portugal in early December, a few weeks before the start of the Year of China in Portugal and the Year of Portugal in China in 2019, the Portuguese Minister for Culture said on Friday in Macau.

Luís Filipe Castro Mendes, who travelled to Macau to take part in the Cultural Forum between China and the Portuguese-speaking Countries, told Portuguese state news agency Lusa, “we hope to have a cultural event that is worthy to welcome President Xi.”

Among the various “Portuguese cultural events in China and Chinese cultural events in Portugal,” the minister highlighted in February, “a very special event to celebrate the Lunar New Year,” a “very popular festival in Lisbon,” which is always well attended.

The schedule also includes performances by ballet companies, concerts and exhibitions, which the minister discussed on Thursday with his Chinese counterpart in Beijing.

“The meeting I had with the Chinese Minister of Culture served exactly to align our calendars, outlooks and our work at this festival – in which Macau will naturally have a stake,” he said.

In 2019 there will be a celebration of 40 years of diplomatic relations between Portugal and China, as well as 20 years since Macau returned to Chinese administration, a “happy coincidence,” said Castro Mendes.

(CNBC) China hits back with tariffs, accusing the US of launching the ‘largest trade war in history’

(CNBC)

  • At midnight Washington time, the U.S. imposed new tariffs on $34 billion of annual imports from China.
  • This prompted Beijing to respond in kind with levy tariffs on U.S. imports, China’s foreign ministry said Friday. It did not provide any immediate details on the implementation or scale of these charges.
  • China’s soymeal futures plunged over 2 percent during Friday afternoon trade in Asia before recovering most of its losses, amid market confusion over whether Beijing had actually implemented tariffs on soybeans and other U.S. goods.

Xi Jinping delivers a report to the 19th National Congress of the Communist Party of China (CPC) on behalf of the 18th Central Committee of the CPC at the Great Hall of the People in Beijing, capital of China, Oct. 18, 2017.

Xinhua | Ju Peng | Getty Images
Xi Jinping delivers a report to the 19th National Congress of the Communist Party of China (CPC) on behalf of the 18th Central Committee of the CPC at the Great Hall of the People in Beijing, capital of China, Oct. 18, 2017.

China implemented retaliatory tariffs on some imports from the U.S. on Friday, immediately after new U.S. duties had taken effect.

The move signals the start of a full-blown trade war between the world’s two largest economies, after President Donald Trump’s administration had initially made good on threats to impose steep tariffs on Chinese goods.

At midnight Washington time, the U.S. imposed new tariffs on $34 billion of annual imports from China. That prompted Beijing to respond in kind with levy tariffs on U.S. imports, China’s foreign ministry said Friday, though it did not provide any immediate detail on the implementation or scale of these charges.

Chinese state news agency Xinhua reported the country’s tariff rate on U.S. goods, at 25 percent, was equal to Washington’s rate on Chinese imports.

A spokesperson at China’s Ministry of Commerce said Friday that while the Asian giant had refused to “fire the first shot,” it was being forced to respond after the U.S. had “launched the largest trade war in economic history.

“This act is typical trade bullying,” the spokesperson said, before adding: “It seriously jeopardizes the global industrial chain … Hinders the pace of global economic recovery, triggers global market turmoil and will affect more innocent multinational companies, general companies and consumers.”

China’s Ministry of Commerce also said it would look to report the U.S. to the World Trade Organization (WTO) on Friday, accusing Washington of breaching international trade laws.

Market confusion

China’s soymeal futures plunged over 2 percent during Friday afternoon trade in Asia before recovering most of its losses, amid market confusion over whether Beijing had actually implemented tariffs on soybeans and other U.S. goods.

The China Daily, the country’s state-run English language newspaper, initially reported China had taken countermeasures against the U.S. on Friday, before rescinding its story without an explanation.

US imposes tariffs on $34 billion worth of Chinese goods

US imposes tariffs on $34 billion worth of Chinese goods  

Meanwhile, the absence of an official statement specifically clarifying China’s response to U.S. tariffs also did little to alleviate a sense of ambiguity among market participants.

The prospect of a tit-for-tat trade war is widely expected to make soymeal more expensive, supporting soymeal futures, particularly over the coming months when the U.S. is projected to become China’s primary soybean supplier.

How did we get here?

The Trump administration initiated the dispute in April, announcing the tariffs and accusing China of using “unfair” tactics to build a large trade surplus with the U.S. and expropriating American technology.

The White House has also pressed Congress to tighten rules on Chinese investment in U.S. technology.

Nonetheless, despite the urging of business groups and lawmakers to negotiate a truce, there was little sign Friday that the two sides would reach a compromise anytime soon.

There’s no obvious resolution to China-US trade tensions, expert says

There’s no obvious resolution to China-US trade tensions, expert says  

Beijing and Washington have held several rounds of high-level talks since early May, but the Trump administration has since said it is considering expanding the list of targeted Chinese imports. Trump said Thursday that another $16 billion of tariffs are expected to go into effect in two weeks, before ratcheting up the stakes to warn that measures totaling $500 billion in Chinese goods could soon come into force.

External observers have widely criticized this approach, saying such protectionist rhetoric undermines free trade policies that have shaped the global exchange of goods in recent decades.

(Economist) As its trade tussle with America heats up, China is on the back foot

(Economist) But tumbles in Chinese equities and the yuan stem more from domestic causes.

FOR months Chinese officials have stuck to the same script: China does not want a trade war, but will win if dragged into one. As hostilities turn more serious, this confident façade has taken a blow. Chinese equities have plunged into bear-market territory. The yuan had its biggest monthly fall against the dollar on record. Economic indicators have weakened. Even bombastic state-run media have turned introspective, counselling against arrogance.

All this, and the tit-for-tat trade battle is only just getting under way. On July 6th, after The Economist went to press, America was due to impose its first major set of tariffs on China: 25% duties on $34bn-worth of imports, notably machinery and electronic parts. China was set to retaliate with tariffs on goods worth the same amount, hitting products from soyabeans to sport-utility vehicles. Both countries have listed more tariffs to follow, on goods worth another $16bn. Both have also warned that they are willing to inflict much more pain if the conflict escalates.

