Day: January 26, 2018

President Donald Trump has warned that the United States will no longer tolerate unfair trade practices and will always put America first in future trade deals. Giving the closing speech at the World Economic Forum in the Swiss resort of Davos on Friday, Trump lauded the performance of the U.S. economy under his leadership. The speech, however, was overshadowed by further controversy over alleged links between the president’s campaign team and Russia. Henry Ridgwell reports.
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Coincheck, a major cryptocurrency trading exchange in Tokyo, has been hacked into and has lost about $534 million worth of virtual money, national broadcaster NHK reported on Friday.

Coincheck posted on its website on Friday afternoon that it had suspended withdrawals of almost all cryptocurrencies.

The exchange has already reported the incident to the police and to Japan’s Financial Services Agency, NHK said.

In 2014, Tokyo-based Mt. Gox, which once handled 80 percent of the world’s bitcoin trades, filed for bankruptcy after losing some 850,000 bitcoins — then worth around half a billion U.S. dollars — and $28 million in cash from its bank accounts.
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The Chinese government recently claimed that 98 major state-run industries have turned in the best industrial and financial performance in 2017 compared to the past five years. These companies, which have assets totaling $9 trillion, produced a remarkable profit of $218 billion, an increase of 15.2 percent in profit in 2017, more than double the rate of national economic growth.

Industry experts are closely examining the report card because China’s state sector represents nearly 60 percent of the country’s industrial economy. It controls areas like natural resources, steel, energy, heavy machinery, telecommunication, defense and infrastructure sectors, where the private sector has little or no role.

The government’s claim has caused some surprise because state-owned-enterprises (SOEs) have been widely blamed for corruption and sloth, with many economists saying they are a drag on the national economy.

The New York-based Center on Foreign Relations reported this month that profits of Chinese SOEs plunged 33 percent between 2011 and 2016, while that of the country’s private-sector enterprises rose 18 percent in the same period. However, the government and state-owned banks continued funding the state sector, which drew 80 percent of industrial financing, it said.

Lagging behind private sector

Analysts said the SOEs managed to come up with a better balance sheet in 2017, with tremendous assistance from the government. But there was no real improvement in their management capabilities and market competitiveness.

“The improvement in profitability does not mean they are more efficient or more productive and they still aren’t as profitable as private companies,” said Scott Kennedy, deputy director at the Freeman Chair in China Studies at the Center for Strategic & International Studies.

One reason for the improved profits report may be the closure of dozens of coal mines and steel mills and hundreds of factories as part of an effort to overcome problems of overcapacity and chronically loss-making units. This came at a social cost as reduction in coal capacity by 27 million tons and in steel capacity by 5.95 million tons resulted in layoffs of millions of workers in mines and factories.

Another part of the improvement was achieved by sales and swaps of piled up debt at 20-30 percent of their original value, leading to massive losses for banks and financial agencies that gave the loans. Nearly $158 billion was infused into these companies, banks, stock and property markets and other sources in 2017.

Mergers also eliminated competition as two or more rival companies came together to form a stronger monopoly.

Monopoly creation

“Those survivors, they can enjoy the monopoly, that is why they can enjoy higher profit margins because of the monopolies,” CEIBS professor of finance and accounting Oliver Rui said, adding, “Usually they were competitors, now they have become one company.”

The State-owned Assets Supervision and Administration Commission, which manages the 98 enterprises owned by the central government, claimed a major success in reducing their debt burden. Its chief accountant, Shen Ying, told a recent news conference that central SOEs are confident and able to repay their debt and prevent systemic risks in 2018.

“There was no issue of bond default by central SOEs in 2017,” she said. “We will continue to push SOE reforms, in particular in their operational mechanism, methods of building a modern enterprise system, regulatory measures of State-owned assets and the cultivation of entrepreneurship in 2018.”

State owned banks were ordered to swap their unpaid loans into equity making them part owners of their customers, the SOEs. A part of the debt was converted into equity.

Jason Lee, an expert with the China Market Research Group said he expected the government to continue with the drive to reduce SOE debt by getting banks, stock and property markets to inject funds in 2018. “My estimation is that it won’t be double (compared to 2017) but probably around like 700 billion or 800 billion (Yuan), he said. An important issue is whether the government is merely rewriting the account books or state run companies are going through a major improvement in their functioning.

“Yes, that’s artificially solving the problem,” Rui said. “So, in the long run you need improve your performance through either by reducing the cost, or through enhanced efficiency or by increasing your pricing powers, you could sell your products at a higher price.”

New normal

Improvement in market prices of goods produced by the SOEs also played a key role in their improved balance sheets.

“Producer prices in China are growing and those products come mainly from SOEs and that’s the primary source for the turnaround in SOE performance, balance sheet performance,” Kennedy said.

Kennedy said the ruling Communist Party is not interested in allowing the bureaucracy-run SOEs to perform freely in terms of market dynamics.

