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G-7 unveils $600B plan to combat China’s global reach

The world's wealthiest democracies on Sunday announced a $600 billion global infrastructure initiative to counter China’s push to exert political and commercial influence through massive investments across emerging economies.

G-7 unveils $600B plan to combat China’s global reach

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·4 min read

ELMAU, Germany — The world’s wealthiest democracies on Sunday announced a $600 billion global infrastructure initiative to counter China’s push to exert political and commercial influence through massive investments across emerging economies.

President Joe Biden was joined by other G-7 leaders in unveiling the group’s counterstrike at a summit in the German Alps.

Biden declared that “our nation and the world stand at a genuine inflection point in our history,” and added that the choices made in developing countries today would gird them against future shocks from climate change and pandemics and prepare them for the digital age.

The United States will aim to leverage a total of $200 billion for the program over the coming five years through a combination of federal financing and private sector investments. That adds to €300 billion already announced by the EU. Along with contributions from the other members, the overall target is to build a $600 billion scheme.

Biden never used the word “China,” but the rival on the other end of the race for global reach was clear, with the president declaring that when “democracies do all that we can offer,” they would triumph over autocracies.

“We’re offering better options for people around the world,” he said.

European Commission President Ursula von der Leyen said the aim was to present a “positive powerful investment impulse to the world to show our partners in the developing world that they have a choice.”

The infrastructure plan was first unveiled a year ago, at last year’s G7 in Britain, but little progress was made and the program has been renamed. In 2021, it was dubbed “Build Back Better World” after Biden’s legislative push, but the implosion of his domestic agenda has led to a new moniker: the “Partnership for Global Infrastructure.” That will also be the umbrella term that captures the EU and U.K.’s own programs.

The plan is meant to compete with China’s “Belt and Road Initiative,” which has tried to strengthen ties with the developing world, especially in Asia and Africa, by offering financing for large-scale projects such as roads, railways and ports. U.S. officials have consistently claimed that the nations that go into business with China end up with punishing debt and are offering the West’s plan as an alternative.

But much of the funding behind the new plan appears aspirational and seems to fall short of its lofty goals. The White House did announce Sunday a few early projects, including U.S. companies taking the lead on a solar power project in Angola, a vaccine manufacturing facility in Senegal, a modular reactor in Romania, and a 1,000-mile submarine telecommunications cable that will connect Singapore to France through Egypt and the Horn of Africa.

The partnership will also provide a structure for the G-7 nations to combine their resources in offering emerging economies cash to turn off their coal plants. The first of these so-called Just Energy Transition Partnerships is being rolled out in South Africa — others are under discussion in India, Indonesia, Vietnam and Senegal. German Chancellor Olaf Scholz said Sunday that Berlin’s contribution to South Africa would amount to €300 million.

Inflation has delivered a blow to the global infrastructure plan — as well as the bipartisan domestic version Biden signed into law late last year — making the projects more expensive than first planned. Moreover, the newly christened Partnership for Global Infrastructure has also been impacted by Russia’s invasion of Ukraine.

Biden’s initial plan had significant climate change goals that, while still present, have taken a backseat to an effort to combat the fuel cost crisis exacerbated by the war. The German G-7 meeting had been intended to reaffirm the leaders’ fight against climate change, but the democracies have been more focused on bringing down the price of oil and gas than immediately reducing their emissions.

Many of the nations are reversing plans to stop burning coal while looking for oil and — to the delight of fossil fuel companies — are looking to spend billions to build terminals for liquified national gas. Both Italy and German have argued within the negotiations leading up to the meeting for the G-7 to back short-term investments in gas.

“Our work on promoting infrastructure globally is also affected by the current geopolitical situation,” said Scholz. “We have therefore discussed how our investment globally in climate-neutral and low carbon energy including gas can help us as a temporary response to Russia’s use of energy as a weapon.”

Xinjiang businesses shrug off ‘evil’ US ban, shifts focus to booming domestic market

The latest US ban has been called by Chinese firms and experts an "evil" move aimed at pushing a considerable chunk of Chinese products out of the global supply chain. But for the pillar industries in Northwest China's Xinjiang Uygur Autonomous Region and beyond, companies said that they have become immune to US sanctions since they have developed complete supply chains domestically and embraced booming domestic demand for green energy amid the nation's carbon reduction targets.