Donald Trump’s bet is that since China has a massive bilateral trade surplus, it stands to lose more than America as barriers go up against imports. Were their stockmarkets gauges of the two countries’ trade-war prospects, he would seem to have a point. The S&P 500, America’s leading index of big shares, has fallen by 5% since late January; the CSI 300, China’s analogue, is down by more than 20% over the same period. Exchange-rate movements reinforce the impression. The yuan has depreciated by 5% against the dollar over the past three months, a sharp fall for a closely managed currency (see chart).

China is nervous about the perception of vulnerability. A drumbeat of reports in state-run media have talked up the stockmarket. On July 3rd the central bank tried to bolster the yuan, saying that the economy’s fundamentals were strong. But the toll from the trade war is starting to show up in some data. Surveys of China’s manufacturing sector have pointed to falling export orders. Mr Trump could take all this as evidence that he was right when he tweeted that trade wars would be easy for America to win.

In that, though, he would be mistaken. The turbulence in China reflects domestic challenges more than trade tensions. The hit to growth from the $34bn-worth of tariffs is likely to be minuscule, adding up to just about 0.1% of Chinese GDP. Depictions of China as a trade-reliant economy are hopelessly outdated: net exports account for just 2% of national income.

Instead, the bigger cause of China’s market turmoil is homegrown. After a rapid build-up of debt over the past decade, officials have been working to defuse financial risks. This has depressed demand for both equities and corporate bonds. Slower credit growth has weighed on liquidity. Capital spending has slowed sharply. Adding to the gloom was a report published by the National Institute for Finance and Development, a government-backed think-tank, on June 25th, warning that China was “very likely to see a financial panic”. The institute’s head later clarified that he believed the government could manage the risks. But jittery investors latched onto his warning, not his reassurance.

Yet seen from a different angle, China’s market troubles demonstrate one of the reasons why its officials think they can outlast America in a trade war. An authoritarian regime can limit and dictate the public discussion. After the stockmarket tumbled, authorities warned journalists against citing the trade conflict as an explanation, according to a directive published by the China Digital Times, a website that tracks government censorship. Reporters were also ordered to emphasise the economy’s bright spots. In America, meanwhile, the hurly-burly of its public discourse has been on display. On July 2nd the US Chamber of Commerce, the country’s biggest business group, launched a lobbying campaign to explain how tariffs would hurt the economy. Republican lawmakers in Congress are criticising the president’s trade policies more openly than heretofore—though on past form, if Mr Trump pushes ahead, they will probably fall into line.

Another source of confidence for China is the knowledge that it is not fighting America alone. From steel tariffs on Japan to threats of auto tariffs on Europe and negotiations that might wreck the North American Free-Trade Agreement, Mr Trump is taking on every one of America’s allies. China has tried to rally them to its side. It has asked the European Union to join it in condemning Mr Trump’s trade actions, according to Reuters (the EU declined because of its own trade grievances against China). Even as it raised tariffs on soyabeans from America, it removed them from soyabeans from India, South Korea and others in Asia. Xi Jinping, China’s president, has hinted that its markets will become more open to non-American firms.

Still, China’s preference would be to avoid a trade war altogether. That is why its officials had tried in May to hammer out an agreement to buy more American oil and farm goods, which they thought might satisfy Mr Trump. Many in China still cling to the hope that he can be reasoned with. Hawks in the White House had, after all, pushed for harsh restrictions on Chinese investors in late June, but Mr Trump went for a softer option, refusing to single out China. Lu Zhengwei of Industrial Bank, a Chinese lender, says the staggered way in which Mr Trump is imposing tariffs suggests that he wants to leave room for talks. “It feels like a chess match,” he says. With its financial markets in bad shape, China’s opening move looks wobbly. But the game is nowhere close to checkmate.

(ZH) Europe Turns Down Chinese Offer For Grand Alliance Against The US

(ZH) Publicizing its growing exasperation in dealing with president Donald Trump who refuses to halt the tit-for-tat retaliation in the growing trade war with China – which is set to officially begin on Friday when the US slaps $34 billion in Chinese exports with 25% tariffs – but has a habit of doubling down the threatened US reaction to every Chinese trade counteroffer (after all the US imports far more Chinese goods than vice versa)…

… China has proposed a novel idea: to form an alliance with the EU – the world’s largest trading block – against the US, while promising to open up more of China’s economy to European corporations.

The idea was reportedly floated in meetings in Brussels, Berlin and Beijing, between senior Chinese officials, including Vice Premier Liu He and the Chinese government’s top diplomat, State Councillor Wang Yi, according to Reuters. Willing to use either a carrot or a stick to achieve its goals, in these meetings China has been putting pressure on the European Union to issue a strong joint statement against President Donald Trump’s trade policies at a summit later this month.

However, perhaps because China’s veneer of the leader of the free trade world is so laughably shallow – China was and remains a pure mercantilist power, whose grand total of protectionist policies put both the US and Europe to shame – the European Union has outright rejected any idea of allying with Beijing against Washington ahead of a Sino-European summit in Beijing on July 16-17.

Instead, in the tradition of every grand, if ultimately worthless meeting of the G-X nations, the summit is expected to produce a “modest communique”, which affirms the commitment of both sides to the multilateral trading system and promises to set up a working group on modernizing the WTO. Incidentally, the past two summits, in 2016 and 2017, ended without a statement due to disagreements over the South China Sea and trade.

Then there is China’s “free-trade” reputation: a recent Rhodium Group report showed that Chinese restrictions on foreign investment are higher in every single sector save real estate, compared to the European Union, while many of the big Chinese takeovers in the bloc would not have been possible for EU companies in China. And while China has promised to open up, EU officials expect any moves to be more symbolic than substantive.

Almost as if behind the facade of smiles and agreement, Europe has absolutely no belief that Beijing will ever follow through with its promises.

In other words, not even when faced with the specter of a full-blown trade war, is Europe willing to terminally alienate the world’s biggest buying power: the US consumer, in exchange for some vague promises for “open trade” from Beijing.

That doesn’t mean that China won’t try however.

Vice Premier Liu He has said privately that China is ready to set out for the first time what sectors it can open to European investment at the annual summit, expected to be attended by President Xi Jinping, China’s Premier Li Keqiang and top EU officials.

Meanwhile, as the US-China trade war has drifted into the front pages of domestic propaganda, Chinese state media has been promoting the message that the European Union is on China’s side, putting the bloc in a delicate position according to Reuters.

