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Showing posts with label Economic. Show all posts
Showing posts with label Economic. Show all posts
July 18, 2018

China’s cooling economy sparks debate on scope of fiscal policy

China’s cooling economy sparks debate on scope of fiscal policy
China’s cooling economy sparks debate on scope of fiscal policy

BEIJING (Reuters) - China's fiscal policy should help steer structural changes rather than stimulating growth in a forceful way, a senior finance ministry researcher said in remarks published on Wednesday, amid a heated debate on how to steer policy as the economy slows.

The remarks by Liu Shangxi, head of Chinese Academy of Fiscal Sciences under the finance ministry, come amid a debate among government researchers on whether fiscal policy should help to soften the impact of a trade war with the United States.

"The current proactive fiscal policy, which is different from the traditional expansionary policy, is not direct government effort to expand demand, but indirect effort through stimulating market vitality, optimizing resource allocation and increasing quality supply," Liu wrote in the official Economic Information Daily.

China's fiscal policy should focus on adjusting the country's economic structures and controlling risks, instead of stimulating the economy in an indiscriminate way, Liu said.

China's economic growth slowed slightly to 6.7 percent in the second quarter as Beijing's efforts to contain debt hurt activity, while June factory output growth weakened to a two-year low in a worrying sign for investment and exporters as a trade war with the United States intensified.

The economy is starting to feel the pinch from a multi-year crackdown on riskier lending and debt, problems which were fueled in part by a massive stimulus program to support the economy during the global financial crisis.

The regulatory tightening has driven up corporate borrowing costs, prompting the People's Bank of China to cut banks' reserve requirement ratios (RRR) three times this year.

Liu's comments are the latest development in a brewing war of words started by the central bank's research heard Xu Zhong who said fiscal policy is not active enough and the budget deficit ratio this year should be higher.

Xu's remarks prompted an unidentified finance ministry official to write in the financial magazine Caixin that the size of the budget deficit does not simply indicate the finance ministry's push for a proactive fiscal policy.

Xu also wrote last month that China cannot rely on monetary policy easing to resolve its structural problems, and said fiscal policy should play a bigger role.

The central bank overseas monetary policy while the finance ministry supervises fiscal policy. It unclear whether the current debate reflects the policy stances of the two agencies.

In March, Premier Li Keqiang announced a cut in the annual budget deficit target from 3 percent of gross domestic product in 2017 - the first cut since 2012 - but the finance ministry said fiscal policy remained supportive for economic growth given a jump in planned special bond issuance this year.

Policy insiders said the finance ministry, which has been cutting taxes, could quicken fiscal spending in the second half to support investment, but any forceful stimulus looks unlikely.

The central bank is widely expected to deliver more bank reserve ratio (RRR) cuts in the coming months.

China's Politburo, a top decision-making body of the ruling Communist Party, is likely to discuss economic policies later this month, the policy insiders said.

In April, a Politburo meeting added "expanding domestic demand" back to the policy statement issued by state media, after dropping it in December.
July 17, 2018

Italy economy minister argues against halting mutual bank reform

Italy economy minister argues against halting mutual bank reform
© Reuters. Italy economy minister argues against halting mutual bank reform

ROME (Reuters) - Most Italian mutual banks want to forge ahead with an already announced reform of the sector and it would be "complicated" to halt the planned overhaul, Italian Economy Minister Giovanni Tria said on Tuesday.

The League -- a part of the ruling coalition -- has asked for a moratorium of the reform, which was introduced by the former center-left government and is forcing hundreds of mutual banks (BCCs) to merge into two large groups.

The 2016 initiative aims at strengthening these banks, which are often tiny and have low profitability and a higher-than-average bad loan burden.

"Blocking the reform would mean abolishing it," Tria told a parliamentary commission, though he added that the government was ready to discuss possible modifications.

U.S industrial production rebounds in June

U.S industrial production rebounds in June
© Reuters. SUVs move through the assembly line at the General Motors Assembly Plant in Arlington, Texas

WASHINGTON (Reuters) - U.S. industrial production increased in June, boosted by a sharp rebound in manufacturing and further gains in mining output, the latest sign of robust economic growth in the second quarter.

The Federal Reserve said on Tuesday industrial production rose 0.6 percent last month after a downwardly revised 0.5 percent decline in May. Economists polled by Reuters had forecast industrial production rising 0.6 percent last month after a previously reported 0.1 percent dip in May.

Moonwalking: South Korea's wage, hours policies backfire for jobless, low income workers

Moonwalking: South Korea's wage, hours policies backfire for jobless, low income workers
© Reuters. Moonwalking: South Korea's wage, hours policies backfire for jobless, low income workers

By Cynthia Kim and Heekyong Yang

SEOUL (Reuters) - President Moon Jae-in wants South Koreans to work less and earn more – and to achieve that his government has hiked the minimum wage and slashed the maximum length of the working week. But Heo Jeong, who serves barley tea samples at a Lotte Mart store in Seoul, says she lost a third of her income as a result.

Heo's store shortened its opening times and cut staff hours. The 48-year-old now makes 1.2 million won ($1,077) a month working 32 hours instead of 40, a third less than before because she now isn’t getting much night work at premium rates or as many chances to earn bonuses.

She is not alone. Many businesses are closing early rather than hiring additional staff after the legal cap on working hours was cut to 52 per week from 68, effective July 1.

It is one of a number of signs that Moon’s reforms are starting to backfire and his pledge to be the “Jobs President” who tackles inequality head on may be at risk, economists warn.

Another problem is that a January hike in the minimum hourly wage - the biggest in 17 years at a whopping 16 percent – may have had the opposite effect on incomes for the lower paid, and also become a deterrent to investment and recruitment.

