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The awkward timing of Europe’s deal with China

InternationalJan 06. 2021

By The Washington Post · Ishaan Tharoor

Last week, China appeared to secure an investment agreement with the European Union. The deal, which has been long in the works and still needs to be ratified by the European Parliament, comes at a curious moment. E.U. officials looked past the last-minute entreaty of a top aide to President-elect Joe Biden, who hoped Brussels would stall in order to first have consultations with a new U.S. administration that’s less than three weeks from taking office.

Instead, the agreement was pushed through in the final moments of 2020 as Germany’s term in the rotating seat of the E.U. presidency came to an end. German Chancellor Angela Merkel, whose country’s automobile and industrial sectors are hungry for Chinese market access, was a driving force behind the agreement.

“The agreement, if it is ratified, would theoretically loosen restrictions on European companies in China’s tightly controlled market,” wrote The Washington Post’s Emily Rauhala. “European companies would no longer be required to operate joint ventures with Chinese partners, for instance, or be forced to share technology.”

Experts in China viewed the developments as a significant win for Beijing. “The deal will deepen the economic ties between China and the E.U., with negotiating a free-trade agreement being the expected next step,” Wu Xinbo, director of the Center for American Studies at Fudan University in Shanghai, told the South China Morning Post, a Hong Kong-based daily. “And it will also thwart the U.S. plan to join hands with Europe and isolate China from the future of globalization.”

European leaders contend that they are securing for their bloc similar terms to what the Trump administration negotiated with Beijing in its own “Phase 1” trade deal brokered at the beginning of last year. Ursula von der Leyen, president of the European Commission, said last week that tighter cooperation with Beijing would still allow Europe the ability to promote its “core values” and nudge China on political and economic reforms.

Critics say that position is woefully shortsighted, arguing “that Europe is knitting itself closer to an increasingly authoritarian China at a time when Beijing has shown little inclination to follow rules,” Rauhala added.

In the past year, China has squashed political freedoms in Hong Kong, rattled its saber at Taiwan, doubled down on its Orwellian program of repression in the far-western region of Xinjiang, battled India and bullied Australia and other countries on the world stage. Yet European officials gave Chinese government-run media outlets the opportunity to tout a major diplomatic victory, with the Global Times, an English-language state mouthpiece, hailing the pact as “a New Year gift from China and the E.U. to the whole world.”

That obscures the charged political atmosphere surrounding the West’s relations with Beijing. “The stories coming out of Xinjiang are pure horror. The story in Brussels is we’re ready to sign an investment treaty with China,” liberal European lawmaker Guy Verhofstadt tweeted Wednesday. “Under these circumstances any Chinese signature on human rights is not worth the paper it is written on.”

As far as E.U.-U.S. relations are concerned, the deal’s timing seems unfortunate. In an interview with CNN’s Fareed Zakaria aired Sunday, Jake Sullivan, Biden’s pick for White House national security adviser, stressed the incoming administration’s desire to meet with “like-minded” allies and move past the distrust sown during Trump’s bruising time in office.

“We are confident that we can develop a common agenda on issues where we share deep concerns on China,” Sullivan said.

The announced deal, though, is an indication of a different reality. Merkel and French President Emmanuel Macron have both separately emphasized the need for Europe to develop its “strategic autonomy,” weaning itself off more than half a century of sheltering under the umbrella of the Pax Americana. But, in this instance, critics note, Europe may be undermining what prospect there was of a meaningful united front on China.

“Countries mulling how far to stand up to China will draw their own conclusions: Europe talks about values but self-interest trumps solidarity,” wrote Edward Lucas in the Times of London. “The deal exemplifies the gap between the EU’s foreign policy aims and reality. The European Commission claims to be ‘geopolitical.’ In 2019 it deemed China a ‘strategic rival.’ Yet the mercantilist influence of big business, particularly in Germany, steamrollers ethical and security concerns.”

Noah Barkin, a senior visiting fellow at the German Marshall Fund for the United States, argued Merkel has prioritized the business interests of her country’s flagship firms and is keen to show that productive dialogue with China on various fronts is both possible and necessary. She has made these overtures even when the majority of the German public holds distinctly negative views of Beijing.

