Survey: US Tariffs Hurting American Businesses in China

Even before U.S.-China trade tensions began escalating dramatically, foreign businesses who operate in China were warning about the impact tariffs could have. And now, according to a newly released joint survey from the American Chamber of Commerce in China and AmCham Shanghai, many are already feeling the pinch.

More than 60 percent say the initial $50 billion in tariffs rolled out by the United States and China are having a negative impact on business, increasing the demand of manufacturing and slowing demand for products.

That number is expected to rise to nearly 75 percent if a second round of tariffs, an additional $200 billion in tariffs from Washington and another $60 billion from Beijing, goes ahead.

The administration of President Donald Trump has threatened it could go ahead with $200 billion in tariffs and, if needed, $267 billion more after that.

Unexpected consequences

William Zarit, chairman of AmCham China said while there are expectations in Washington that an additional onslaught of tariffs could force Beijing to wave the white flag, it risks underestimating China’s capability to continue to meet fire with fire, he said.

“It seems that American companies will be more harmed by the American tariffs than they will by the Chinese tariffs. I don’t think that this necessarily is a result that was expected,” Zarit said.

President Trump argues that China is stealing jobs from the United States and not doing enough to address the huge trade deficit between the two economies. The tariffs are seen by proponents as a way of pressuring China to move away from its state-led economy and policies that force technology transfers.

Zaritt said it remains to be seen whether some of the Trump administration’s tactics and tariffs will address big problems, such as Chinese protectionism, state capitalism and other things such as preferential loans and subsidies. He said one key approach that could go a long way to help ease tensions is for the focus to shift toward equal and reciprocal treatment.

“The Chinese have acknowledged that as their economy is evolving away from an export driven/investment driven to a more consumption/domestic demand driven economy, that they really need to open their market. And so, the big question is why would you not do that if it is in your interest?” Zarit said.

Private vs public economy

In Beijing, some have framed the trade tensions as an attempt by the United States to thwart China’s rise. Others, however, have suggested that instead of opening up markets and giving private enterprises more space, the opposite should happen. An article written by Wu Xiaoping, a veteran financier and columnist argues it is time for private enterprises to think about exiting the market.

In the article, he argued China should move toward a large scale centralized private-public mixed economy. He also said the private economy shouldn’t expand blindly.

“The private economy has accomplished its mission to help the public economy develop and it should gradually step aside,” he wrote in the article.

The article has sparked a backlash online and even state media reports have criticized Wu’s views. The fact that the idea was able to circulate so widely before being heavily censored on Thursday is a signal that the government might be sending out a trial balloon.

Others analysts argue the publication of the article could have been motivated by a fear for some that Beijing was preparing to make major concessions.

Zhang Yifan, an associate economics’ professor at the Chinese University of Hong Kong, said despite the widespread criticism, the idea was worrisome.

“President Xi’s government, they believe [in a] strong government,” Zhang said. “So, there is a trend that they strengthen the power of the government and I am worried that market forces will play a smaller and smaller role.”

More trade talks

On Thursday, China’s Foreign Ministry confirmed that both Washington and Beijing are preparing for another possible round of talks and trade negotiations.

A spokesman from the Foreign Ministry welcomed the invitation from Washington and the two were discussing details about the proposed talks. U.S. Treasury Secretary Steven Mnuchin invited his counterparts in China along with Vice Premier Liu He to attend the talks, which could happen in the coming weeks.

The fact that higher ranking officials would attend the talks is being seen as a positive sign. The last round of talks were carried by lower-ranking officials.

Joyce Huang contributed to this report





Anti-Corruption Watchdog: Most Countries Ignore Anti-Foreign Bribery Laws  

A new report by Transparency International suggests foreign bribery is alive and well. 

The report, by the Berlin-based, anti-corruption watchdog, suggests little has changed in recent years in the way governments enforce their anti-bribery laws. Today, only seven major exporting countries actively crack down on companies that offer bribes to foreign officials in exchange for favorable business deals.

The United States is one of the seven countries, which together account for 27 percent of world exports, Transparency International said. The others are Germany, Israel, Italy, Norway, Switzerland and the United Kingdom. 

2016 a record year

Between 2014 and 2017, the United States launched at least 32 investigations, opened 13 cases and concluded 98 cases involving foreign bribery, according to the report. Enforcement activity surged in 2016, resulting in a record $2.5 billion in penalties levied by U.S. authorities. 