In a commentary on Wednesday, China’s official Xinhua news agency said China and Europe “should resist trade protectionism hand in hand”.

“China and European countries are natural partners,” it said. “They firmly believe that free trade is a powerful engine for global economic growth.”

Or maybe Europe’s position is not all that delicate, because when push comes to shove, Europe is nowhere near ready to abandon its trans-Atlantic trade routes:

“China wants the European Union to stand with Beijing against Washington, to take sides,” one European diplomat told Reuters. “We won’t do it and we have told them that.”

But why does Europe – which has so staunchly publicized its disagreement with Trump’s policies – refuse to align with China? Simple: behind closed doors it admits that Trump’s complaints about Beijing are, drumroll, spot on.

Despite Trump’s tariffs on European metals exports and threats to hit the EU’s automobile industry, Brussels shares Washington’s concern about China’s closed markets and what Western governments say is Beijing’s manipulation of trade to dominate global markets.

“We agree with almost all the complaints the U.S. has against China, it’s just we don’t agree with how the United States is handling it,” another diplomat told Reuters.

And while Europe’s position is understandable, if hypocritical – after all if it believes that Trump’s approach to dealing with an ascendant China is the right one, why not just say it – the attention will shift to China, and the admission that Beijing is terrified about the consequences of a full blown trade war.

As Reuters notes, China’s stance is striking given Washington’s deep economic and security ties with European nations. It shows the depth of Chinese concern about a trade war with Washington, as Trump is set to impose tariffs on billions of dollars worth of Chinese imports on July 6.

It also underscores China’s new boldness in trying to seize leadership amid divisions between the United States and its European, Canadian and Japanese allies over issues including free trade, climate change and foreign policy.

“Trump has split the West, and China is seeking to capitalize on that. It was never comfortable with the West being one bloc,” said a European official involved in EU-China diplomacy.

Wait, that’s the exact same thing the media claims about Putin is doing, although usually in the context of some grand “Kremlin mastermind” when the establishment does not get the desired outcome. The irony is that whereas Putin is merely sitting back and enjoying the show, it is China that is actively engaging in secretive negotiations trying to shift the global balance of power.

“China now feels it can try to split off the European Union in so many areas, on trade, on human rights,” the official said.

So, when “they” say Putin, they really mean Xi? Confusing…

* * *

Never one to act without a long-term strategic plan, Beijing’s approach to cozy up with Europe may have an entirely different motive than isolating Trump: China’s offer at the upcoming summit to open up reflects Beijing’s concern that it is set to face tighter EU controls. Just like in the US, the European Union is seeking to pass legislation to allow greater scrutiny of foreign investments.

Said otherwise, China is suddenly scrambling because it realizes that unless it locks up Europe, it may well be Trump who succeeds in convincing Brussels to sign a bilateral deal with the US, at the expense of cracking down even more on China, a move which would send China’s annual GDP growth well below 6% as Beijing loses full access to its biggest trading partner.

Summarizing Europe’s position, a third diplomat told Reuters quite simply that “we don’t know if this offer to open up is genuine yet,” adding that “it’s unlikely to mark a systemic change.”

To be sure, European envoys say they already sensed a greater urgency from China in 2017 to find like-minded countries willing to stand up against Trump’s “America First” policies. And yet, according to the Reuters report, Europe is not one of those “like-minded countries.”

Almost as if everything that is publicly taking place on the international stage is nothing but a spectacle, one in which everyone’s true motivations are 180 degrees the opposite of what is stated.

(Reuters) Exclusive: China presses Europe for anti-U.S. alliance on trade

(Reuters) China is putting pressure on the European Union to issue a strong joint statement against President Donald Trump’s trade policies at a summit later this month but is facing resistance, European officials said.

In meetings in Brussels, Berlin and Beijing, senior Chinese officials, including Vice Premier Liu He and the Chinese government’s top diplomat, State Councillor Wang Yi, have proposed an alliance between the two economic powers and offered to open more of the Chinese market in a gesture of goodwill.

One proposal has been for China and the European Union to launch joint action against the United States at the World Trade Organisation.

But the European Union, the world’s largest trading bloc, has rejected the idea of allying with Beijing against Washington, five EU officials and diplomats told Reuters, ahead of a Sino-European summit in Beijing on July 16-17.

Instead, the summit is expected to produce a modest communique, which affirms the commitment of both sides to the multilateral trading system and promises to set up a working group on modernizing the WTO, EU officials said.

Vice Premier Liu He has said privately that China is ready to set out for the first time what sectors it can open to European investment at the annual summit, expected to be attended by President Xi Jinping, China’s Premier Li Keqiang and top EU officials.

Chinese state media has promoted the message that the European Union is on China’s side, officials said, putting the bloc in a delicate position. The past two summits, in 2016 and 2017, ended without a statement due to disagreements over the South China Sea and trade.

“China wants the European Union to stand with Beijing against Washington, to take sides,” said one European diplomat. “We won’t do it and we have told them that.”

China’s Foreign Ministry did not immediately respond to a request for comment on Beijing’s summit aims.

In a commentary on Wednesday, China’s official Xinhua news agency said China and Europe “should resist trade protectionism hand in hand”.

“China and European countries are natural partners,” it said. “They firmly believe that free trade is a powerful engine for global economic growth.”

CHINA’S MOMENT?

Despite Trump’s tariffs on European metals exports and threats to hit the EU’s automobile industry, Brussels shares Washington’s concern about China’s closed markets and what Western governments say is Beijing’s manipulation of trade to dominate global markets.

“We agree with almost all the complaints the U.S. has against China, it’s just we don’t agree with how the United States is handling it,” another diplomat said.

Still, China’s stance is striking given Washington’s deep economic and security ties with European nations. It shows the depth of Chinese concern about a trade war with Washington, as Trump is set to impose tariffs on billions of dollars worth of Chinese imports on July 6.

It also underscores China’s new boldness in trying to seize leadership amid divisions between the United States and its European, Canadian and Japanese allies over issues including free trade, climate change and foreign policy.

“Trump has split the West, and China is seeking to capitalize on that. It was never comfortable with the West being one bloc,” said a European official involved in EU-China diplomacy.

“China now feels it can try to split off the European Union in so many areas, on trade, on human rights,” the official said.