Household income for the lowest 20 percent fell 8 percent in the first quarter from a year earlier, marking the sharpest fall since 2003 when Statistics Korea began compiling data, and almost a quarter of those aged 15-29 remain unemployed.

"I want to work more hours, and take night shifts as much as possible," said Heo. "I don't necessarily see anyone actually making more money around me. I myself have cut down on groceries."

A Lotte spokesman confirmed that most Lotte stores cut store hours, and some of its sub-contract workers worked fewer hours as a result.

On Saturday, the government-mandated Minimum Wage Commission heightened concerns over the issue by announcing that next year the minimum wage will increase another 10.9 percent to 8,350 won ($7.40) an hour.

That prompted a small business group, the Korea Federation of Micro Enterprise, to threaten to refuse to implement the reform. “Small-business owners are at a crossroads where they cannot help but choose either business shutdowns or staff cuts,” it said in a statement.

Certainly, South Korean companies have slowed down hiring. The monthly average number of jobs added so far this year, 142,000, is the slowest pace seen since the 2008-09 global financial crisis.

On Monday, Moon acknowledged possible negative consequences for small business owners and low-income earners from a higher minimum wage, but said his policies will continue to focus on boosting incomes.

"Steep increases in the minimum wage aim to ensure a dignified life for low-income workers, while raising household income to boost domestic demand, which in turn will lead to job creation," Moon told his cabinet members at a policy meeting in Seoul, adding that efforts will be made to provide subsidies for the low-income earners who suffer as a result of the policies.

A Blue House official at the Presidential Committee on Jobs, a body Moon launched last year to fulfill his election promise of creating jobs, declined to elaborate further.

Moon remains popular, with 69 percent backing in polling in July, though that is down from a peak of 83 percent in May after his summit with North Korean leader Kim Jong Un and his rating has fallen for a fourth week in a row, according to Gallup Korea. It is unclear how much the economy is playing into those numbers.

SENT HOME EARLY

Shipbuilder Hyundai Heavy Industries (KS:009540) and retailers Lotte Shopping (KS:023530) and Shinsegae Inc. (KS:004170) are among companies who have begun to power off computers at 5:30 p.m. for office workers to prevent overtime, according to spokespeople for the companies.

A number of Korean retailers have pulled forward closing times to 11 p.m. from 12 p.m. because of the higher wage costs.

"We're trying to make working hours flexible for our workers and have shortened business hours at most of our stores," an official at Lotte Shopping told Reuters, asking not to be named as he was not authorized to talk to the media. All three firms declined comment on hiring plans.

Lee Jae-kwang, who owns a Paris Baguette bakery in the posh Gangnam district of Seoul, says he is sending his workers home earlier in the evening and closes the store himself an hour earlier at 10 p.m.

"Adding jobs is the last thing on my mind. The steep increase in wages is a real financial strain for us," said Lee.

SILVER LININGS

To be sure, Moon is trying to fix some major structural economic problems. The youth unemployment rate reached 9.8 percent in 2017, almost three times the rate for all workers, yet South Koreans put in the third longest hours among the 36 members of the Organization for Economic Cooperation and Development, behind only Mexico and Costa Rica. Also South Korea’s labor productivity growth was only 19th among OECD countries in 2017.

And for many white collar workers, the new policies are a relief.

"I didn't even think about leaving earlier than my boss last year. Now I can go watch movies every day and take my accounting classes at night, because they literally shut down my computer," said Shin Duk-young, a 29 year-old office worker at a retailer in Seoul. He asked that the company not be named. Also, while the poor got hammered in the first quarter, average household income grew 3.7 percent from a year earlier, the fastest expansion in four years. Income for the top 20 percent surged 9.3 percent, making income inequality the worst on record, according to Statistics Korea.

This has yet to boost domestic demand, though. Consumer sentiment is at its lowest since May 2017, when Moon won the general election.

Labor unions say the policies can only achieve their goal if small companies get subsidies and low-income earners get tax credits. They criticize the government for delaying related reforms of tax policies.

"BAD TIMING"

If Moon is to fulfill his campaign promise on the minimum wage, he will have to keep lifting it to 10,000 won per hour by 2020.

Lee Sang-jae, chief economist at Eugene Investment and Securities, said Moon's policies are "steps in the right direction" to tackle low incomes. But in a June report on South Korea, the OECD warned that scale would be unprecedented amongst its members and recommended Moon to assess this year's economic impact before raising wages any further.

Many economists doubt any such assessment would go well.

The labor market shake-up comes as China, the gravitational center for Asian economies, shows signs of a slowdown and South Korean exporters risk being caught in the crossfire of a trade war between Washington and Beijing.

"Wage floor hikes and other pro-labor policies could help reduce inequality long down the road, but it has come at a very bad timing," said Park Chong-hoon, an economist at Standard Chartered (LON:STAN) in Seoul.

U.S. Treasury moves to protect identities of 'dark money' political donors

U.S. Treasury moves to protect identities of 'dark money' political donors
© Reuters. U.S. Secretary of the Treasury Steven Mnuchin testifies to the House Financial Services hearing on state of the international financial system on Capitol Hill in Washington

WASHINGTON (Reuters) - The U.S. Treasury said on Monday that it will no longer require certain tax-exempt organizations including politically active nonprofit groups, such as the National Rifle Association and Planned Parenthood, to identify their financial donors to U.S. tax authorities.

The policy change, heralded by conservatives as an advance for free speech, maintains donor disclosure requirements for traditional charity groups organized to receive tax-exempt donations under a section of the Internal Revenue code known as 501(c)(3), the Treasury said.

But the move frees labor unions, issue advocacy organizations, veterans groups and other nonprofits that do not receive tax-exempt money from meeting confidential disclosure requirements set in place decades ago.