Among several high-profile foreign graft cases adjudicated in the United States, the report cited a case in which British aircraft engine maker Rolls-Royce payed law enforcement authorities in the United States, Britain and Brazil $800 million in 2017 to resolve allegations of bribing officials in at least a dozen countries over more than two decades

The report rated the performance of 44 major exporting countries, including 40 nations that have signed the Organization of Economic Cooperation and Development’s (OECD) Anti-Bribery Convention. The 1997 compact requires signatories to make it a crime for companies and individuals in their countries to bribe foreign officials. 

Transparency International’s last report on the topic, released in 2015, listed just four countries with active anti-foreign bribery law enforcement: Germany, Switzerland, Britain and the U.S.

But the elevation of Israel, Italy and Norway to the ranks of countries with vigorous anti-foreign bribery enforcement was offset by declining levels of enforcement in four other countries: Austria, Canada, Finland and South Korea. 

“Disappointingly, there has been little change in the overall enforcement level (taking the share of world exports into account) since the last report,” the report said. 

‘Limited’ enforcement

Of the 44 countries examined by Transparency International, four — Australia, Brazil, Portugal and Sweden  had “moderate” anti-foreign bribery law enforcement; 11 had “limited” enforcement, while 22, including Russia and China, had “little to no” enforcement. Argentina, Brazil and Chile were among countries that improved their enforcement. 

For the first time, Transparency rated the performance of China, Hong Kong, India and Singapore  all non-OECD countries that have not signed the organization’s anti-graft convention — and put them all in its lowest rung of enforcement. 

Concern about Chinese corporate bribery of foreign officials has heightened since Beijing rolled out its ambitious Belt and Road Initiative in 2013. But Transparency said there were no known foreign bribery cases or investigations brought by the Chinese government between 2014 and 2017. 

The watchdog said that China has recently “signaled” that it may focus more on foreign bribery enforcement, noting that Beijing and the World Bank held a symposium last year that focused, in part, on corruption risks associated with Belt and Road projects. 

‘Naive’ suggestion

To close the enforcement gap, Transparency recommended that all four sign the OECD convention.

Stuart Gilman, a former head of the United Nations global program against corruption, called the recommendation “naive.”

For China and Russia, “corruption and whatever way they can influence other governments is, in effect, part of their foreign policy,” Gilman said. “I think in my discussions with Chinese officials — not officially but reading between the lines — they see it as one among many tools to extend the influence of China around the world, from the Silk Road to Africa to other areas of the world.”



Crashing Turkish Lira in the Balance Before Central Bank Meeting

The Turkish central bank is facing growing pressure to decisively hike interest rates at a meeting Thursday to defend an ailing currency and rein in double-digit inflation.  But concerns remain over President Recep Tayyip Erdogan’s grip on monetary policy.

The Turkish lira has fallen more than 40 percent, much of it in the past few weeks, fueling rampant inflation.  

”Just to keep up with the acceleration of inflation the central bank needs to hike by more than 400 basis points,” said chief economist Inan Demir of Nomura International, “This is only to keep up with the acceleration in inflation, since last formal hike.  If we consider the prospect of a further acceleration inflation outlook, perhaps more is needed [interest rate hikes],” he added.

Demir says what has accelerated heavy lira falls are investor concerns the central bank can’t act decisively because of Erdogan, who has sweeping executive powers.  He has repeatedly voiced opposition to high-interest rates, which he claims “enslaves poor people.”

In a statement, this month the central bank declared it was ready to alter monetary policy to rein in inflation.  Financial markets interpreted the comment as the bank preparing to hike rates aggressively.  “The statement suggests we will see some action,” Demir said, “but I am not very confident the policy response will be as large as the markets need.”

This week, Finance Minister Berat Albayrak sought to talk up the Turkish economy, claiming the financial system was already “correcting itself.”  

Albayrak is the president’s son in law and widely seen as having the inside track with  Erdogan.  Some analysts suggest Albayrak’s positive statements may be seeking to play down the need for a significant increase in interest rate.

Misjudging international investors expectations could be costly.  “There will be massive sell off to the point of a panic if they don’t raise rates enough,” said political analyst Atilla Yesilada of Global Source Partners, “the sky’s limit, there is no way to make a rational forecast on the exchange rate, because we really don’t know when it stops,” he added.

Analysts warn a further decline in the lira risks undermining the Turkish public’s faith in the currency will lead them to convert their savings into dollars, adding pressure to the currency and risking the economy falling into a vicious cycle.

“Lira weakness feeds into inflation,” Demir said, “insufficient action by the central bank leads to deposit dollarization, which feeds into lira weakness, and that feeds into inflation again.”