Xinjiang businesses shrug off ‘evil’ US ban, shifts focus to booming domestic market
Impact to be limited amid booming domestic market: firms
Published: Jun 26, 2022 09:20 PM
   
Solar panels on barren hills of Mount Taihang in Handan, North China's Hebei Province Photo: VCG

Solar panels Photo: VCG



Chinese suppliers for the new-energy sector, ranging from polysilicon at the upstream to solar panels at the downstream, are ready to further divert their markets from the US in response to the Biden administration’s import ban targeting all Xinjiang-related goods issued on Tuesday over alleged “forced labor” claims.

The latest US ban has been called by Chinese firms and experts an “evil” move aimed at pushing a considerable chunk of Chinese products out of the global supply chain. But for the pillar industries in Northwest China’s Xinjiang Uygur Autonomous Region and beyond, companies said that they have become immune to US sanctions since they have developed complete supply chains domestically and embraced booming domestic demand for green energy amid the nation’s carbon reduction targets.

Several Xinjiang-based companies expressed deep anger over the US sanctions against local supply chains based on the hyped allegation, but also shrugged off the impact on their businesses, they told the Global Times over the weekend.

A person with Xinjiang Nonferrous Metal Industry (Group) Co, a local state-owned maker of new-energy materials, such as polysilicon for solar panels, said that the allegation of “forced labor” is such nonsense that it doesn’t even deserve a response.

“We have had very good and standardized management for decades and there is no such thing as they claim,” the person said, noting that the Western media attempts to “put dirt” on Xinjiang to disrupt the advanced resources and supply chain in the region from playing a competitive role.

Amid the US import ban on Tuesday, the company was seen in the headlines of the New York Times, claiming that it was allegedly involved in using “forced labor,” which the company strongly denied.

“It is the US that is using its own dark slavery history to hype fake stories against others,” he said.

The person said that all employees, whether they are minorities or not, are treated equally in all aspects such as living and working conditions and pay. “Our businesses are in China, and these sanctions are not our concerns,” the person said.

Other companies are also not worried about the impact of the ban, since the US is no longer their major market, sources said.

A manager of a Xinjiang-based upstream enterprise in the solar panel industry chain told the Global Times, on condition of anonymity, on Sunday that its US-related clients were no longer placing orders over concerns of being targeted by the US government, simply because his company is based in Xinjiang.

But the company is also adapting to the change by diverting to the booming domestic market away from countries such as the US and Japan, which used to take up to 60 percent of the firm’s total business.

“Because of China’s commitment to carbon reduction, which is unleashing huge potential at home, the domestic market is now our major focus,” the manager said, indicating a puny impact the new US move could bring to his business.

While the impact from the ban on Chinese industry players is limited, its influence on the US – a huge fossil fuel consumer – is big, since it is having a hard time making a transformation to green energy, industry insiders said.

Solar power generation will make up 14 percent of the US electricity sector’s total in 2035 and 20 percent in 2050, assuming there are no changes in laws and regulations, the US Energy Information Administration projected in the Annual Energy Outlook 2021 released in November 2021.

But the US will find its own solar industry hard to expand, if it won’t allow Chinese companies or goods into the market, since over 99 percent of the world’s silicon wafers are produced in China, and half of the country’s and the world’s industrial silicon and polysilicon are produced in Xinjiang, Xu Aihua, vice president of the Silicon Industry Branch of the China Nonferrous Metals Industry Association, told the Global Times on Sunday.

The ban will also hit batteries for NEVs in the US, since almost all of the main batteries in this sector come from China, with Xinjiang accounting for the largest share.

According to Benchmark Mineral Intelligence, a battery raw material consultancy, China produces nearly two-thirds of the world’s lithium-ion batteries, while the US accounts for only 5 percent.

Some Biden administration officials have also opposed a one-size-fits-all import ban covering all Xinjiang-related Chinese goods, saying the move would undermine the US economy and the transition to clean energy, the New York Times reported on Tuesday.

 Biden is under pressure to go soft on China’s genocide

The Biden administration faces a crucial test of its willingness to confront the genocide in China. This week, a new U.S. law meant to cripple China’s ability to profit from the forced labor of Uyghurs and other persecuted minorities went into effect. The question is whether President Biden will fully implement it — or squander America’s best and perhaps last chance to end our complicity in these atrocities.