“Americans shouldn’t be required to send the IRS information that it doesn’t need to effectively enforce our tax laws, and the IRS simply does not need tax returns with donor names and addresses to do its job in this area,” U.S. Treasury Secretary Steven Mnuchin said in a statement.

The change protects the privacy of wealthy donors of "dark money" donations to politically active groups. Conservatives have complained that the disclosures to the IRS, though not public, were susceptible to media leaks.

The issue of the IRS's handling of nonprofit political groups exploded into headlines several years ago when the federal tax agency was found to have targeted tax-exempt political groups aligned with the conservative Tea Party movement for greater scrutiny.

"It is important to emphasize that this change will in no way limit transparency," Mnuchin said. "The same information about tax-exempt organizations that was previously available to the public will continue to be available, while private taxpayer information will be better protected."
July 16, 2018

Italy in no rush to reject EU-Canada trade deal: farm minister

© Reuters. Italy in no rush to reject EU-Canada trade deal: farm minister
© Reuters. Italy in no rush to reject EU-Canada trade deal: farm minister

BRUSSELS (Reuters) - Italy is in no hurry to bring the European Union's free trade agreement with Canada to a parliamentary vote, its farm minister said on Monday, suggesting its opposition to the deal may be easing.

Ministers of the eurosceptic 5-Star/League government have said Italy would not ratify CETA (the Comprehensive Economic and Trade Agreement), threatening the EU's first major trade deal since an EU-South Korean accord launched in 2011.

However, Agriculture Minister Gian Marco Centinaio told reporters in Brussels: "Nobody is in a hurry to bring CETA to the chamber."

Speaking before a meeting of EU agriculture ministers in Brussels, he also said no date had been set for a parliamentary debate and that the government had not discussed this.

CETA took effect provisionally in September 2017, with the reduction or removal of tariffs on 98 percent of products, but needs to be ratified by all 28 EU countries. Just one failure to ratify could bring the whole deal down.

According to the EU statistics office Eurostat, Italian goods exports to Canada have increased by 2.1 percent year-on-year in the eight months since CETA provisionally entered into force and its food and animal exports by 11.9 percent.

Asked why Italy would block a deal that boosted exports, Centinaio responded:

"We want to understand with concrete data whether CETA is really advantageous for our country. We have the impression that it is not... We do not have other data. We have assumptions, mostly perceptions from firms, mainly from the agriculture sector."

The 5-Star/League government, which took office on June 1, has said it will take a hard line on defending Italian speciality foods.

Of the 28 European Union countries, Italy has the most food products with PDO, or Protected Designation of Origin, and PGI, or Protected Geographical Indication, labels.

These include Parmigiano Reggiano cheese and Prosciutto di Parma ham. Under CETA, Canada has recognized more than 40 Italian PDO and PGI labels out of a total of over 200.

Centinaio said he wanted to check whether those not covered were exclusively local products that were unlikely to be exported to Canada. If that was not the case, Italy could push to add more.

China files complaint to WTO against U.S. proposed tariff on Chinese goods

China files complaint to WTO against U.S. proposed tariff on Chinese goods
© Reuters. FILE PHOTO: A general view of a container port in Shanghai

BEIJING (Reuters) - China's commerce ministry said on Monday it had filed a complaint to the World Trade Organization (WTO) regarding Washington's proposed tariff list on $200 billion worth of Chinese goods on July 16.

The Ministry of Commerce said last week China would immediately file a complaint to the WTO against U.S. unilateralism, following the U.S.' threat to slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.

As China's second quarter GDP growth looks set to cool, trade battle looms as biggest risk

As China's second quarter GDP growth looks set to cool, trade battle looms as biggest risk
Worker looks on as a crane lifts steel pipes for export at a port in Lianyungang

By Kevin Yao

BEIJING (Reuters) - China is expected to report a modest slowdown in second-quarter economic growth on Monday, as the government's efforts to tackle debt risks crimp activity and a trade war with the United States threatens exports.

Analysts polled by Reuters expect gross domestic product (GDP) to have grown 6.7 percent year-on-year in the April-June period, cooling from the first quarter's 6.8 percent expansion.

The world's second-largest economy has already felt the pinch from a crackdown on riskier lending that has driven up corporate borrowing costs, promoting the central bank to pump out more cash by cutting reserve requirements for lenders.

Recent data have started to show signs of fatigue as credit expansion slowed and domestic demand ranging from government-funded infrastructure investment to consumer spending looked to be softening.

A better-than-expected GDP reading would likely provide some relief for Chinese stocks and the yuan , which have been roiled in recent weeks as the China-U.S. trade tensions intensified.

Data on Friday showed China's trade surplus with the United States swelled to a record in June as its overall exports grew at a solid pace, a result that could further inflame the bitter trade dispute with Washington.

The administration of U.S. President Donald Trump has raised the stakes in its trade row with China, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports, including numerous consumer items. The fresh threats came only days after both nations slapped tit-for-tat duties on $34 billion worth of each other's goods.

MODEST SLOWDOWN

Analysts expect the trade tussle between the world's top two economies to take a toll on China's export machine in the second half of 2018, dragging on overall economic growth.

"Looking ahead, we think export growth will cool in the coming months as US tariffs start to bite alongside a broader softening in global demand," analysts at Capital Economists said in a note.

"That said, the slowdown may not be abrupt as some fear given that these drags should be partly offset by a weaker renminbi (yuan)."

China's economy is likely to experience a mild slowdown in the second half of the year as financial market risks become "obvious" and demand is expected to decline, official think tank State Information Center (SIC) recently said.

Faced with a slowdown in domestic demand and the potential fallout from the trade war, Chinese policymakers are likely to step up policy support for the economy and soften their stance on deleveraging.

The People's Bank of China (PBOC), which has cut banks' reserve requirements three times this year, has recently replaced its use of the term "deleveraging" with "structural deleveraging", a change that suggests less harsh curbs on debt.