Another official described the dispute between Trump and Western allies at the Group of Seven summit last month as a gift to Beijing because it showed European leaders losing a long-time ally, at least in trade policy.

European envoys say they already sensed a greater urgency from China in 2017 to find like-minded countries willing to stand up against Trump’s “America First” policies.

FILE PHOTO: Chinese and U.S. flags are set up for a meeting during a visit by U.S. Secretary of Transportation Elaine Chao at China’s Ministry of Transport in Beijing, China April 27, 2018. REUTERS/Jason Lee/File Photo

NO “SYSTEMIC CHANGE”

A report by New York-based Rhodium Group, a research consultancy, in April showed that Chinese restrictions on foreign investment are higher in every single sector save real estate, compared to the European Union, while many of the big Chinese takeovers in the bloc would not have been possible for EU companies in China.

China has promised to open up. But EU officials expect any moves to be more symbolic than substantive.

They say China’s decision in May to lower tariffs on imported cars will make little difference because imports make up such a small part of the market. China’s plans to move rapidly to electric vehicles mean that any new benefits it offers traditional European carmakers will be fleeting.

“Whenever the train has left the station we are allowed to enter the platform,” a Beijing-based European executive said.

However, China’s offer at the upcoming summit to open up reflects Beijing’s concern that it is set to face tighter EU controls, and regulators are also blocking Chinese takeover attempts in the United States.

The European Union is seeking to pass legislation to allow greater scrutiny of foreign investments.

“We don’t know if this offer to open up is genuine yet,” a third EU diplomat said. “It’s unlikely to mark a systemic change.”

(BBG) Canada Is Preparing Steel Quotas, Tariffs on China and Others

(BBG) The Canadian government is preparing new measures to prevent a potential flood of steel imports from global producers seeking to avoid U.S. tariffs, according to people familiar with the plans. The Canadian dollar weakened and shares in Stelco Holdings Inc. soared.

The measures are said to be a combination of quotas and tariffs aimed at certain countries including China, said the people, asking not to be identified because the matter isn’t public. The moves follow similar “safeguard” measures being considered by the European Union aimed at warding off steel that might otherwise have been sent to the U.S. It comes alongside Canadian counter-tariffs on U.S. steel, aluminum and other products set to kick in on July 1.

The steps intensify the fallout from U.S. President Donald Trump’s trade fight, in particular U.S. tariffs of 25 percent on steel and 10 percent on aluminum that hit Canada, the EU and other nations. The moves have prompted retaliation from the U.S.’s biggest trading partners, and forced companies like Harley-Davidson Inc. to shift production.

The Canadian measures are expected to include new quotas on certain steel imports to prevent dumping, with tariffs applied above that threshold, the people said. The announcement could come as early as next week, though the government hasn’t finalized its plans, the people said. A spokesman for Finance Minister Bill Morneau declined to comment. Representatives for Foreign Minister Chrystia Freeland, who handles U.S. trade issues, didn’t immediately return requests for comment.

Imports Data

Canadian steel imports in 2017 totaled $9 billion, according to U.S. data, with 55 percent of that coming from the U.S. The next biggest sources of Canadian steel are China, South Korea, Brazil and Turkey, the data show.

The U.S. steel tariffs open the door to a potential flood of cheap imports, said Sean Donnelly, chief executive officer of ArcelorMittal Dofasco, the Canadian unit of ArcelorMittal of Luxembourg.

“We must be able to operate in an un-distorted, market-based competitive environment,” Donnelly told lawmakers at a parliamentary committee in Ottawa Tuesday. “Canada’s response to past and future threats from unfairly traded and diverted offshore imports is critical.”

Steel groups have been pressing for safeguard measures, which could be applied provisionally pending an investigation. Joseph Galimberti, president of the Canadian Steel Producers Association, said his members are seeing the impacts of steel diversion in Canada’s market. The industry group’s members include ArcelorMittal Dofasco, Stelco Holdings Inc., Essar Steel Algoma Inc. and others.

Stelco, one of the few publicly traded steel producers in Canada, jumped as much as 2.5 percent in Toronto and was up 1.7 percent to C$25.90 at 12:36 p.m while Alcoa Corp. rose 2.6 percent to $45.40. The loonie erased gains, weakening 0.1 percent to 75.13 U.S cents.

“We are entirely supportive of the safeguard as an appropriate measure and have been working with government to provide them the commercial information they need to proceed as appropriate,” he said in an email Tuesday.

Residential Turmoil

Any additional tariffs enacted on foreign steel will have a ripple effect on the Canadian economy and raise costs in the already-crunched housing sector.

Only a handful of companies produce steel in the country and construction companies, steel fabricators and developers rely on imports for various types of steel including those used for residential building such as rebar.

“Construction companies and owners will have to pay more in the short-term out of their own pockets,” Richard Lyall, president of the Residential Construction Council of Ontario, said in a phone interview. “It’s a hit that can affect risk profile and pro formas for future projects, which can have a chilling effect on the market. But the medium to longer term is consumers will get hit by this.”

(BBG) Trade War Could Trigger Global Recession, China and Europe Warn

(BBG) UBS Wealth CIO Mark Haefele discusses the impact of trade frictions on the economy and markets.

China and the European Union vowed to oppose trade protectionism in an apparent rebuke to the U.S., saying unilateral actions risked pushing the world into a recession.

Vice Premier Liu He — President Xi Jinping’s top economic adviser — said China and the EU had agreed to defend the multilateral trading system, following talks Monday in Beijing. The comments, made at a press briefing with European Commission Vice President Jyrki Katainen, come as both sides prepare to face off against President Donald Trump’s tariff threats.

“Unilateralism is on the rise and trade tensions have appeared in major economies,” Liu said. “China and the EU firmly oppose trade unilateralism and protectionism and think these actions may bring recession and turbulence to the global economy.”

Both China and the EU are coming under pressure from Trump, as the U.S. president seeks to remake a global trading system that he sees as rigged against the world’s largest economy.

After months of rhetoric and threats, the trade fight seems to be coming to a head, with Europe imposing tariffs on $3.3 billion of American products Friday in response to U.S. barriers on imports of aluminum and steel. That triggered threats of further tariffs on European cars from Trump.