The Communist “Party is increasing its supervision and management of SOEs. So I think, what you are seeing is a cyclical change in their financial position because of the price environment but not changes in the structural, systemic issues that make state owned enterprises less competitive and profitable than  the private sector,” Kennedy said.

The government has been publicly saying that it is focusing on the quality of life in terms of better performance in welfare areas like education, health and poverty alleviation and GDP numbers are not as important any more. But privately, it is pushing the industry to achieve higher growth because it cannot afford a major economic slowdown, analysts said. In this respect, the government is forced to rely on the state sector a lot more than the private sector.

“The private sector stopped investing because there are so many critical uncertainties. So, the SOE is the major driving force behind the GDP growth,” Rui said.
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Around the world, an area larger than all of South America has been deforested, eroded, drained or salinized. A new report says there’s money to be made restoring that land. VOA’s Steve Baragona has more.
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The U.S. economy likely maintained a brisk pace of growth in the fourth quarter, driven by an acceleration in consumer and business spending, which could set it on course to attain the Trump administration’s 3 percent annual growth target this year.

Gross domestic product probably increased at a 3.0 percent annual rate also boosted by a rebound in homebuilding investment and a pickup in government outlays, according to a Reuters poll of economists. The strong growth pace would come despite anticipated drags from trade and inventory investment.

It would follow a 3.2 percent pace of expansion in the third quarter and mark the first time since 2004 that the economy enjoyed growth of 3 percent or more for three straight quarters.

The Commerce Department will publish its advance fourth-quarter GDP estimate Friday morning.

​Global rebound

The economy’s growth spurt is part of a synchronized global rebound that includes the euro zone and Asia.

It has also benefited from President Donald Trump’s promise of hefty tax cuts, which was fulfilled in December when the Republican-controlled U.S. Congress approved the largest overhaul of the tax code in 30 years.

Despite the economy’ strong performance in the last three quarters of 2017, overall growth for the year is expected to come in around 2.3 percent, because of a weak first quarter.

That would still be an acceleration from the 1.5 percent logged in 2016. Economists expect annual GDP growth will hit the government’s 3 percent target this year, spurred in part by a weak dollar, rising oil prices and strengthening global economy.

Modest boost from tax cuts

While the corporate income tax rate has been slashed to 21 percent from 35 percent and taxes for households have also been lowered, economists see only a modest boost to GDP growth as the fiscal stimulus is coming at a time when the economy is almost at full employment.

“We are encouraged by the current breadth of economic strength and … we expect the pace of U.S. real GDP to accelerate from the expansion average, increasing 3.0 percent in 2018,” said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

Fed hawks

Robust economic growth has been accompanied by record gains on the stock market and a strong labor market, with the unemployment rate falling seven-tenths of a percentage point last year to a 17-year low of 4.1 percent. Economists said this could put the Federal Reserve on a more aggressive path of interest rate increases than is being anticipated.

“I think that gives the hawks at the Fed more ammunition to say we should contemplate a more aggressive path on rates going forward,” said Scott Anderson, chief economist at Bank of the West Economics in San Francisco.

The U.S. central bank has forecast three rate hikes this year, the same number as in 2017.

Consumer spending

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is expected to have increased by as much as a 3.9 percent rate in the fourth quarter. That would be the quickest pace in three years and would follow a 2.2 percent rate of growth in the July-September quarter.

Consumer spending is likely to remain supported by rising household wealth, thanks to the stock market rally and higher house prices, tax cuts and firming wage growth as companies compete for workers and some states raise the minimum wage.

“Since the election the consumer has been exuding confidence, which is the willingness to spend money, and we see he has got even the ability to spend money too because personal income is creeping up,” said Dan North, chief economist at Euler Hermes North America in Baltimore.

“So, you have the willingness and ability to spend. We think consumption is going to pick up and drive the economy.”

Business investment in equipment is expected to have picked up from the third-quarter’s 10.8 percent growth pace. Spending on equipment is likely to be underpinned this year by the corporate income tax cuts and recent increase in crude oil prices.

Investment in homebuilding is expected to have rebounded after contracting for two straight quarters. An acceleration is expected in government spending from the July-September period’s pedestrian 0.7 percent growth pace.

Trade a drag

But trade was likely a drag on GDP growth as the burst in consumer spending was probably satiated with imports, offsetting a rise in exports, which is being driven by dollar weakness.

Economists at JPMorgan estimate that trade cut one percentage point from fourth-quarter GDP growth after adding 0.36 percentage point in the third quarter.

Inventory investment also probably subtracted from GDP growth last quarter after adding 0.79 percentage point to output in the prior period.
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North Korea shipped coal to Russia last year which was then delivered to South Korea and Japan in a likely violation of U.N. sanctions, three Western European intelligence sources said.

The U.N. Security Council banned North Korean exports of coal last Aug. 5 under sanctions intended to cut off an important source of the foreign currency Pyongyang needs to fund its nuclear weapon and long-range missile programs.

But the secretive Communist state has at least three times since then shipped coal to the Russian ports of Nakhodka and Kholmsk, where it was unloaded at docks and reloaded onto ships that took it to South Korea or Japan, the sources said.