"Given that much of the current downward pressure on the economy is coming from tightening financial regulations and credit, especially on local government financing and infrastructure, we think the government will likely adjust the pace of domestic tightening as a first reaction to the now escalating trade war," UBS China economist Tao Wang said in a note.

Nomura economists said in a recent note they expected the PBoC to deliver at least one more RRR cut before year-end, likely by 100 basis points and increase direct funding to the real economy via other liquidity injection tools, such as the supplementary lending facility.

China releases second quarter GDP on Monday, along with June industrial output, retail sales, property sales and

investment, and fixed asset investment data.

Economists in the poll estimated GDP grew 1.6 percent quarter-on-quarter, versus 1.4 percent in the first

quarter.

China looks to get cozy with EU in annual talks as Trump tariffs bite

China looks to get cozy with EU in annual talks as Trump tariffs bite
FILE PHOTO: An attendant walks past EU and China flags ahead of the EU-China High-level Economic Dialogue in Beijing

BEIJING (Reuters) - The European Union will open an annual meeting with China on Monday, and will be looking to fend off overtures for an anti-U.S. alliance as China seeks a European counterbalance to U.S. tariffs.

Premier Li Keqiang will host European Council President Donald Tusk and European Commission President Jean-Claude Juncker in Beijing, where the two sides could reinvigorate long-running investment treaty talks with the expected exchange of markets access offers for the first time.

The meeting is expected to produce a modest communique affirming the commitment of both sides to the multilateral trading system. Leaders failed to find sufficient consensus for such a joint statement after meetings in 2016 and 2017.

This year's talks come with the United States and China increasingly mired in a trade dispute with no sign of negotiations on the horizon.

U.S. President Donald Trump has warned he may ultimately impose tariffs on more than $500 billion worth of Chinese goods - nearly the total amount of U.S. imports from China last year.

China has sworn to retaliate at each step.

European envoys say they have sensed a greater urgency from China since last year to find like-minded countries willing to stand up against Trump's "America First" policies.

China's ambassador to the European Union, Zhang Ming, said in a commentary in the ruling Communist Party's official People's Daily newspaper on Sunday that the focus of the meeting would be how China-EU relations could become a "standard of stability" amid the "din of unilateralism and protectionism".

China and Europe are "two major forces of stability and responsibility" that support inclusive globalization, Zhang said.

But the world's largest trading bloc, while sharing Trump's concern over Chinese trade abuses if not his prescription of tariffs, has largely rebuffed efforts by China to pressure it into a strong stance against Trump. [nL8N1U000T]

There is deep scepticism in the EU about China's actual commitment to opening its market further, as well as concern that it seeks to divide the bloc with its economic influence in Eastern Europe.

Nonetheless, European officials suggest that Trump, who has also targeted Europe with tariffs, has created a widow of opportunity to show that EU-China relations can be a bulwark for global trade.

China and the EU are also expected to set up a working group on reforming the World Trade Organization during the talks.

European Commission spokesman Margaritis Schinas said on Friday that discussions with China would focus on "trade and investment, on the commitment to combating climate change and investing in clean energy and on foreign and security issues, including the situation on the Korean peninsula".

Schinas said the two sides' leaders would also talk about their joint commitment to preserving the Iran nuclear deal.
July 15, 2018

Bundesbank chief warned German cabinet of economic risks: paper

Bundesbank chief warned German cabinet of economic risks: paper
© Reuters. Germany's Bundesbank President Jens Weidmann speaks during an economics conference in Linz

BERLIN (Reuters) - The chief of Germany's central bank, Jens Weidmann, warned the government of increasing risks of the economy cooling when he spoke at a July 6 cabinet meeting, business newspaper Handelsblatt reported, citing government sources.

The Handelsblatt report came after the central bank, the Bundesbank, last month cut its growth forecast for this year and said trade and political concerns had made the outlook for Germany's still robust economy more uncertain.

In June, the Bundesbank forecast growth of 2.0 percent this year, far lower than the 2.5 percent it expected last December.

Weidmann told the cabinet to prepare for harder times, Handelsblatt reported attendees of the July 6 meeting as saying after the central banker joined the session as a guest.

Weidmann said the government would have to step in when the next downturn hits as it will take so long for the European Central Bank's monetary policy to normalize that it would have little scope to act, the paper cited its sources as saying.
July 14, 2018

U.S. lifts ban on suppliers selling to China's ZTE

U.S. lifts ban on suppliers selling to China's ZTE
FILE PHOTO: A ZTE smart phone is pictured in this illustration

By Karen Freifeld

The U.S. Department of Commerce on Friday lifted a ban on U.S. companies selling goods to ZTE Corp (HK:0763), allowing China's second-largest telecommunications equipment maker to resume business.

The Commerce Department removed the ban shortly after ZTE deposited $400 million in a U.S. bank escrow account as part of a settlement reached last month. The settlement also included a $1 billion penalty that ZTE paid to the U.S. Treasury in June.

"The department will remain vigilant as we closely monitor ZTE's actions to ensure compliance with all U.S. laws and regulations," Commerce Secretary Wilbur Ross said in a statement that described the terms of the deal as the strictest ever imposed in such a case.

The terms will allow the department to protect U.S. national security, Ross said.

The administration has clashed with lawmakers from its own party over issues related to China, and this was no different. On Friday, Senator Marco Rubio, a Republican, criticized the lifting of the ban.

"ZTE should be put out of business. There is no ‘deal’ with a state-directed company that the Chinese government and Communist Party uses to spy and steal from us where Americans come out winning," Rubio said in a statement.

A photograph circulating among employees around midnight showed ZTE's new chief executive and 10 other managers each giving a thumbs-up to the news, which was flashed on a screen at the company, according to a person familiar with the matter.