Investment Curbs

Later this week, the U.S. Treasury Department is expectedto release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China — which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

As the conflict over trade has intensified, China has sought to align itself with Europe as a way of pushing back against the U.S. Both sides agreed in Monday’s talks to promote globalization and forged a consensus on climate change, Liu said.

But despite their alignment against the U.S. trade threat, the EU and China remain at odds over issues including the lack of reciprocal access for European firms and the EU’s reluctance to endorse China’s Belt and Road trade and infrastructure program. As China steps up its engagement in Europe, the EU, too, is working on measures to tighten screening of outside investments to protect critical technologies and infrastructure.

survey released last week by the European Union Chamber of Commerce in China showed that a slim majority of members thought foreign-invested companies are treated unfairly, and almost two-thirds see a lack of reciprocity between the access to China’s markets that they get, and the access Chinese companies get to Europe.

China and the EU will exchange offers related to market access at an upcoming summit in July, Liu said Monday. He also said both sides agreed to connect the Belt and Road initiative to the EU’s development strategies.

The EU and China agreed to set up a working group to update the WTO to better equip it for the contemporary world, Katainen said at a press conference late Monday in Beijing. While the details have yet to be decided, the EU hopes the working group is at vice-minister level, he said.

In what Katainen described as “a big step forward,” the two sides will also exchange a list regarding a bilateral investment agreement at the upcoming summit. Still, that doesn’t mean the accord will be reached immediately, with different views outstanding on overcapacity, forced technology transfer and cyber security, he said.

(IA) China nationalises troubled insurer Anbang

(IA) Insurance giant Anbang is entirely under government control after the country’s regulator confirmed it has seized over 98% of the formerly privately-held conglomerate.

Chinese bonds add diversification to global index

According to a statement seen by newspaper The Wall Street Journal, the China Banking and Insurance Regulatory Commission (CBIRC) approved the transfer of a 98.23% stake to the China Insurance Security Fund on 22 June.

Control of the insurer was seized in February 2018 by the China Insurance Regulatory Commission (CIRC), which rebranded as CBIRC in April.

The regulator said it would retain control of Anbang for one year, but this could be extended by another year if needed, a source told the WSJ.

Corruption concerns

An extravagant overseas shopping spree, that saw Anbang buy New York’s Waldorf Astoria hotel, drew regulatory scrutiny amid worries that the insurer had grown too risky.

The firm’s downfall started in April 2017, when it was forced to make statements illustrating its cash reserves and rebut rumours it was taking risky loans.

At the same time, the CIRC warned it was concerned about corruption in the sector.

The regulator is understood to have been overseeing the firm’s operations from as early as July 2017.

Cash injection

With control of the insurer in the hands of the regulators and its chairman facing a lengthy jail term, a cash injection worth RMB60.8bn (£7bn, $9.3bn, €8bn) was given by the China Insurance Security Fund (CISF) in March 2018.

A month later, chairman Wu Xiaohui was sentenced to 18 years in prison for fraud and embezzlement. He has since appealed his conviction.

At the time, it was stated that the CISF would temporarily hold shares in the group during its period under interim management.

The plan is to gradually transfer the fund’s shares in the insurer to maintain Anbang’s status as a private company.

(Economist) Why so many World Cup sponsors are from China

(Economist) Many Western companies have withdrawn their support

CHINA’S footballers have only qualified once for the finals of the men’s World Cup and that appearance—in South Korea and Japan in 2002—was forgettable. The Chinese team failed to score a goal and conceded nine, crashing out of the tournament at the group stage. But even though China is sitting out the current tournament in Russia, it is still having a considerable impact. Seven of the 19 corporate sponsors are Chinese. Why so many?

The World Cup is the marquee tournament for FIFA, the Zurich-based multi-billion-dollar enterprise that governs world football. It is hard to overstate how closely FIFA’s business model is tied to the quadrennial event, which is its primary source of revenue. FIFA booked $5.4bn in revenue for the four-year business cycle ending with the 2014 World Cup in Brazil, thanks largely to the television rights and corporate sponsorships that are the cornerstones of its balance sheet. The former brought in $2.4bn in revenue and the latter $1.6bn during that cycle, helping to offset the $2bn operational costs related to the staging of the tournament. The World Cup is one of the world’s most-watched television events, so big companies have traditionally relished the platform it offers their brands, and competed fiercely for the sponsorship slots on offer.

That has changed. In 2015 American prosecutors indicted some 40 individuals and entities associated with FIFA on a broad range of corruption charges, including racketeering, wire fraud and money-laundering conspiracy. The charges stoked long-bubbling concerns among the organisation’s corporate partners about whether their associations with FIFA exposed them to reputational and financial jeopardy. Companies such as Emirates, Continental, Johnson & Johnson and Sony refused to renew their sponsorship contracts when they expired. Few lined up to take their places. Of the 34 sponsorship slots on offer for the tournament in Russia, only 19 have been filled, a stark change from 2014 when sponsorship packages were sold out long before kick-off. (It should be acknowledged, though, that the corporate world might have reacted differently if the 2018 World Cup had been scheduled for, say, Portugal and Spain, rather than a Russia increasingly mistrusted by the West.) FIFA’s only new deals since the scandal broke have been with companies from Russia, Qatar (which hosts the tournament in 2022) and China, whose businesses seem to be less concerned about being associated with FIFA. Among those Chinese companies are Vivo, a mobile-phone company; Hisense, an electronics manufacturer; Yadea, an electric-scooter company; Mengniu, China’s second-largest dairy company; and Dalian Wanda, a conglomerate with interests in property and cinemas.

Around one in five Chinese people watched the 2014 tournament on television, but football’s popularity in the Middle Kingdom has not previously translated into large numbers of Chinese sponsors of the World Cup. Only one Chinese company sponsored the 2014 tournament, so the change with this year is notable. The Chinese president, Xi Jinping, an avid football fan, has made no secret of his wish for his country to qualify for another World Cup, host the tournament and eventually even win it. According to Nielsen, a research firm, the presence of Chinese sponsors at this tournament “can be seen as the country’s corporations rowing behind the national effort to develop the game and attract the World Cup”. They are speaking to FIFA in a language it understands: money.

(AM) Trump threatens $450 billion in total China tariffs

(AM) The president says the U.S. would implement an additional $200 billion in tariffs if China retaliates against the $50 billion already planned.