“Past experiences in Turkey show, a sharp slow down of the economy followed after sharp depreciation,” Demir said, “the GDP [Gross Domestic Product – the size of the economy] growth rate [has] dropped off by 11 to 13 percent, that is the big risk we are looking at for Turkey.”

International banks are forecasting the Turkish economy heading into recession next year.  The timing for Erdogan could not be worse.  In March, Turkey holds critical local elections for the country’s biggest cities, one of the few places where opposition parties still have the opportunity to exercise power.  Erdogan has made it a priority to win the March polls.

Erdogan is likely to be aware, with many of Turkey’s big companies heavily indebted, a further hike in interest rates also risks driving the economy further into recession.


But interest rate hikes on their own may not be enough to address investor concerns and restore stability to the currency.  “A package of reforms is needed,” Demir said.

The World Bank has warned Turkey to rein in massive state building projects it says are overheating the economy and stoking inflation. Investors are also calling for the central bank to be independent and free of political interference.  Analysts say Ankara will also need to repair relations with Washington.

August’s crash in the lira was triggered by the imposition of Turkish sanctions by U.S. President Donald Trump over the detention of American Pastor Andrew Brunson, who is on trial for terrorism charges that Washington claims are politically motivated.

“To stop inflation they [Turkish central bank] will need at least 500 basis points or possibly like Argentina 1,000 basis points interest rate hike,” analyst Yesilada said.

“But is the problem [currency weakness] lack of confidence in running the economy or Father Brunson,” he added.  “If it’s Brunson then raising rates will hurt the economy, but not do much to stabilize the currency.  So maybe it’s better to wait until Mr. Erdogan decides to end this crisis with the United States.”

For now, Erdogan appears to be ready to tough it out, insisting Brunson should stand trial and that lira weakness is part of an international conspiracy against Turkey.



S. Korea Jobless Rate Hits Highest Since Global Financial Crisis

South Korea’s unemployment rate hit an eight-year high in August as mandatory minimum wages rose, adding to economic policy frustrations and political challenges for President Moon Jae-in whose approval rating is now at its lowest since inauguration.

The unemployment rate rose to 4.2 percent in August from 3.8 percent in July in seasonally adjusted terms as the number of unemployed rose by 134,000 people from a year earlier.

This was the labor market’s worst performance since January 2010, when the economy was still reeling from the global financial crisis, when 10,000 jobs were lost.

Finance Minister Kim Dong-yeon said on Wednesday the government will need to adjust its wage policies, signaling some future soft-pedaling in the drive to raise minimum wages.

“(The government) will discuss slowing the speed of minimum wage hikes with the ruling party and the presidential office,” Kim Dong-yeon told a policy meeting in Seoul, adding he did not expect a short-term recovery in the job market.

Experts say the uproar over jobs could also cost Moon considerable political capital as he pursues closer ties with Pyongyang, as any good news from an inter-Korean summit may not be enough to offset public discontent over the lack of jobs and soaring housing prices.

More than 60 percent of respondents in a Gallup Korea survey criticized Moon’s handling of the economy, including his ‘inability to improve the livelihoods of ordinary citizens’ and ‘minimum wage increases.’

The jobs report showed the labor-intensive retail and accommodation sector, which lost 202,000 jobs in August from a year earlier, was the hardest hit.

A total 105,000 jobs were lost from manufacturing industries, the report said.

However, the agriculture, construction and transport sectors saw a rise in the number of employed, partly offsetting the rise in the number of workers laid off.

The overall number of employed people rose by just 3,000 – also the worst since January 2010.

Each month’s worsening jobs report has sparked a strong public backlash, with President Moon Jae-in’s approval rating falling below 50 percent for the first time on Sept. 7.

A weekly Gallup Korea survey released on Friday showed Moon’s support fell 4 percentage points to 49 percent, the lowest since he took office in May 2017.

“At this rate, we may not see any gains in the number of employed in September or the month after that,” said Oh Suk-tae, an economist at Societe Generale.

Oh said economists at the Korea Development Institute, a state-run think tank, believed this year’s 16 percent increase in the minimum wage – the biggest jump in nearly two decades – was discouraging employers from hiring.

“The president should be held responsible for this, nothing could change the trend unless the boss changes his mind about minimum wage hikes,” Oh said.

The workforce participation rate declined slightly to 63.4 percent from 63.6 percent in July, as more jobs were lost than created, Statistics Korea data showed.




Water Shortages to Cut Iraq’s Irrigated Wheat Area by Half

In Iraq, a major Middle East grain buyer, will cut the irrigated area it plants with wheat by half in the 2018-2019 growing season as water shortages grip the country, a government official told Reuters.