“In an increasingly black-and-white world where liberal democracies face an existential challenge from authoritarians and populists, Merkel still sees gray – and not only with China,” Barkin wrote in Foreign Policy. “The bargain she brokered recently with democratic backsliders Hungary and Poland to avert a clash over the EU budget is another example. George Soros accused her of surrendering to extortion.”

Some analysts see Merkel’s pragmatism as naivete. They doubt that expanded business ties will do much to “discipline the behavior” – as an E.U. statement put it – of China’s state-owned companies. And they fear that the agreement will bend Europe more to China than the other way around.

“Even in the current geopolitical order, China has repeatedly demonstrated its willingness to use its economic power as a strategic weapon,” wrote Financial Times columnist Gideon Rachman. “By deepening their economic reliance on China – without co-ordinating their policy with fellow democracies – European nations are increasing their vulnerability to pressure from Beijing.”

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NYSE scraps plan to delist China telcos in ‘bizarre’ u-turn

InternationalJan 05. 2021A person enters the New York Stock Exchange in New York on Jan. 4, 2021. MUST CREDIT: Bloomberg photo by Michael Nagle.

By Syndication Washington Post, Bloomberg · Shirley Zhao, Lianting Tu · BUSINESS, WORLD, US-GLOBAL-MARKETS, ASIA-PACIFIC 

The New York Stock Exchange said it will no longer delist China’s three biggest state-owned telecommunications companies, backtracking on a plan that had threatened to escalate tensions between the world’s largest economies.

The U-turn came with scant explanation just four days after the NYSE said it would remove the shares to comply with a U.S. executive order. President Donald Trump — who now has just over two weeks left in office — signed an order in November barring American investments in Chinese firms owned or controlled by the military in a bid to pressure Beijing over what it views as unfair business practices.

The exchange cited “consultation with relevant regulatory authorities” for the reversal in a brief statement late Monday, declining to elaborate further.

The about-face, described as “bizarre” by a Jefferies Financial Group analyst, whipsawed investors who on Monday had sold shares of the Chinese telecom companies and raced to bet on which stocks might be delisted next. China Mobile, China Telecom and China Unicom Hong Kong all rallied on Tuesday.

A lack of clarity on why NYSE changed course left investors to speculate over whether it was simply a result of the exchange initially misinterpreting the November executive order, or something with broader geopolitical implications.

The episode has added to a sense of confusion surrounding implementation of Trump’s order in the waning days of his administration. Index providers FTSE Russell, MSCI and S&P Dow Jones Indices have all said in the past month they would remove some Chinese companies from equity gauges to comply with the order, but their lists of affected stocks have sometimes differed markedly.

The stakes are high for both Chinese and U.S. companies. The former have long turned to America’s stock market for capital and international prestige, raising at least $144 billion over more than two decades. Their U.S. counterparts, meanwhile, are keen to avoid any ratcheting up of tensions that might curb their access to China’s vast economy. Wall Street banks, in particular, have been pouring resources into the country after gaining unprecedented scope to operate there last year.

The NYSE’s reversal was “quite unexpected,” said Jackson Wong, director of asset management at Amber Hill Capital in Hong Kong. “Some funds that had an obligation to unload these shares will now need to buy them back. Some investors are also starting to price in a scenario that the decision to halt delistings could be the start of a de-escalation in tensions between China and the U.S.”

Calls and emails to the media department of the China Securities Regulatory Commission weren’t immediately returned Tuesday. The CSRC had responded to NYSE’s initial plan by calling it groundless and “not a wise move.” Spokespeople for the U.S. Treasury Department, U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority didn’t immediately reply to requests for comment.

It’s unclear whether NYSE’s reversal will have any impact on index providers, which help guide investments worth trillions of dollars. FTSE Russell declined to comment on Tuesday, while MSCI and S&P Dow Jones couldn’t immediately be reached. Bloomberg LP, the parent of Bloomberg News, also compiles stock and bond indexes.

In separate statements, China Mobile, China Telecom and Unicom said they will continue to monitor developments. China’s Foreign Ministry spokeswoman Hua Chunying said Tuesday that Beijing hopes the U.S. will respect the market and rule of law, and do things conducive to upholding order in the global financial markets.