Trump threatens $450 billion in total China tariffsPHOTO:

 

   President Donald Trump on Monday evening threatened tariffs of up to $450 billion annually against Chinese products if trade actions between the two countries escalate.

In a statement, Trump announced he directed U.S. Trade Representative Robert Lighthizer to identify $200 billion worth of Chinese goods for additional tariffs of 10 percent, after the government of China stated it would retaliate against U.S. tariffs against $50 billion worth of Chinese goods, the first phase of which is set to take effect July 6.

(ZH) China Warns Of “Immediate” Retaliation As Trump Set To Impose $50 Billion Tariff Package

(ZH) Just hours after President Trump reportedly signed off on tariffs targeting some $50 billion in Chinese goods(a decision that was finalized after a 90-minute meeting with officials from the West Wing, as well as senior national-security officials, the Treasury Department, the Commerce Department and the office of the US Trade Representative)Chinese Foreign Minister Wang Yi said during a press conference in Beijing that China is prepared to retaliate as it takes a more confrontational approach against the US on trade,according to the Wall Street Journal.

Wang’s comments reportedly followed face-to-face talks with Secretary of State Mike Pompeo, where Wang urged Pompeo to choose a path of “cooperation and mutual benefit.” Pompeo was in Beijing to brief Chinese officials on the North Korea summit.

On Thursday, Chinese Foreign Minister Wang Yi said China and the U.S. faced a choice between cooperation and mutual benefit on the one side and confrontation and mutual loss on the other.

“China chooses the first,” Mr. Wang told a joint news conference, after talks with U.S. Secretary of State Mike Pompeo in Beijing.

“We hope the U.S. side can also make the same wise choice,” Mr. Wang said. “Of course, we have also made preparations to respond to the second kind of choice.”

Meanwhile, Bloomberg reports that Mei Xinyu, a researcher at Chinese Academy of International Trade and Economic Cooperation, part of China’s Ministry of Commerce, expects China to adopt retaliatory tariffs on U.S. goods “immediately.”

While the official breakdown of Trump’s tariffs won’t be released until tomorrow, a CNBC source noted that Trump has already signed off on the tariffs, and that a list of talking points has been distributed to 10 government agencies, while a list of products has been uploaded to a government database.

As we noted earlier, one factor that could sway Trump’s thinking on tariffs would be an aggressive response from China. Earlier on Thursday, Xinhua, China’s state news agency reported that President Xi Jinping had told Pompeo that he hopes the US will tread carefully when it comes to sensitive issues like the US’s relationship with Taiwan and the simmering trade conflict so as to avoid a serious breakdown in bilateral ties between the two countries (ties that, aside from the trade spat, are also being tested by military brinksmanship in the Pacific).

The list of goods that will be subject to the new levies is expected to include between 800 and 900 products, slightly less than the original list of about 1,300 products on a list published by the US Trade Representative in April, as we pointed out earlier, While the two countries have been exchanging trade-related threats for months now, it’s still unclear when the US tariffs will go into effect.

But remember, this is not a ‘Trade War’ – heaven forbid… the narrative that these shots and retaliations are merely skirmishes (because what would stocks do if they really started thinking a trade war was possible). One can’t help but picture the Black Knight defending his bridge…one “fleshwound” at a time…

(BL) Trade tension likely to intensify as China’s trade surplus with the US balloons

(BLThe data, which showed that the China’s surplus shrank with the rest of the world, is likely to reinforce the US’s determination to impose new tariffs on Chinese imports

Picture: ISTOCK

Picture: ISTOCK

Beijing — China’s trade surplus with the US jumped in May, official data showed Friday, worsening the imbalance at the centre of the tension between the economic titans.

By contrast, China’s trade surplus with the rest of the world shrank.

The figures may reinforce Washington’s determination to move forward with new tariffs on tens of billions of dollars of Chinese imports as early as next week.

Beijing has warned that those tariffs would void agreements made between the two powers over months of trade negotiations between the world’s two largest economies.

The record imbalances are at the heart of US President Donald Trump’s anger at what he describes as Beijing’s unfair trade practices that are hurting American companies and destroying jobs.

Trade is also expected to dominate upcoming Group of Seven (G-7) talks — which do not include China — with Canada and leading European nations warning Trump they will not back down over tariffs.

For the first five months of the year, China’s surplus with the US crossed the $100bn mark, hitting $104.8bn.

Customs data showed the surplus grew 11.7% year on year to $24.6bn in May, with exports to the US rising by about 12% and imports up 11%.

‘Reaching a positive outcome for both Beijing and Washington will take work after years of rising tensions and emboldened leaders on both sides of the Pacific’

With the wider world, Chinese demand has outpaced its shipment growth, with its surplus of $24.9bn for the month down 38.9% from last year.

China’s exports grew 12.6% in May while imports jumped 26% year on year, outpacing forecasts of 11.1% growth and 18.0% respectively, by analysts pooled by Bloomberg News. ”

The particularly strong May figures are due to uncertainties from the trade negotiations,” said Iris Pang, an economist at ING Groep NV in Hong Kong to Bloomberg News. “Exports risks are mounting, so the exporters expedited importing components for re-export.”

On Thursday in Washington, the US announced it had reached a deal with Beijing to ease sanctions that brought Chinese smartphone maker ZTE to the brink of collapse, a possible indication of progress in fraught trade talks.

The ZTE settlement came just days after Beijing reportedly offered to ramp up purchases of American goods by $70bn to help cut the yawning trade imbalance with the US — moving part-way towards meeting a major demand of Trump.

Trump has demanded a $200bn reduction in its trade deficit with China over two years.

Despite the settlement, there was no sign Trump had veered from plans to impose as much as $50bn in tariffs on Chinese imports to punish Beijing for its alleged theft of American technology and know-how.

Despite some positive signs for a trade deal with the US, analysts cautioned China faced other trade hurdles.

“Chinese trade growth is still likely to edge down over the coming year as the global economy loses momentum and headwinds to domestic demand from slower credit growth intensify,” said Julian Evans-Pritchard, a China watcher at Capital Economics.

(ZH) US Plans “Significantly More” South China Sea War-Drills To Counter China’s “New Reality”

(ZH) After an exciting weekend of comments from U.S. Defense Secretary James Mattis and Chinese People’s Liberation Army Lieutenant General He Lei at the IISS Shangri-La Dialogue, a civilian and military defense summit in Singapore, it appears the United States had to have the last word.