Drought and dwindling river flows have already forced Iraq to ban farmers from planting rice and other water-intensive summer crops. Water scarcity was one of the issues galvanizing street protests in the country this year.

An investigation by Reuters in July revealed how Nineveh, Iraq’s former breadbasket, was becoming a dust bowl after drought and years of war.

This latest move is likely to significantly raise wheat imports.

Deputy Agriculture Minister Mahdi al-Qaisi said irrigated land grown with winter grains, namely wheat and barley, would be halved.

“The shortage of water resources, climate change and drought are the main reasons behind this decision, our expectation is the area will shrink to half,” Qaisi said in an interview.

Iraq’s agricultural plan included 1.6 million hectares of wheat last 2017-2018 season. Of those, around one million hectares were irrigated and the rest relied on rainfall.

“We expect that the irrigated wheat area falls to half of what it was last year,” Qaisi said, implying plantings of 500,000 hectares.

The cut is expected to lower the country’s wheat production by at least 20 percent, implying a significantly higher import bill Fadel al-Zubi, the U.N. Food and Agriculture Organization Iraq Representative said.

Iraq already has an import gap of more than one million tonnes per year, with annual demand at around 4.5 million to 5 million tons.

“Imports will go up as a result of cutting down on production and also as a result of population increase,” Zubi said but he declined to give an exact estimate for size of imports next year.

Haidar al-Abbadi, the head of Iraq’s General Union of Farmers, confirmed the cut saying water shortage was the main reason behind it.

“Irrigated wheat will reach 2 million donhums (500,000 hectares) down from around 4 million last season,” he said.

Qaisi said it was too early to tell the area of land that could be grown with wheat relying on rainfall this season but he hoped it would make up for some of the shortfall.

“We will follow a few programs to increase the crop, like raising yields and bringing Nineveh province back to more production … that can partly make up for shortfall,” he said.

But the rains failed Iraq’s Nineveh last season with the government procuring a little over 100,000 tonnes of wheat this year from a region that used to produce close to one million tons annually before Islamic State took over in 2014.

Iraq imports wheat to supply a rationing program created in 1991 to combat U.N. economic sanctions, including flour, cooking oil, rice, sugar and baby milk formula.

The trade ministry is responsible for procuring strategic commodities, including wheat, for the program.

Trade ministry officials were not immediately available for comment on a potential rise in imports.



In Posh Bangkok Neighborhood, Residents Trade Energy with Blockchain

Residents in a Bangkok neighborhood are trying out a renewable energy trading platform that allows them to buy and sell electricity between themselves, signaling the growing popularity of such systems as solar panels get cheaper.

The pilot project in the center of Thailand’s capital is among the world’s largest peer-to-peer renewable energy trading platforms using blockchain, according to the firms involved.

The system has a total generating capacity of 635 KW that can be traded via Bangkok city’s electricity grid between a mall, a school, a dental hospital and an apartment complex.

Commercial operations will begin next month, said David Martin, managing director of Power Ledger, an Australian firm that develops technology for the energy industry and is a partner in the project.

“By enabling trade in renewable energy, the community meets its own energy demands, leading to lower bills for buyers, better prices for sellers, and a smaller carbon footprint for all,” he said.

“It will encourage more consumers to make the switch to renewable energy, as the cost can be offset by selling excess energy to neighbors,” he told the Thomson Reuters Foundation.

Neighborhoods from New York to Melbourne are upending the way power is produced and sold, with solar panels, mini grids and smart meters that can measure when energy is consumed rather than overall consumption.

The World Energy Council predicts that such decentralized energy will grow to about a fourth of the market in 2025 from 5 percent today.

Helping it along is blockchain, the distributed ledger technology that underpins bitcoin currency, which offers a transparent way to handle complex transactions between users, producers, and even traders and utilities.

Blockchain also saves individuals the drudgery of switching between sending power and receiving it, said Martin.

For the pilot in Bangkok’s upmarket Sukhumvit neighborhood, electricity generated by each of the four locations will be initially used within that building. Excess energy can be sold to the others through the trading system.

If there is a surplus from all four, it will be sold to the local energy storage system, and to the grid in the future, said Gloyta Nathalang, a spokeswoman for Thai renewable energy firm BCPG, which installed the meters and solar panels.

Thailand is Southeast Asia’s leading developer of renewable energy, and aims to have it account for 30 percent of final energy consumption by 2036.

The energy ministry has encouraged community renewable energy projects to reduce fossil fuel usage, and the regulator is drafting new rules to permit the trade of energy.

The Bangkok Metropolitan Electricity Authority forecasts “peer-to-peer energy trading to become mainstream for power generation in the long run,” a spokesman told reporters.