The NYSE’s initial delisting proposal, announced on New Year’s Eve, marked the first time an American exchange had unveiled plans to remove Chinese companies as a direct result of rising geopolitical tensions between the two superpowers. In his executive order, Trump said the three telcos were among those directly supporting the Chinese military, intelligence and security apparatuses and aiding in their development and modernization.

The developments have unfolded in the last few weeks of the Trump administration, which for years has railed against China for what the U.S. president calls unfair trading practices. Trump has imposed tariffs on imports from China and carried out an aggressive campaign against Chinese technology firms such as Huawei Technologies, measures that have often elicited retaliation from Beijing. In a December article, Secretary of State Michael Pompeo discussed how U.S. investors are funding “malign PRC companies” whose shares are included in major indexes.

The NYSE has faced criticism from some market watchers over the way it handled the situation. Travis Lundy, an Asia markets veteran and independent analyst who publishes on the Smartkarma platform, said in a tweet that the U-turn reflected “rank ineptitude” by the exchange and “weak leadership” by the Treasury Department.

“They’ve had seven weeks to talk to Treasury about this,” Lundy said, adding that the department had published lengthy supplemental FAQs as well. “To implement the decision, and then four days later to backtrack — that’s just odd.”

While the impact on China Mobile and its two peers was always likely to be minimal given the bulk of their shares trade in Hong Kong, the delisting plan had heightened concerns about tit-for-tat sanctions between China and the U.S. as tensions between the superpowers simmer.

Chinese businesses without military links are also potentially vulnerable to delisting after Trump signed legislation with bipartisan support last month that could kick firms off U.S. exchanges unless American regulators can review their financial audits.

The outlook may depend in large part on how U.S.-China relations evolve after president-elect Joe Biden enters the White House later this month. While China’s President Xi Jinping said in a congratulatory message to Biden in November that he hopes to “manage differences” and focus on cooperation, few expect tensions to ease anytime soon.

“We don’t know as to how the Biden administration will pick up the baton that’s been left by the Trump administration,” said George Magnus, a research associate at Oxford University’s China Centre and author of “Red Flags: Why Xi’s China is in Jeopardy,” speaking on Monday before the NYSE’s reversal. “There will certainly be a transition cost to China if the mood in the U.S. remains sour.”

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Germany leads European manufacturing to best month since 2018

InternationalJan 05. 2021

By Syndication Washington Post, Bloomberg · Fergal O’Brien

Euro-area manufacturing grew at the fastest pace in more than 2 1/2 years in December, bringing some positive news at the end of a horrific 2020 for the region’s economy.

Final readings of IHS Markit’s monthly surveys showed growth led by Germany, where activity expanded the most in almost three years, with all other countries covered also reporting an improvement on November. The euro-area index came in at 55.2, up from 53.8 though slightly lower than an earlier preliminary reading.

The improvement comes as governments continue to grapple with the coronavirus. The latest restrictions to contain the spread have been mostly confined to services such as bars and restaurants, allowing manufacturing to continue. That’s limiting the downside to the economy compared with the huge slump seen during the initial phase of the pandemic.

“Euro-zone manufacturing ended 2020 on an encouragingly strong note,” said Chris Williamson, an economist at IHS Markit. “Rising virus case numbers are nevertheless likely to mean trading conditions remain challenging in the near-term and therefore constrain growth.”

Some of the improvement at factories in December, particularly in Ireland and the Netherlands, reflected a temporary boost in demand from U.K. customers stockpiling before the end-of-year Brexit date.

The results may not fully capture disruptions in late December. France temporarily closed cross-Channel traffic from the U.K. after a new, more infectious strain of the coronavirus was discovered.

In Asia, manufacturing Purchasing Managers’ Indexes saw improvements in some countries, though China’s momentum moderated. Its official manufacturing gauge fell in December from a three-year high. The Caixin Media and IHS Markit PMI dropped to 53 from 54.9.

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Crisis showcases corner of Europe derided by Trump advisers

InternationalJan 05. 2021Pedestrians walk along Karl Johans Gate, the main shopping street in Oslo, Norway, on Sept. 23, 2020. MUST CREDIT: Bloomberg photo by Odin Jaeger.

By Syndication Washington Post, Bloomberg · Niclas Rolander, Ott Ummelas

In the 21st century’s toughest test yet of governing, the Nordics stand out.