On Sunday, two U.S. officials told Reuters that the Pentagon is considering increased naval war drills in the South China Sea near China’s heavily disputed militarized islands. The officials, who are working jointly with Asian diplomats — declined to comment about the Pentagon’s progress in finalizing the plan for the new drills.

Such a move could further increase geopolitical tensions in one of the world’s most volatile regions.

Officials explained to Reuters that the naval drills could involve more extensive patrols, ones involving a large number of warships or operations including closer surveillance of the Chinese military bases on the islands, which now includes anti-ship cruise missiles, radar-jamming equipment, and strategic bombers.

U.S. officials said they are not doing this alone. They are aligning international allies and strategic partners to increase “naval deployments through the vital trade route as China strengthens its military capabilities on both the Paracel and Spratly islands.”

“What we have seen in the last few weeks is just the start, significantly more is being planned,” said one Western diplomat, referring to a freedom of navigation patrol late last month that used two U.S. ships for the first time.

“There is a real sense more needs to be done.”

While the Pentagon does not directly comment on future classified operations, there is a reason to believe that more naval drills are set to intensify in the second half of 2018. Last month, we reported that the U.S. Navy conducted its “freedom of navigation” patrols near the islands to demonstrate the right to sail through the international waters, even as President Donald Trump asked Beijing for cooperation on North Korea.

Even though the naval operation had been planned for many months in advance, this was the first time where two U.S. warships used the “freedom of navigation” card to sail miles from the heavily disputed islands.

In response to Beijing’s recent militarization of its islands, the Pentagon withdrew an invitation for the People’s Liberation Army Navy (PLAN) to participate in a massive multinational naval exercise off Hawaii’s coast this summer.

During the IISS Shangri-La Dialogue summit on Saturday, Mattis blasted Beijing for the militarization of artificial islands in the South China Sea and warned there could be “much larger consequences” in the near term. He said China’s militarization in the region was now a “reality” but that Beijing would face unspecified consequences.

Last month, China conducted military drills over – and on – heavily disputed islands in the South China Sea, as the People’s Liberation Army Air Force (PLAAF) for the first time landed several strategic bombers on the islands, triggering concern from Vietnam and the Philippines.

People’s Daily,China

@PDChina

Chinese bombers including the H-6K conduct takeoff and landing training on an island reef at a southern sea area

At the IISS Shangri-La Dialogue, Senior Col. Zhao Xiaozhou, of the People’s Liberation Army’s, hinted in a question to Mattis that the U.S. Navy’s recent freedom of navigation around the islands could be defined as militarization.

“Mattis’ speech was negative,” Zhao said in an interview afterward.

“If China’s islands and reefs are continuously threatened by activities under the name of so-called freedom of navigation, China will eventually station troops on these reefs.”

Speaking to reporters at the Singapore conference, Lieutenant General He Lei defended Beijing’s military build-up in the South China Sea, blasting the “irresponsible comments” made by Mattis, who on Saturday accused Beijing of threatening its neighbors in the heavily disputed waters and warned China of “consequences” if it continues weaponizing the South China Sea.

“It is China’s sovereign and legal right for China to place our army and military weapons there. We see any other country that tries to make noise about this as interfering in our internal affairs,” He said.

Singapore-based military strategist Tim Huxley told Reuters while increased international pressure might slow China’s militarization efforts, however, the momentum will be hard to stop.

China has created a new reality down there, and it is not going to be rolled back,” Huxley said.

“They are not doing this to poke America or their neighbors in the eye but they are almost certainly doing this to serve their long-term strategic objectives, whether that is projecting their military power or securing energy supplies.”

The amount of insight from Mattis and General He Lei at the IISS Shangri-La Dialogue this past weekend has provided us with the understanding that tensions in the South China Sea are about to significantly flare up in the second half of 2018 and beyond. Nevertheless, the clues from Reuters about their conversation with U.S. officials familiar with the situation confirms that one of the world’s most volatile areas could soon be much closer to war than we thought.

(Reuters) Portugal’s EDP not subject to management limits under China bid -regulator

(Reuters) EDP-Energias de Portugal will remain under normal management without limitations usually imposed by takeover rules because these do not apply to the bid by the state-owned, unlisted entity China Three Gorges, market regulator CMVM said on Friday.

CTG last month offered 9 billion euros (8 billion pounds) for the stake it does not already own in the utility, which is Portugal’s largest company by assets.

EDP has said it considered the 3.26 euro a share bid too low but is yet to announce its formal stance on the overall offer.

The CMVM neutrality rules state that, under a takeover by another company, a target firm’s management is limited to day-to-day activities and requires its board of directors be neutral in the bid process, for example barring it from changing the company’s asset base.

However, since the owner of CTG is a third party, in this case the Chinese state, it means the reciprocity principles do not apply and the neutrality rules will be waived, the CMVM said in a statement.

Still, EDP will be required to act in good faith while defending the interests of its shareholders, the regulator said, adding it took the decision after being approached by EDP, which argued that its management should not be subject to limitations

CTG owns a 23 percent stake in EDP and is its largest shareholder.

When CTG announced the bid it sought to buy at least 50 percent of EDP voting capital plus one vote for the offer to succeed, but it has since said it reserved the right to waive that condition, meaning it could just increase its stake in EDP without taking full control.

EDP shares were 0.5 percent higher at 3.36 euros at midday, underperforming the broader market in Lisbon, up 1.5 percent.

(Reuters) In Portugal, trust in China is the art of the deal

(Reuters) Utility company EDP may balk at the meager 5 percent premium offered for its shares by China Three Gorges (CT) but the battle for Portugal’s biggest business has largely played out already.

To some it looks like a lowball bid, but Portugal has welcomed the offer because it considers the Chinese firm’s pledge to keep EDP-Energias de Portugal intact more important than the price and it wants closer ties with a country that has plowed billions into its economy.

That openness to investment from China, including in strategic sectors like energy, stands out amid suspicions elsewhere in Europe about Chinese acquisitions.

The Chinese state-owned hydropower giant became EDP’s biggest shareholder in 2011. So when reports of merger talks between EDP and Spanish rival Gas Natural emerged in July 2017, it beat a path to the Lisbon government’s door.