The reprieve follows threats by the Trump administration this week to impose 10 percent tariffs on $200 billion of Chinese goods in a trade war.

ZTE did not respond to requests for comment.

ZTE, which relies on U.S. components for its smart phones and networking gear, ceased major operations after the ban was ordered in April.

U.S. President Donald Trump tweeted in May that he closed down ZTE and let it reopen, although no agreement had been reached. White House trade adviser Peter Navarro said last month Trump agreed to lift the ban as a goodwill gesture to Chinese President Xi Jinping.

The company had made false statements about disciplining 35 employees involved with illegally shipping U.S.-origin goods to Iran and North Korea, Commerce Department officials said. ZTE pleaded guilty last year over the sanctions violations.

ZTE paid $892 million in penalties to the United States in connection with the 2017 settlement and guilty plea. The latest $1.4 billion deal comes on top of that.

The $400 million will remain in escrow for as long as 10 years to provide the U.S. government access to the money if ZTE violates the June settlement.

On Thursday, ZTE's Hong Kong shares surged about 24 percent after Reuters broke news the United States had signed an escrow agreement that paved the way for ZTE to deposit the $400 million.

ZTE's U.S.-listed shares fell 2.4 percent to $3.70 on Friday. The news came after markets closed in Asia.

Shares of U.S. suppliers Acacia Communications and Lumentum Holdings rose more than 3 percent on the news before ending less than 1 percent higher.

ZTE paid U.S. companies more than $2.3 billion in 2017, including Qualcomm (NASDAQ:QCOM) Inc, Intel Corp (NASDAQ:INTC), Broadcom (NASDAQ:AVGO) and Texas Instruments (NASDAQ:TXN) Inc.

The company, which employs some 80,000 people, got a limited one-month waiver last week to maintain existing networks and equipment.

ZTE has replaced its board of directors and senior management, as required by the June settlement, the Commerce Department noted.

It will now operate with a 10-year suspended ban hanging over its head, which the United States can activate if it finds new violations. The current ban could have lasted seven years.

Many U.S. lawmakers see the company as a national security threat and, on Thursday, a group of Republican and Democratic U.S. senators urged that ZTE's penalties be reinstated.

The U.S. Senate paved the way for a showdown with Trump over the issue last month, when it passed an annual defense policy bill with an amendment attempting to reverse the deal. Its fate is unclear.

Reuters reported on U.S. demands for a deal on June 1, and on June 5, revealed that ZTE had signed a preliminary agreement with the Commerce Department, along with the fine and other terms. It also broke news of the ban in April.

A U.S. investigation into ZTE was launched after Reuters reported in 2012 that the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known U.S. technology companies.
July 11, 2018

U.S. ramps up trade row with China, threatens new tariffs

U.S. ramps up trade row with China, threatens new tariffs
© Reuters. U.S. ramps up trade row with China, threatens new tariffs

By Eric Beech and Elias Glenn

WASHINGTON/BEIJING (Reuters) - The Trump administration raised the stakes in its trade dispute with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.

The news sent stocks tumbling, with China's markets leading the declines, and prompted a senior Chinese commerce ministry official to warn that the United States was harming the global trade order.

U.S. officials released a list of thousands of Chinese imports the administration wants to hit with the new tariffs, including hundreds of food products as well as tobacco, chemicals, coal, steel and aluminum.

It also includes consumer goods ranging from car tires, furniture, wood products, handbags and suitcases, to dog and cat food, baseball gloves, carpets, doors, bicycles, skis, golf bags, toilet paper and beauty products.

"For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition," U.S. Trade Representative Robert Lighthizer said in announcing the proposed tariffs.

"Rather than address our legitimate concerns, China has begun to retaliate against U.S. products ... There is no justification for such action," he said in a statement.

Last week, Washington imposed 25 percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China.

Investors fear an escalating trade war between the world's two biggest economies could hit global growth.

In financial markets, MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.5 percent, while the main indexes in Hong Kong and Shanghai fell more than 2 percent.

S&P 500 and Dow futures dropped around 1 percent, pointing to a weak opening on Wall Street later on Wednesday.

The onshore yuan tracked its offshore counterpart lower with traders closely watching the key 6.7 per dollar level as pressure mounted on the currency.

President Donald Trump has said he may ultimately impose tariffs on more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year.

The new list published on Tuesday targets many more consumer goods than those covered under the tariffs imposed last week, raising the direct threat to consumers and retail firms.

The tariffs will not be imposed until after a two-month period of public comment on the proposed list, but some U.S. business groups and senior lawmakers were quick to criticize the move.

'TARIFFS ARE TAXES'

Senate Finance Committee Chairman Orrin Hatch, a senior member of Trump's Republican Party, said the announcement "appears reckless and is not a targeted approach."

The U.S. Chamber of Commerce has supported Trump’s domestic tax cuts and efforts to reduce regulation of businesses, but it has been critical of Trump's aggressive tariff policies.

“Tariffs are taxes, plain and simple. Imposing taxes on another $200 billion worth of products will raise the costs of every day goods for American families, farmers, ranchers, workers, and job creators. It will also result in retaliatory tariffs, further hurting American workers," a Chamber spokeswoman said.

The Retail Industry Leaders Association, a lobby group representing the largest U.S. retailers, said: "The president has broken his promise to bring ‘maximum pain on China, minimum pain on consumers.’"

"American families are the ones being punished. Consumers, businesses and the American jobs dependent on trade, are left in the crosshairs of an escalating global trade war,” said Hun Quach, the head of international trade policy for the group.

Louis Kuijs, Hong Kong-based Head of Asia Economics at Oxford Economics, said while he expects China to strongly condemn the U.S. moves, its policy response is likely to be limited for now.