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 Biden is under pressure to go soft on China’s genocide

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A worker gathers cotton yarn at a textile manufacturing plant, as seen during a government-organized trip for foreign journalists, in Aksu in China’s Xinjiang region on April 20, 2021. (Mark Schiefelbein/AP)

The Biden administration faces a crucial test of its willingness to confront the genocide in China. This week, a new U.S. law meant to cripple China’s ability to profit from the forced labor of Uyghurs and other persecuted minorities went into effect. The question is whether President Biden will fully implement it — or squander America’s best and perhaps last chance to end our complicity in these atrocities.

Congress passed and Biden signed the Uyghur Forced Labor Prevention Act last December. It bans imports of any products connected to forced-labor practices in China’s northwest Xinjiang region, part of what the Biden administration has determined to be an ongoing genocide. Several officials, congressional staffers and experts have told me that some administration figures and business interests are fighting against strict implementation of the law. Those opposed are the same interests that fought long and hard to thwart its passage, as detailed in a new seven-part investigation released by the Dispatch. They are not about to stop now.

“The implementation will be contested, just as everything Xinjiang-related was contested last year,” said Michael Sobolik, a fellow at the American Foreign Policy Council. “The mechanics are different, but the battle remains the same: climate interests pitted against human rights concerns.”

Some Biden officials, including State Department climate envoy John F. Kerry, have argued internally since last year that human rights concerns should not stand in the way of working with China on climate change. (Asked about this trade-off last year, Kerry said that “life is always full of tough choices.”) Beijing itself promotes this linkage, demanding the United States back off human rights criticism before it will cooperate on climate change.

What’s different this year is that Biden faces an economic crisis that threatens Democratic control of Congress and his own reelection. This seems to be causing the White House to ease off its promise to combat Uyghur forced labor to the full extent of its ability. This month, the White House issued an emergency declaration that granted a 24-month tariffs waiver for solar panels containing components from Xinjiang, even though that action undermined an ongoing Commerce Department investigation.

The new law requires that Customs and Border Protection (CBP) detain any shipment that comes from Xinjiang or has components connected to Xinjiang, which are now presumed to be tainted with forced labor unless the importers can prove otherwise. Some U.S. corporations are already complaining that the requirement is too onerous, because proving that the products are unconnected to abuses is near impossible.

China doesn’t allow independent auditing of Xinjiang factories and denies all accusations of abusing Uyghurs. This is contradicted by mountains of evidence showing that the Chinese government has systematically imprisoned millions of Uyghurs and other minorities, compelled tens of thousands of them into forced labor, separated families, quashed their religious and cultural freedom, and used forced sterilization, all in service of their genocidal aims.

To be sure, if the law were enforced as written, there would be short-term disruptions to several industries, involving everything from cotton to electric vehicles. But that’s the whole point. Unless businesses are compelled to scrub their supply chains of products made with forced labor, they won’t act. That’s why Congress stepped in.

These corporations can’t say they didn’t have fair warning. Since the law was passed, CBP and the Department of Homeland Security’s task force on forced labor have engaged with industry extensively on the new rules. Homeland Security released a list of Chinese companies that use forced labor in Xinjiang or transport forced workers to other parts of China. Many of these Chinese entities were already banned in previous government actions.

“Without full and effective implementation, businesses will continue to profit from slave labor, and American consumers will continue to be complicit in the genocide,” said Uyghur American Nury Turkel, chair of the U.S. Commission on International Religious Freedom. “We cannot carry on with business as usual, empowering the Chinese Communist Party to commit human rights abuses with impunity.”

Human rights considerations aside, China’s rampant use of cheap forced labor hinders the competitiveness of U.S. solar firms, who must pay workers market rates. Moreover, U.S. dependence on these Chinese supply chains is an increasingly obvious national security vulnerability.

Importing solar panels from China is of minimal value to solving climate change anyway, given that China’s solar industry factories run largely on dirty coal. It’s also naive to think that if the United States tones down its criticism on human rights that Beijing will cooperate on climate change in any meaningful way.

Secretary of State Antony Blinken promised this week to implement the new law and rally “allies and partners” to the cause. Congress will be watching closely to hold the administration to that commitment. If the White House provides enough wiggle room for China’s forced-labor industry to continue with business as usual, the entire effort will be rendered useless — and the prospects for the Uyghurs and other victims will further darken.

A US ban on all imports of goods made in China’s Xinjiang region is due to come into force today.