A Gas Natural takeover would have threatened CTG’s ambition to use EDP to diversify beyond China, while Portugal’s Socialist government feared a European rival could break up the business, an industry source familiar with the talks and a political source with knowledge of the government’s position said.

“Nearly a year ago, Gas Natural approached EDP and that was the time when CT started to think about this move,” said one industry source with knowledge of CTG’s takeover bid.

“If CT has been a partner for more than six years, has invested in the company, in a strategic sector for Portugal, and has good relations with the government, it is natural that they talk,” the source said.

EDP and Gas Natural denied being in talks last year. But just over a month after the reports, Portugal added a clause to its takeover laws allowing shareholders with the same ultimate owner to combine all their voting rights.

Previously, the votes would have been capped at 25 percent, whatever the size of their combined holdings.

That could be crucial as CTG’s bid for EDP progresses. While it owns 23.3 percent, another Chinese state-owned company, CNIC, holds 5 percent, most recently buying 2 percent at the end of 2017.

CT [CYTGP.UL] in China and a spokesman for the Portuguese government did not respond to requests for comment.

‘PURELY POLITICAL’

CT first bought 21.4 percent of EDP in December 2011 for 2.7 billion euros ($3.2 billion), stepping in when Portugal privatized the company to raise funds after an international bailout to stabilize government finances.

The Chinese company has since invested some 2 billion euros in power ventures with EDP, which has a portfolio of renewable energy assets such as wind, hydro and solar power in countries such as Brazil, the United States, France, Italy and Poland.

In April this year, there were reports of interest in EDP from another European utility, this time Engie. The French company declined to comment while EDP said at the time that no contacts had been established.

A few weeks later, CT launched its takeover bid. It offered 9.07 billion euros ($10.7 billion) for the rest of EDP on May 11, a premium of just 5 percent above the utility company’s share price before the offer became public.

EDP described the offer as too low, but left the door open to negotiations. Some analysts expect EDP to ask for a 20 to 30 percent premium but no other bidder has yet emerged and EDP shares are trading less than 5 percent above the offer price.

“It was predictable and there have already been conversations with the government for a long time,” said an industry source close to EDP who has knowledge of the talks.

“This is purely political,” the source said. “CT knew that there were many European companies looking at EDP, which is medium-sized and has interesting assets.”

In its bid announcement, CT made clear it saw EDP’s long-term future as a Portuguese company strengthened by CTG’s assets, with a large free float of shares that could potentially be used as a springboard for European expansion.

That will please the government, which wants to protect EDP’s 6,000 jobs in Portugal and keep its headquarters in the country.

“What matters to the government is the strategic importance of EDP to the country,” said Filipe Garcia, head of Informacao de Mercados Financeiros consultancy, adding that the takeover price was a secondary consideration for the government.

OPEN DOOR POLICY

Links between Portugal and China stretch back centuries to when the European nation controlled the port of Macau. In recent years, Lisbon has embraced Beijing’s belt and road initiative to invest in infrastructure linking Asia to Europe.

Chinese firms now own 25 percent of Portugal’s national grid, 27 percent of its largest listed bank, and all of its largest insurer and biggest private hospitals operator.

Prime Minister Antonio Costa also told parliament last week that the change to Portuguese takeover law last year was made with Chinese investors in mind.

“It was my initiative and aimed to ensure that Portugal would offer the same conditions to foreigners, namely Chinese, as Europeans,” Costa said.

The clause added on July 29, 2017, was designed to favor the “capture of foreign direct investment from, namely, foreign state entities…”, according to the text.

The combined shareholding of CT and CNIC, a Chinese state-owned investment company, now comes to 28.5 percent, close to the 33 percent needed to assure effective control of EDP. Under Portuguese law, company statutes can only be changed if two-thirds of shareholders vote in favor.

Costa denied in parliament the change was made with CT in mind: “This was approved a year ago, when there was no takeover, nor any prediction of a takeover bid.”

‘BONDS OF CONFIDENCE’

When CT launched its offer, it was conditional on getting 50 percent plus one share, in line with Portuguese rules. However, market regulator CMVM said on May 23 it was waiving this requirement, effectively allowing CT to raise its stake in EDP, even if it doesn’t reach a simple majority.

“The Chinese have established bonds of confidence with Portugal,” a senior political source told Reuters. “There is mutual confidence and that changes everything.”

Chinese Foreign Minister Wang Yi paid a well-timed visit to Lisbon on May 18. He hailed Portugal’s “open attitude” to foreign investment and promised Beijing would continue to encourage investment by Chinese firms in Portugal.

Chinese citizens have also poured 2 billion euros into Portuguese housing in the past few years, boosting a property market boom which has helped propel a strong economic recovery.

As Lisbon’s ties with CT have grown closer, its relationship with EDP has come under strain. The government was annoyed last year by what it saw as EDP Chief Executive Antonio Mexia’s openness to potential European suitors, political sources with knowledge of the government’s position said.

In January this year, EDP upset the government again when it stopped paying an extraordinary tax contribution energy companies have had to pay since Portugal’s 2011-14 debt crisis.

“I won’t comment,” the prime minister told reporters at the time. “I only regret the hostile attitude that EDP has maintained and which therefore represents a change in the stance it had towards the previous government.”

If CTG’s bid does succeed, the timing could be auspicious, with Chinese President Xi Jinping planning to visit to Portugal later this year.

“The visit may signal a new phase of strategic partnership between the two countries, with the signing of agreements,” Foreign Minister Augusto Santos Silva said after meeting his Chinese counterpart this month.

+++ P.O. (Caixin) Anbang Denies It Is Unloading Overseas Assets

P.O.

…I am not going to devalue the currency said the Finance Minister of Country XXX…

…One week later the currency of Country XXX was devalued…

Got it…?

FCMP

(Caixin)

Troubled insurer Anbang has disputed foreign media reports that it is planning to sell off its overseas assets. Photo: VCG
Troubled insurer Anbang has disputed foreign media reports that it is planning to sell off its overseas assets. Photo: VCG

Embattled Chinese conglomerate Anbang Insurance Group said it does not plan to sell off overseas assets, contradicting some foreign media reports.

The government team in charge of running the country’s third-largest insurer said in a statement released Monday night that “Anbang does not have any plans to sell off its overseas assets, nor does it have a concrete timeline for optimizing assets it holds.”