"In part because they have only limited ammunition and in part because it's still early in the process on the U.S. side," Kuijs said.

In Beijing, Li Chenggang, assistant minister at China's Commerce Ministry, said that the latest U.S. proposals would hurt both countries and pointed to declines in Chinese export growth and overseas investment to the United States in the first half of this year.

"It looks like the U.S. just took the scale of the trade frictions to another level," Li said at a forum in Beijing. "Right now, world trade is relatively chaotic. We believe the U.S. measures interfere with economic globalization and damage the world economic order."

Although it was not a direct reaction to the new move from Trump's administration, the official English-language newspaper China Daily said in an editorial that Beijing had to stand up to Washington.

"China has no option but to fight fire with fire. It has to resolutely fight back while taking proper measures to help minimize the cost to domestic enterprises and further open up its economy to global investors," it said.

U.S. says to slap tariffs on extra $200 billion of Chinese imports

U.S. says to slap tariffs on extra $200 billion of Chinese imports
Shipping containers are seen at a port in Shanghai

By Eric Beech

WASHINGTON (Reuters) - The Trump administration raised the stakes in its trade war with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.

U.S. officials released a list of thousands of Chinese imports the administration wants to hit with the tariffs, including hundreds of food products as well as tobacco, chemicals, coal, steel and aluminum.

It also includes consumer goods ranging from car tires, , furniture, wood products, handbags and suitcases, to dog and cat food, baseball gloves, carpets, doors, bicycles, skis, golf bags, toilet paper and beauty products.

"For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition," U.S. Trade Representative Robert Lighthizer said in announcing the proposed tariffs.

"Rather than address our legitimate concerns, China has begun to retaliate against U.S. products ... There is no justification for such action," he said in a statement.

Last week, Washington imposed 25 percent tariffs on $34 billion of Chinese imports, and Beijing responded immediately with matching tariffs on the same amount of U.S. exports to China.

Investors fear an escalating trade war between the world's two biggest economies could hit global growth.

President Donald Trump has said he may ultimately impose tariffs on more than $500 billion worth of Chinese goods - roughly the total amount of U.S. imports from China last year.

The new list published on Tuesday targets many more consumer goods than those covered under the tariffs imposed last week, raising the direct threat to consumers and retail firms.

The tariffs will not be imposed until after a two-month period of public comment on the proposed list, but some U.S. business groups and senior lawmakers were quick to criticize the move.

'TARIFFS ARE TAXES'

Senate Finance Committee Chairman Orrin Hatch, a senior member of Trump's Republican Party, said the announcement "appears reckless and is not a targeted approach."

The U.S. Chamber of Commerce has supported Trump’s domestic tax cuts and efforts to reduce regulation of businesses, but it has been critical of Trump's aggressive tariff policies.

“Tariffs are taxes, plain and simple. Imposing taxes on another $200 billion worth of products will raise the costs of every day goods for American families, farmers, ranchers, workers, and job creators. It will also result in retaliatory tariffs, further hurting American workers," a Chamber spokeswoman said.

The Retail Industry Leaders Association, a lobby group representing the largest U.S. retailers, said: "The president has broken his promise to bring ‘maximum pain on China, minimum pain on consumers.’"

"American families are the ones being punished. Consumers, businesses and the American jobs dependent on trade, are left in the crosshairs of an escalating global trade war,” said Hun Quach, the head of international trade policy for the group.

There was no immediate reaction from the Chinese government.

Although it was not a direct reaction to the new move from Trump's administration, the official English-language newspaper China Daily said in an editorial that Beijing had to stand up to Washington.

"China has no option but to fight fire with fire. It has to resolutely fight back while taking proper measures to help minimize the cost to domestic enterprises and further open up its economy to global investors," it said.

Japan machinery orders seen as bullish after May's smaller than expected fall

Japan machinery orders seen as bullish after May's smaller than expected fall
FILE PHOTO: Heavy machinery are seen at the new Tokyo Metropolitan Central Wholesale Market under construction in the Toyosu district in Tokyo

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's core machinery orders fell in May, pulling back from the previous month's big gain, although the decline was softer than expected, easing some concerns about a slowdown in capital expenditure amid a worsening U.S.-China trade conflict.

Capital expenditure is a bright spot in Japan's economy, which suffered a first-quarter contraction after its longest growth run since the bubble economy of the 1980s.Economists are watching capital spending closely for clues on the strength of an expected economic rebound in the second quarter.

Cabinet Office data out on Wednesday showed core orders, a highly volatile data series regarded as an indicator of capital spending in the coming six to nine months, fell 3.7 percent, smaller than economists' median estimate of a 5.5 percent drop.

It followed a 10.1 percent rise in April.

The data came a week after the Bank of Japan's key tankan survey showed big firms planned to raise capital spending by a solid 13.6 percent this fiscal year, even as manufacturers' business confidence soured for two straight quarters in June.

"The orders data as well as the tankan confirmed bullish capital expenditure," said Koya Miyamae, senior economist at SMBC Nikko Securities. "Core orders look set to grow for a fourth straight quarter in April-June." Economists expect capital expenditure to be underpinned by the need to upgrade production capacity, boost software, invest in labor-saving equipment to cope with labor shortages and to meet infrastructure needs ahead of the 2020 Tokyo Olympic Games.

Still, policymakers and analysts are carefully watching how trade disputes between the United States and China - Japan's two major export destinations - may affect corporate capital spending plans in an export-reliant economy.

U.S. tariffs on $34 billion in Chinese imports took effect on Friday. Beijing responded with its own measures.

The Trump administration raised the stakes in its trade war with China on Tuesday, saying it would slap 10 percent tariffs on an extra $200 billion worth of Chinese imports.