A US ban on all imports of goods made in China's Xinjiang region is due to come into force today. It is a major exporter of cotton and tomatoes, but is also where Uighurs and other Muslim groups are being held in detention camps. There are concerns that it could cause further problems to the global supply chain. The ban intensifies pressure on Beijing over allegations of rights violations that took place at Xinjiang region against Muslim Uyghur and other minorities. China denies the claims and has warned of retaliatory measures. Al Jazeera’s Katrina Yu reports from Beijing, China.

 
 
 
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A US ban on all imports of goods made in China’s Xinjiang region is due to come into force today. It is a major exporter of cotton and tomatoes, but is also where Uighurs and other Muslim groups are being held in detention camps. There are concerns that it could cause further problems to the global supply chain. The ban intensifies pressure on Beijing over allegations of rights violations that took place at Xinjiang region against Muslim Uyghur and other minorities. China denies the claims and has warned of retaliatory measures. Al Jazeera’s Katrina Yu reports from Beijing, China. – Subscribe to our channel: http://aje.io/AJSubscribe
 
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U.S. investigates Chinese companies over export sanction issues

U.S. Commerce Secretary Gina Raimondo said on Tuesday the Biden administration is actively considering adding new Chinese companies to the government's economic blacklist as it investigates what it calls efforts by China to evade U.S. sanctions.

U.S. investigates Chinese companies over export sanction issues

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·2 min read

By David Shepardson

WASHINGTON (Reuters) – U.S. Commerce Secretary Gina Raimondo said on Tuesday the Biden administration is actively considering adding new Chinese companies to the government’s economic blacklist as it investigates what it calls efforts by China to evade U.S. sanctions.

The Commerce Department’s Entity List restricts access to U.S. exports.

Raimondo told reporters the administration was working to “get information around bad actors in China and adding those companies to the Entity List … We are in the middle of a number of investigations.”

She added: “I don’t see us relaxing sanctions any time soon.”

China is not standing still, she said. “They are coming up with we know new ways to evade our sanctions, setting up new (companies) and the like. We have a very aggressive and vigilant effort under way.”

She said when possible she wants to work with U.S. allies to align their trade restrictions with U.S. export controls.

The Trump administration aggressively used the Entity List, adding dozens of Chinese companies including Huawei in 2019. It also added chipmaker SMIC and Chinese drone manufacturer DJI in 2020.

The Biden administration has extended that policy and in November put a dozen Chinese companies on the Entity List over national security and foreign policy concerns, in some cases citing their help in developing the Chinese military’s quantum computing efforts.

In December, Commerce added China’s Academy of Military Medical Sciences and its 11 research institutes to the Entity List.

Raimondo cited a recent report that Apple Inc was considering moving some production out of China. “I’ve heard that same thing from numerous other American manufacturing companies, many of whom have been manufacturing in China for decades,” she said.

In February, the Commerce Department added 33 Chinese entities to its “unverified list” which requires U.S. exporters to go through more procedures before shipping goods to the entities.

China’s embassy in Washington said last year the United States “uses the catch-all concept of national security and abuses state power to suppress and restrict Chinese enterprises in all possible means.”

(Reporting by David Shepardson in Washington; Editing by Matthew Lewis)

China’s yuan hits 18-month low against the dollar as Beijing’s Covid lockdowns drag economy and US bond yields climb

The yuan's onshore price slipped to 6.7321 against the dollar, the worst exchange rate since November 2020, continuing a sell-off that saw the the Chinese currency tumble 4% in April.

China’s yuan hits 18-month low against the dollar as Beijing’s Covid lockdowns drag economy and US bond yields climb

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·2 min read
 
 
Dollar vs. Yuan
 
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  • The yuan fell 1% against the dollar Monday to hit its lowest point since November 2020.

  • China’s economy continues to face headwinds, with Covid lockdowns hindering growth.

  • Meanwhile, US bond yields have continued to climb higher as the Fed tightens monetary policy.

China’s yuan fell 1% against the US dollar Monday to its lowest point in 18 months as strict Covid lockdown policies imposed by Beijing weigh on economic growth prospects.

The yuan’s onshore price slipped to 6.7321 against the dollar, the worst exchange rate since November 2020, continuing a sell-off that saw the the Chinese currency tumble 4% in April.