BCPG, in partnership with the Thai real estate developer Sansiri, plans to roll out similar energy trading systems with solar panels and blockchain for a total capacity of 2 MW by 2021, said Gloyta.

“There are opportunities everywhere – not just in cities, but also in islands and remote areas where electricity supply is a challenge,” she said.



Indonesia Battles Currency Woes

Policymakers in Indonesia are grappling to deal with a weakened currency, the rupiah, which was valued at just 14,930 per U.S. dollar last week — its lowest point since the 1998 Asian financial crisis. But unlike 20 years ago, when economic turmoil led to major political upheaval in Indonesia, most observers say that Southeast Asia’s largest economy is now far better positioned to endure a poorly performing currency.

The United States Federal Reserve’s planned interest rate hikes have impacted emerging markets worldwide as investors sell assets in countries such as Indonesia in favor of American ones. The Argentine peso and Turkish lira both crashed in late August, crises that sent major shockwaves across developing economies. President Donald Trump’s trade war with Beijing has also seen a devaluation of the Chinese yuan.

These external factors have badly hit the Indonesian rupiah, already one of the weakest currencies in Asia. According to Bloomberg, the rupiah has lost around 9 percent of its value against the greenback during 2018. Like Turkey and Argentina, Indonesia also has a so-called “twin” deficit, meaning it is running both fiscal and current account deficits.

“Indonesia obviously is one of the frontline currencies alongside the Indian rupee and the Philippine peso, these are the three currencies most battered among the regional pack… in the latest turmoil,” said Prakash Sakpal, an economist from ING in Singapore.

Stronger 20 years on

In the late 1990s, the collapse of the rupiah exacerbated a severe economic crisis, which led to the fall of Indonesia’s longtime dictator Suharto.

“We know what we face with the rupiah is a really, really important problem,” the head of Research at the Jakarta-based brokerage and investment management firm Ekuator, David Setyanto, told VOA. “But if you compare with Turkey or Argentina, we are not the same with them because our fundamental economics are much stronger than these two countries.”

Dr. Tommy Soesmanto, an economics lecturer at Griffith University, told VOA that “Indonesians should not be overly concerned with the current situation,” as the economy is in a far stronger position than in 1998. During the Asian Financial Crisis, the rupiah fell from 3000 against the US dollar to 15,000 — a depreciation of some 500 percent from which it never recovered, hovering at around 10,000 per dollar in subsequent years.

Indonesia’s credit rating is now Triple B as opposed to 1998 when it was “considered junk”, Soesmanto said, while the country now has net capital inflow compared with “severe” capital outflow in 1998. Bank Indonesia holds foreign reserves worth some $118 billion compared with just $24 billion back then, allowing it greater leverage to finance debts and imports.

Charu Chanana, Deputy Head of Asia Research at Continuum Economics in Singapore, agreed. “We believe Indonesia is much stronger today fundamentally when compared to 1998,” she wrote in an email. “However, as external headwinds persist, we believe Indonesia’s currency will remain in the firing line due to a weak external position and high foreign exposure in the stock and bond markets.”

“I think it’s a little bit overblown,” said Sakpal of ING when asked about the severity of the currency crisis, noting that “economic fundamentals for most of the regional economies are still solid.”

“In Indonesia, growth has accelerated in the second quarter to 5.3 percent, which was the fastest in many quarters… all the recent turmoil is driven by external factors,” he said.

Unite for the rupiah

Bank Indonesia, the central bank, has responded aggressively to the latest currency problems by raising interest rates four times since May. For months it has also sold foreign currency and bought sovereign bonds in a bid to stabilize the currency.

The government, meanwhile, has now imposed higher import taxes of up to 10 percent on some 1000 consumer goods, including cosmetics and luxury cars.

“This is a good chance for local producers to penetrate our own domestic market that is usually filled with imported goods,” Indonesia’s Finance Minister Sri Mulyani Indrawati said last week.

The weak rupiah is likely to hit Indonesia’s manufacturing sector hardest, and accordingly, the government has imposed lower tax hikes of 2.5 percent on imported raw materials. The energy and resources ministry also announced it would delay $25 billion worth of power projects, aimed at producing an additional 35 gigawatts of electricity, which is expected to save $8 to $10 billion in import costs.

“We can come together for the success of the #AsianGames2018,” read a Facebook post from the Finance Ministry last week, accompanied by infographics urging Indonesians to buy local products, reduce their consumption of imports, change U.S. dollars for rupiah, travel within Indonesia and invest locally. “We can also #BersatuUntukRupiah [unite for the rupiah].”