By sector, orders from manufacturers rose 1.3 percent in May, while service-sector orders increased 0.2 percent.

The Cabinet Office kept its assessment of machinery orders unchanged to say they are picking up.

Compared with a year earlier, core orders, which exclude those for ships and from electricity utilities, rose 16.5 percent in May, versus an 8.6 percent gain seen by economists.

The Bank of Japan's June tankan showed big manufacturers planned to increase capital expenditure by 17.9 percent this fiscal year, the fastest gain since 2015.

Large non-manufacturers plan to raise capex by 11.2 percent, which would be the fastest increase since 1990 at the peak of the bubble economy.

The central bank will scrutinize the orders and other data at its rate review ending July 31, at which its nine-member board will conduct a quarterly review of its long-term growth and inflation outlook.
July 10, 2018

German investor morale hits six-year low on trade angst

German investor morale hits six-year low on trade angst
FILE PHOTO: Containers are pictured at a loading terminal in the port of Kiel

BERLIN (Reuters) - The mood among German investors slumped in July to its lowest level since August 2012, a survey showed on Tuesday, weighed down by concerns about escalating trade tensions with the United States.

The ZEW research institute said its monthly survey showed economic sentiment among investors fell to -24.7 from -16.1 in June. This compared with the Reuters consensus forecast for a reading of -18.0.

A separate gauge measuring investors' assessment of the economy's current conditions fell to 72.4 from 80.6 last month. The Reuters consensus forecast was for a reading of 78.2.

"The current survey period has been marked by great political uncertainty," ZEW president Achim Wambach said in a statement.

"In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook," he added.

UK economy perks up slightly as Bank of England nears rate decision

UK economy perks up slightly as Bank of England nears rate decision
FILE PHOTO: People walk along the high street in Salisbury

By Andy Bruce and William Schomberg

LONDON (Reuters) - Britain' economy picked up a bit of speed in May after slowing in early 2018, according to official figures that are likely to give the Bank of England more confidence about raising interest rates next month.

A new monthly reading of gross domestic product showed the world's fifth-biggest economy grew by 0.3 percent in May from April.

That was up from growth of 0.2 percent in April and in line with the forecast in a Reuters poll of economists, marking the strongest growth since November, the Office for National Statistics said on Tuesday.

Sterling fell against the dollar after the data, which showed a mixed picture of the economy. Growth came mostly from the dominant services sector while factory output disappointed.

But Cathal Kennedy, an economist at RBC Capital Markets, said the figures should support expectations that the BoE would raise rates in August.

"The gradual momentum into May really backs up what the Bank has been saying of late. We have seen a bounceback from the first quarter," he said.

BoE Governor Mark Carney and other top officials at the central bank opted not to raise rates in May because of the early 2018 slowdown.

Instead, they decided to wait for signs the weakness was temporary and caused by unusually cold winter weather rather than a sign of broader problems before Britain's exit from the European Union next year.

However, upheaval in the government of Prime Minister Theresa May -- battling to keep her grip on the ruling Conservative Party, which is split over Brexit -- could yet affect confidence among employers, a potential new hurdle for the BoE.

Britain' economy grew by 0.2 percent in the three months to May, as expected, after stagnating in the three months to April.

In annual terms, the economy was 1.5 percent bigger than in May last year, the ONS said.

The BoE' rate-setting committee is expected to raise rates by 25 basis points to 0.75 percent -- only its second rate increase in more than a decade -- on Aug. 2, according to a Reuters poll of economists.

SERVICES-LED GROWTH

The ONS said the warm weather and spending around the royal wedding of Prince Harry and Meghan Markle helped the economy.

Britain’s services industry grew 0.3 percent month-on-month in May, slowing from an upwardly revised 0.4 percent in April.

Over the three months to May, growth in services -- which makes up 80 percent of economic output -- picked up speed to 0.4 percent from 0.2 percent.

But industrial output fell unexpectedly in May by 0.4 percent on the month, hit by the shutdown of the Sullom Voe oil and gas terminal.

Manufacturing growth also disappointed, rising only 0.4 percent on the month -- less than half the growth rate expected in the Reuters poll.

May capped the weakest three months for British factories since December 2012.

There was better news from construction, which had struggled in the bad weather of early 2018. Output jumped 2.9 percent in May, far exceeding expectations and marking the first growth in the sector since December.

Separate data showed Britain's deficit in goods trade during May was broadly unchanged from April at 12.362 billion pounds ($16.37 billion).

Don't takes risks with economy, central bank tells Italy's new government

Don't takes risks with economy, central bank tells Italy's new government
FILE PHOTO: Bank of Italy Governor Ignazio Visco speaks during a meeting in Rome

ROME (Reuters) - The head of Italy's central bank on Tuesday warned the country's new government to be cautious with public accounts to avoid upsetting financial markets and increasing public debt.

Bank of Italy Governor Ignazio Visco told a gathering of bankers in Rome that Italy's reform effort had petered out and if a new financial crisis should hit, the country was now "much more vulnerable than we were 10 years ago."

The governing coalition of the 5-Star Movement and the right-wing League plans sweeping tax cuts and higher welfare spending, but Visco said market tensions, and Italy's huge public debt argued for a cautious approach.

"Prudence and far-sightedness are needed to avoid (market) tensions and to avoid leaving Italians with a higher debt and lower income in the future," he said.

Visco backed a reform to pool together Italy's small cooperative banks, which the government has suggested it may suspend, saying the changes will make it easier for them to raise capital and avoid possible crises.

He also called for a reform passed by the previous government forcing the so-called "popolari" banks to become joint stock companies to be completed.

Consolidation of the banking sector "remains the most efficient tool to address inefficiencies and guarantee access to capital," he said.