The depreciation comes as a hawkish Federal Reserve sends bond yields in the US above those in China, while fresh data showed export growth slowing. Additionally, sentiment has been weighed down because state-owned banks haven’t sold off dollar holdings, sources told Bloomberg.

China’s central bank is moving to slow the yuan’s slide, as it set the currency’s reference rate above expectations for a fifth day on Monday.

The People’s Bank of China also cut the foreign-currency reserve ratio last month in an effort to increase the supply of dollars and boost the yuan.

Coinciding with the yuan’s recent drop is a decline in its share of global transactions in April to its lowest point since November 2021.

During the same time, the dollar carried on as the most used currency for the 10th straight month, per SWIFT data, as businesses flocked to the traditional safe-haven currency. It accounted for 41.1% of all SWIFT transactions — it’s highest rate since April 2020.

Nonetheless, experts have speculated in recent months whether the dollar’s dominance is waning, and whether the yuan stands a chance of supplanting it. Skeptics say Beijing isn’t ready to take on the responsibility of being a primary reserve currency, and that Chinese markets see too much chaos.

Read the original article on Business Insider

China silences prominent market analyst as economic slump deepens

Over the weekend, Tencent’s (TCEHY) WeChat froze the public account of Hong Hao, managing director and head of research at BOCOM International, the investment banking arm of Bank of Communications, a state-owned bank and China’s fifth largest.

China silences prominent market analyst as economic slump deepens

 
Hong KongCNN Business — 

Chinese social media have shut down the accounts of a prominent market analyst who drew attention in recent weeks to the dramatic slowdown in the country’s economy and the effects of government policy on the tech industry.

Over the weekend, Tencent’s (TCEHY) WeChat froze the public account of Hong Hao, managing director and head of research at BOCOM International, the investment banking arm of Bank of Communications, a state-owned bank and China’s fifth largest.

The move came after he posted about huge outflows of capital from the country and made bearish forecasts about the Chinese stock market on social media.

“All content has been blocked. The user is banned from using the account,” a notice posted on the WeChat account said. It added that the account had “violated” government’s internet rules, without going into details. It also did not specify which post had led to the suspension.

Hong’s account on Weibo (WB), which had more than 3 million followers, has also been removed. A search by CNN Business for the account resulted in a message stating that the user “no longer exists.”

Covid lockdowns have taken a heavy toll on the world’s second biggest economy. The latest government survey data — released Saturday — shows activity across manufacturing and services slumping to its lowest level since February 2020.

Beijing’s zero-Covid policy, coupled with a crackdown on Big Tech, a real estate slump and risks related to Russia’s war in Ukraine, has triggered an unprecedented flight of capital by foreign investors in recent months. The yuan recently plunged to its lowest level in 17 months.

Hao Hong, chief strategist at Bocom International Holdings Co., speaks at the Bloomberg Year Ahead Asia Conference in Jakarta, Indonesia, on Wednesday, Dec. 6, 2017.

Chinese leaders have made repeated reassurances in recent days about fixing the economy. President Xi Jinping on Tuesday called for an infrastructure spending spree to promote growth. And the Communist Party’s Politburo on Friday promised “specific measures” to support the internet economy.

Hong and BOCOM International did not respond to requests for comment on the social media suspensions. Weibo didn’t reply either.

He’s not alone in expressing growing concern about the health of China’s economy and markets.

Shan Weijian, founder and chair of Hong Kong-based private equity firm PAG, recently criticized the government for policies that resulted in a “deep economic crisis,” according to the Financial Times, citing comments he made at a meeting with brokers. PAG did not respond to a request for comment.

Chinese regulators have stepped up their scrutiny of social media amid rising public discontent over Covid lockdowns in the country.

In a move to reduce people’s online anonymity, Weibo told users on Thursday it would start to publish IP locations on their account pages and when they post comments, in a bid to combat “bad behavior.”

Chinese tech giants have been clamping down on people making negative comments about the economy since last year. In October, Tencent suspended more than 1,400 WeChat accounts after the government launched a crackdown on internet posts that it deems are harmful to the economy.

Tencent said the accounts had made bearish calls about financial markets, “distorted” the interpretation of economic policies, or spread rumors. A public account run by Chen Guo, chief strategist for Shenzhen-based Essence Securities, was among them.

Likely trigger for the social media ban?

It’s not entirely clear which of Hong Hao’s posts triggered the most recent ban.