After almost a year of the pandemic, the region’s societal model has made it “the most promising” in charting a sustainable path out of the crisis, according to the World Economic Forum. HSBC says that superiority is down to generous social safety nets and high digitization.

It’s already clear that Denmark, Norway, Sweden and Finland have suffered a smaller economic setback during the Covid crisis than the euro zone or the U.K.

Though far from perfect — Sweden’s anti-lockdown strategy and high death rate even drew criticism from King Carl XVI Gustaf, while Denmark’s fight against a coronavirus mutation culminated in a botched mink cull — the bigger picture remains one of economic strength. According to the WEF’s December report on global competitiveness, the Nordic region is now best placed to achieve a “productive, sustainable and inclusive economic system.”

In fact, the pandemic is positively showcasing the Nordic model after a period of controversy on its merits, including the 2018 accusation by advisers to U.S. President Donald Trump that the region proves how “socialism reduces living standards” and belongs in the same basket as Venezuela.

The small and export-oriented Nordics have long combined high taxes channeled into public-sector spending with economic efficiency and technological innovation.

Nordic taxes, among the highest in the world, are widely embraced by voters who see them as a necessary mechanism for maintaining a stable society. That in turn creates a steady taxable base that means Nordic state debt levels are among the lowest in the European Union.

Low debt levels allowed the region, which regularly tops global happiness rankings, to enter the crisis with the natural advantage of being already rich and better able to spend.

That wealth supports key corners of the region’s economy. In Sweden, bankruptcies last year were on the same level as in 2019, despite the pandemic, a report showed on Monday. The sectors that were hardest hit “represent a very small part of Sweden’s economy,” according to the report by credit reference agency, UC.

The Nordics generally also rank high on gender equality. The fact that Swedish schools and kindergartens remained open may help explain why unemployment among women rose less than male joblessness at the height of the pandemic, compared with the EU average, said Johanna Jeansson of Bloomberg Economics. In Norway, the gender gap in labor force participation even declined this year, after the government expanded paid time off for taking care of small children.

Here’s a closer look at why the Nordic region is well placed to emerge from the crisis with fewer scars than elsewhere.

–Safety Net

The Nordic countries all offer universal welfare support, including health care and generous unemployment assistance. That translates into less concern over lost jobs and income than elsewhere, paving the way for economic activity to resume quicker when restrictions are finally removed, according to HSBC economist James Pomeroy.

“It’s a good example of how putting money in people’s pockets essentially has been shown in the pandemic as the best way to keep things going,” he said.

Danes and Swedes were at the top of the 27-member European Union in assessing their financial situation in July compared with the three previous months, with the Finns placed 7th, according to a study by the bloc’s Eurofound agency.

–Frugal Four

The region’s experiences of banking crises in the 1990s, followed by the global financial turmoil of 2008, have kept the Nordics wary of taking on public debts. That legacy of prudence means governments now have space to spend more to support economies during the current emergency.

Norway, home to the world’s biggest sovereign wealth fund, is in a class of its own when it comes to fiscal freedom. Sweden and Denmark have debt of roughly 40% of GDP, while the highest ratio in the region is in Finland, at close to 70%. That’s still less than half the tally in Italy, and compares with an EU average of almost 90%.

Sweden’s strong public finances are allowing it to implement expansionary fiscal policy combined with structural reforms, the Riksbank said in November, listing investments in human capital and infrastructure as well as a “broad” tax reform among the options available.

In Denmark, central bank Governor Lars Rohde says that “the starting position, with low public debt and households and companies with sensible finances, means that we can get through better.”

–Digitization

When the pandemic forced the world to adopt social distancing measures, remote work and digital schooling, few regions were as well prepared as the Nordics. Years of investment in computer technology, connectivity and teaching digital skills are now paying off.

Finland and Sweden reported the EU’s smallest decline in working hours for the second quarter compared with last three months of 2019, at less than 5%, according to Eurostat data. Norway, which isn’t an EU member, was at a similar level. Denmark took the sixth spot in the bloc.

“The parts of the world that have suffered the most in the pandemic are those that aren’t able to go digital at the flick of a switch,” HSBC’s Pomeroy said. “If you have a very digitally-savvy population, that sets you up very well going forward in terms of productivity.”