ECB defends stimulus scheme from German court challenge

ECB defends stimulus scheme from German court challenge
ECB defends stimulus scheme from German court challenge

By Michele Sinner

LUXEMBOURG (Reuters) - The European Central Bank defended its 2.6 trillion-euro bond-buying program before the European Union's top court on Tuesday from accusations it was bankrolling governments and endangering taxpayer money.

The case, brought by a group of eurosceptic politicians and academics from Germany, aims to stop the ECB's current stimulus program, which is nearing its end, and is likely to set a precedent for any future scheme.

It was referred to the Luxembourg-based General Court of the European Union by Germany's constitutional court last year, with a number of questions about whether the ECB broke EU rules with its debt purchases.

The people who brought the case claim the program violates a ban on monetary financing and make the Bundesbank, and with it the German taxpayer, liable for losses suffered by other national central banks under the program.

"The ECB lacks democratic legitimacy," Dietrich Murswiek, the lawyer of one of the claimants, told the EU court.

But the ECB said in its own written response that it was respecting the treaties by only buying from investors, rather than directly from governments, and that risks for central banks were limited.

"The examination of the questions referred did not reveal anything that could affect the validity of the decision," the ECB's lawyers wrote.

The ECB said last month it expected to end its bond purchases at the end of the year, but it would keep re-investing for a long time the cash it gets from bonds that mature.

The German government and central bank, which expressed their scepticism when the program began in 2015 and for a long time after that, stood behind the ECB on Tuesday. But Berlin made its support conditional on imposing a cap on the potential exposure of its central bank to losses elsewhere.

"The provision should be interpreted as not allowing an unlimited liability on a central bank for the losses of another central bank," the German government's lawyer Ulrich Haede told the court.

Under the current scheme, only 20 percent of the bonds bought by euro zone central banks are "risk-shared", meaning any loss from them would be spread across the euro zone.

But the German provision was unlikely to be welcome by the ECB, since it might tie the central bank's hands when designing any future program.

"The Court should set strict limits to the bond-buying program for the future, so that the ECB does not completely become a plaything for fiscal policy," Friedrich Heinemann, an economist at Germany's ZEW institute, said.

(Writing By Francesco Canepa and Balazs Koranyi in Frankfurt, editing by Larry King)

China June producer inflation hits six-month high, consumer inflation up slightly

China June producer inflation hits six-month high, consumer inflation up slightly
FILE PHOTO: A customer uses a Xiaomi smartphone at a Xiaomi store in Beijing

BEIJING (Reuters) - China's producer inflation accelerated to a six-month high in June, lifted by strong commodity prices and threatening to put more pressure on the country's exporters as a trade war escalates between Washington and Beijing.

Annual consumer inflation also edged up as food prices rose at a faster pace, official data showed on Tuesday, though the central bank is likely to remain more focused on cushioning the slowing economy than retail prices.

The United States and China slapped tariffs on $34 billion worth of each others' goods last week, fuelling fears of a prolonged battle that would hurt global trade, investment and growth, while also damaging U.S. farm exports and potentially driving up food prices in China.

The producer price index (PPI) -- a gauge of industrial profitability -- rose by a stronger-than-expected 4.7 percent in June from a year earlier, compared with a 4.1 percent increase in May, according to the National Bureau of Statistics (NBS).

China's producer inflation has now picked up for three months in a row after easing in late 2017.

For graphic on trends in inflation in China and other major economic indicators click http://tmsnrt.rs/2iO9Q6a

On a month-on-month basis, the PPI rose 0.3 percent in June, compared with 0.4 percent growth in May.

Analysts polled by Reuters had expected June producer inflation would pick up to 4.5 percent, buoyed by a recent recovery in global commodity prices.

Raw material prices jumped 8.8 percent in June from a year earlier, compared with a 7.4 percent increase in May.

The higher prices have helped fuel sharp gains in earnings, with profits at China's industrial firms growing at a sizzling pace in May.

But much of the jump has been in prices of resources such as oil and coal and other raw materials, benefitting producers but raising input costs for manufacturers like exporters who are further along supply chains.

The intensifying trade dispute with the U.S. did rattle China's commodity markets last month, after both sides imposed tit-for-tat duties on each other's imports on Friday.

FEW SIGNS OF TARIFF IMPACT FOR CONSUMERS YET

The consumer price index (CPI) rose 1.9 percent in June from a year earlier, in line with expectations for a slight pick-up from May's gain of 1.8 percent.

On a month-on-month basis, the CPI fell 0.1 percent.

The core consumer price index, which strips out volatile food and energy prices, was unchanged at 1.9 percent in June.

The food price index rose 0.3 percent from a year earlier, after ticking up 0.1 percent in May. Non-food prices rose 2.2 percent, compared with 2.2 percent growth a month ago.

Prices of agricultural products in particular are expected to jump after Beijing imposed tariffs on imports of U.S. soybeans and other products used to feed its huge livestock sector.
July 09, 2018

U.S.-China tensions to hurt countries' GDP: Indonesia central bank governor

U.S.-China tensions to hurt countries' GDP: Indonesia central bank governor
FILE PHOTO - Bank Indonesia governor Perry Warjiyo speaks during media briefing at Bank Indonesia headquarters in Jakarta

JAKARTA (Reuters) - Rising trade tensions between the United States and China will negatively affect the economic growth of other countries, Indonesia's central bank governor said on Monday.

Other than the effect through the global supply chain, Governor Perry Warjiyo said Indonesia and other emerging markets would be hit by investor risk aversion due to the trade war.

Asked how Indonesian policymakers would respond, he said: "Our strategy is to strengthen domestic demand, control the current account deficit and attract capital inflows."

Bank Indonesia has raised its benchmark rate by 100 basis points so far this year to defend the falling rupiah currency. The government also recently announced a plan to review capital goods imports to control the current account deficit.

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