The last reports posted on his WeChat public account were titled: “Be wary of capital flight” and “What should Chinese ADRs worry about.” ADRs are securities issued by Chinese firms listed in the United States.

Hong warned in those reports about foreign investors dumping Chinese stocks and called attention to the most severe capital outflow since the pandemic began. He also blamed China’s tech crackdown, rather than new US rules on listings by foreign companies, for being behind an epic sell-off in Chinese ADRs in March.

In another note on March 21, Hong also predicted the Shanghai Composite would drop below 3,000 points.

Last Monday, the Shanghai Composite fell below 3,000 for the first time in 21 months, as rising Covid-19 cases in Beijing sparked fears that the Chinese capital could join Shanghai and other major cities in lockdown.

China’s stock market is the second worst performing in the world so far this year, behind Russia, according to Refinitiv Eikon.

China’s lockdowns could drive more U.S. policy action, says Fed’s Kashkari

If lockdowns in China aimed at containing COVID-19 cause further disruptions to global supply chains, the Federal Reserve will need to take even more aggressive action to bring down "much too high" inflation, Minneapolis Fed President Neel Kashkari said on Tuesday.

China’s lockdowns could drive more U.S. policy action, says Fed’s Kashkari

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FILE PHOTO: President of the Federal Reserve Bank of Minneapolis Neel Kashkari speaks during an interview in New York

(Reuters) -If lockdowns in China aimed at containing COVID-19 cause further disruptions to global supply chains, the Federal Reserve will need to take even more aggressive action to bring down “much too high” inflation, Minneapolis Fed President Neel Kashkari said on Tuesday.

Speaking at an event at Luther College in Decorah, Iowa, Kashkari said in the best case scenario, the pandemic fades into the background, supply chains recover and more supply comes back on line.

That would help reduce upward pressure on consumer prices, which rose 8.5% in March, the fastest pace since late 1981.

If that doesn’t happen, Kashkari said, “then our job will get harder … and we are going to have to do more, through our monetary policy tools, to bring inflation back down.”

The Fed began raising interest rates last month, and is expected to ramp up its rate hikes starting next month to slow demand for goods and services and bring it into better balance with constrained supply.

As recently as six months ago Kashkari thought inflation would recede on its own without the Fed tightening monetary policy; he has since joined the rest of his central banking colleagues in believing the Fed does need a series of rate hikes this year to do the job.

But Kashkari’s remarks underscored how much the U.S. central bank’s success in fighting inflation depends on forces outside its control.

Other Fed policymakers have repeatedly hit this theme as well in recent weeks, not just because of China’s lockdowns but also as Russia’s invasion of Ukraine sent energy and food prices soaring globally.

Both push up on inflation, but could also pinch economic activity. The International Monetary Fund this week slashed its forecast for global growth in 2022 to 3.6% from an earlier estimate of 4.4%.

How the U.S. economy shapes up in the coming year will depend “on the virus, it’s going to depend on what happens in Ukraine,” said Kashkari. “Those are giant elephants that will determine what will happen in our economy as well.”

(Reporting by Ann Saphir; Editing by Jacqueline Wong)

‘It’s probably worse than Wuhan’: Experts warn China’s COVID-19 lockdowns will once again cripple global supply chains

At least 373 million people—in cities that represent roughly 40% of China’s gross domestic product—have been affected by the most recent wave of lockdowns across China, Reuters reported last week

‘It’s probably worse than Wuhan’: Experts warn China’s COVID-19 lockdowns will once again cripple global supply chains

·3 min read

Experts are warning China’s recent string of COVID-19 lockdowns is about to send another shock through global supply chains.

At least 373 million people—in cities that represent roughly 40% of China’s gross domestic product—have been affected by the most recent wave of lockdowns across China, Reuters reported last week.

The strict lockdowns have left some residents desperate for food and led to viral videos of Shanghai residents screaming from the windows of their high-rise apartments. And with Chinese President Xi Jinping doubling down on the country’s zero-COVID approach, what happens in China isn’t likely to stay there. Global supply chains are set to take a hit.

After all, Shanghai is home to the world’s largest port, and although it has largely remained open, trucks are struggling to unload cargo due to strict permit regulations, causing shipping containers to stack up.

“Even with air and ocean ports open, the length of the shutdown could make this iteration the most significant logistics disruption since the start of the pandemic,” the shipping company Freightos said in an update to clients this week.

That’s rough news for the American consumer, given the fact that the U.S. imported more goods from China than anywhere else in the world over the past decade. In 2020 alone, the U.S imported roughly $435 billion worth of goods from Chinese cities and sent another $125 billion to the country in exports, according to the Office of the United States Trade Representative.

That means, once lockdowns end, there’s going to be an “overwhelming movement of goods” that cripples supply chains, Jon Monroe, an ocean shipping and supply-chain expert who runs Jon Monroe Consulting, told FreightWaves on Friday.

“It’s probably worse than Wuhan. You’re going to have a lot of pent-up orders,” he said.

Lars Jensen, the CEO of the shipping industry adviser Vespucci Maritime, said that he doesn’t see any immediate end in sight to production and logistics disruptions in China either.

“The supply-chain situation in Shanghai continues to worsen. The port is running out of capacity for some types of cargo as importers cannot collect their goods,” Jensen wrote in a Friday post. “With the outbreak in Guangzhou also leading to shutdowns there, the impact on export volumes out of China will grow larger.”

Investment banks are also sounding the alarm on the potential impact of the strict lockdowns in China. In a note downgrading Chinese GDP growth expectations, UBS said even more localities have initiated “de facto lockdowns” since finding COVID-19 cases.

“Logistic problems were more widespread in April, leading to production disruptions in multiple industries,” the UBS team led by economist Tao Wang wrote. “This could impact China’s trade more significantly in April.”

The economists added that they believe the Chinese government is unlikely to adjust its current policy anytime soon, even if officials are working to reduce transport blockages and production disruptions, meaning supply-chain chaos is likely to continue in the near term.

The effects of the widespread lockdowns in China are already being felt as far as Europe, according to the European Union Chamber of Commerce in China. The organization sent a letter to the Chinese government urging officials to revise their policies last week, arguing the effects of the lockdowns have already begun to affect European suppliers.

A flash survey from the German Chamber of Commerce in China conducted in the first week of April found that roughly half of German companies’ logistics, warehousing, and supply-chain operations were “completely disrupted or severely impacted by the current COVID-19 situation in China,” Reuters reported.

This story was originally featured on Fortune.com

Global Investors Flee China Fearing That Risks Eclipse Rewards

The central question is what could happen in a country willing to go to great lengths to achieve its leader’s goals. President Xi Jinping’s friendship with Russian leader Vladimir Putin has made investors more distrustful of China, while a strongman narrative is gaining momentum as the Communist Party doggedly pursues a Covid-Zero strategy and unpredictable campaigns to regulate entire industries.

Global Investors Flee China Fearing That Risks Eclipse Rewards

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·6 min read
 
 

(Bloomberg) — A growing list of risks is turning China into a potential quagmire for global investors.

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The central question is what could happen in a country willing to go to great lengths to achieve its leader’s goals. President Xi Jinping’s friendship with Russian leader Vladimir Putin has made investors more distrustful of China, while a strongman narrative is gaining momentum as the Communist Party doggedly pursues a Covid-Zero strategy and unpredictable campaigns to regulate entire industries.

As a result, some international investors are finding an aggressive allocation to China increasingly unpalatable. Outflows from the country’s stocks, bonds and mutual funds accelerated after Russia’s invasion of Ukraine, while Norway’s $1.3 trillion sovereign wealth fund has snubbed a Chinese sportswear giant due to concerns about human-rights abuses. U.S. dollar private-equity funds that invest in China raised just $1.4 billion in the first quarter — the lowest figure since 2018 for the same period. On Monday, China’s better-than-expected economic data prompted questions from analysts who pointed to inconsistencies with alternative statistics that paint a grimmer picture of the economy.

The scale and speed of sanctions imposed on Russia forced a rethink of Western attitudes to China, according to Simon Edelsten of U.K. investment firm Artemis Investment Management LLP. His team at the $37 billion money manager sold all its China investments last year following Beijing’s interventions in high-profile listings like Didi Global Inc. and Ant Group Co., saying such moves threatened shareholder rights. China’s more assertive rhetoric around Hong Kong and sovereignty claims in the South China Sea also made the investment team uneasy, Edelsten said.

“Politics and governance factors should now set a cautious tone, especially for long-term commitments” to China, said Edelsten, adding that European measures taken against Russia show that strong trade ties are no guarantee of diplomatic security.

“The Ukraine invasion raises these risks very sharply and our funds are likely to remain very lowly weighted in China for some years to come,” he added.

Brendan Ahern, chief investment officer at Krane Funds Advisors LLC, describes “indiscriminate and price-insensitive selling” of Chinese shares by international investors in the past year.

Beijing’s regulatory actions “felt like an attack on the most respected and widely foreign-held companies,” he said, while sanctions on Russia raised concern the same could happen to China. His firm — which manages China-focused exchange-traded funds — is replacing U.S.-listed Chinese stocks with those trading in Hong Kong to reduce risk.

Making money in China’s public markets has become more difficult. The CSI 300 Index of stocks is down about 15% year-to-date and its risk-adjusted return — as measured by the Sharpe ratio — is among the lowest globally, at minus 2.1. That’s only slightly better than Sri Lanka’s Colombo All-Share Index. The Chinese index is trading near the lowest level since 2014 relative to MSCI Inc.’s global stock gauge.

For the first time since 2010, Chinese benchmark sovereign 10-year notes offer no carry over comparable U.S. Treasuries. And returns in China’s high-yield dollar credit market were the worst in at least a decade last quarter.

Read more: China Jitters Mount as Easing Calls Echo Across Trading Floors

Global funds have started to pull out, selling more than $7 billion worth of mainland-listed stocks via exchange links with Hong Kong in March. They also disposed of $14 billion in Chinese government debt over the past two months and trimmed their credit holdings. Betting against China was considered the fifth most-crowded trade in Bank of America Corp.’s most recent survey of investors.

“Markets are worried about China’s ties to Russia — it’s scaring investors and you can see that risk aversion playing out since the start of the invasion,” said Stephen Innes, managing partner at SPI Asset Management. “Everyone was selling China bonds so we’re glad we didn’t buy any.”

Still, divesting from China may not be a straightforward choice. The world’s second-largest economy possesses a $21 trillion bond market and equity bourses valued at $16.4 trillion onshore and in Hong Kong. Its assets offer diversification for investors, Amundi Singapore Ltd.’s head of investment Joevin Teo said last week, with multi-asset strategies struggling under the threat of inflation and tightening global financial conditions. Some have even called Chinese assets a haven.

“It’s one of the best diversification stories for global funds because of its idiosyncratic nature,” said Lin Jing Leong, senior emerging market Asia sovereign analyst at Columbia Threadneedle Investments, which manages about $754 billion. “Who owns the market, the cycle of China’s growth and inflationary pressures, the low volatility in its currency basket” all help to provide better risk-adjusted returns, she added.

Chinese authorities appear to be taking steps to appeal to global funds. Regulators last month promised to ensure policies are more transparent and predictable — key sticking points for investors who lost trillions of dollars in 2021 due to Beijing’s crackdown on tech and tutoring firms. China is also making compromises that may grant American regulators partial access to audits of U.S.-listed Chinese companies.

While Wall Street giants such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. are rushing to take full ownership of their China ventures, some companies are divesting.

In March, Germany’s Fraport AG sold its stake in Xi’an Airport to a local buyer, ending a 14-year stint in China. The airport operator said it decided to exit the Chinese market after struggling to expand its business. Fraport also owns a share of St. Petersburg airport in Russia, which it’s currently unable to sell.

Others are preparing for China’s decoupling from the West. Self-driving technology startup TuSimple Inc. is considering spinning its China operations off into a separate entity, following American authorities’ concerns over Beijing’s access to its data. Oil giant Cnooc Ltd. may exit operations in the U.K., Canada and the U.S. due to concerns the assets could be subject to sanctions, Reuters reported last week.

Investment professionals at one American private equity fund in Hong Kong aren’t pursuing opportunities in China as aggressively as before even though prices are far lower, according to a person who asked not to be named discussing internal strategies. Concerns include the difficulty of exiting investments and problems that may arise from a hardening of positions such as U.S. investment bans or a consumer boycott of made-in-China products.

As risks increase and rewards diminish, adding exposure to China may no longer be a no-brainer for global investors. In a speech last week, U.S. Treasury Secretary Janet Yellen called Beijing to account for its ever-closer relationship with Moscow.

“The world’s attitude towards China and its willingness to embrace further economic integration may well be affected by China’s reaction to our call for resolute action on Russia,” she said.

(Adds GDP data in 20th paragraph)

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