A Western shipping source said separately that some of the cargoes reached Japan and South Korea in October last year. A U.S. security source also confirmed the coal trade via Russia and said it was continuing.

“Russia’s port of Nakhodka is becoming a transhipping hub for North Korean coal,” said one of the European security sources, who requested anonymity because of the sensitivity of international diplomacy around North Korea.

Russia’s foreign ministry did not respond to a Reuters request for comment sent on Jan 18. Russia’s mission to the United Nations informed the Security Council sanctions committee on Nov. 3 that Moscow was complying with the sanctions.

Two lawyers who specialise in sanctions law told Reuters it appeared the transactions violated U.N. sanctions.

Reuters could not independently verify whether the coal unloaded at the Russian docks was the same coal that was then shipped to South Korea and Japan. Reuters also was unable to ascertain whether the owners of the vessels that sailed from Russia to South Korea and Japan knew the origin of the coal.

The U.S. Treasury on Wednesday put the owner of one of the ships, the UAL Ji Bong 6, under sanctions for delivering North Korean coal to Kholmsk on Sept. 5.

It was unclear which companies profited from the coal shipments.

Russia urged to ‘do more’ on sanctions

North Korean coal exports were initially capped under a 2016 Security Council resolution that required countries to report monthly imports of coal from North Korea to the council’s sanctions committee within 30 days of the end of each month.

Diplomats, speaking on condition of anonymity, said Russia had not reported any imports of North Korea coal to the committee last year.

The sanctions committee told U.N. member states in November that a violation occurs when “activities or transactions proscribed by Security Council resolutions are undertaken or attempts are made to engage in proscribed transactions, whether or not the transaction has been completed.”

Asked about the shipments identified by Reuters, Matthew Oresman, a partner with law firm Pillsbury Winthrop Shaw Pittman who advises companies on sanctions, said: “Based on these facts, there appears to be a violation of the U.N. Security Council resolution by the parties involved.”

“Also those involved in arranging, financing, and carrying out the shipments could likely face U.S. sanctions,” he said.

Asked about the shipments, a U.S. State Department spokesman said: “It’s clear that Russia needs to do more. All U.N. member states, including Russia, are required to implement sanctions resolutions in good faith and we expect them all to do so.”

The White House did not immediately respond to a request for comment.

The independent panel of experts that reports to the Security Council on violations of sanctions was not immediately available for comment.

North Korea has refused to give up the development of nuclear missiles capable of hitting the United States. It has said the sanctions infringe its sovereignty and accused the United States of  wanting to isolate and stifle North Korea.

An independent panel of experts reported to the Security Council on Sept. 5 that North Korea had been “deliberately using indirect channels to export prohibited commodities, evading sanctions.”

Reuters reported last month that Russian tankers had supplied fuel to North Korea at sea and U.S.

President Donald Trump told Reuters in an interview on Jan. 17 that Russia was helping Pyongyang get supplies in violation of the sanctions.

The U.S. Treasury on Wednesday imposed sanctions on nine entities, 16 people and six North Korean ships it accused of helping the weapons programs.

Two routes

Two separate routes for the coal were identified by the Western security sources.

The first used vessels from North Korea via Nakhodka, about 85 km (53 miles) east of the Russian city of Vladivostok.

One vessel that used this route was the Palau-flagged Jian Fu which Russian port control documents show delivered 17,415 tons of coal after sailing from Nampo in North Korea on Aug. 3 and docking at berth no. 4 run by LLC Port Livadiya in Nakhodka. It left the port on Aug. 18.

The vessel had turned off its tracking transmitter from July 24 to Aug. 2, when it was in open seas, according to publicly available ship tracking data. Under maritime conventions, this is acceptable practice at the discretion of the ship’s captain, but means the vessel could not be tracked publicly.

Another ship arrived at the same berth — No. 4 — on Aug. 16, loaded 20,500 tons of coal and headed to the South Korean port of Ulsan in Aug. 24, according to Russian port control documents.

Reuters was unable to reach the operator of the Jian Fu, which was listed in shipping directories as the China-based Sunrise Ship Management. The Nakhodka-based transport agent of the Jian Fu did not respond to written and telephone requests for comment. LLC Port Livadiya did not respond to a written request for comment.

The second route took coal via Kholmsk on the Russian Pacific island of Sakhalin, north of Japan.

At least two North Korean vessels unloaded coal at a dock in Kholmsk port in August and September after arriving from the ports of Wonsan and Taean in North Korea, Russian port control data and ship tracking data showed.

The Rung Ra 2 docked in Kholmsk three times between Aug. 1 and Sept. 12, unloading a total of 15,542 tons of coal, while the Ul Ji Bong 6 unloaded a total of 10,068 tons of coal on two separate port calls — on Aug. 3 and between Sept. 1 and Sept. 8, according to the official Russian Information System for State Port Control.

The coal did not pass Russian customs because of the UN sanctions taking effect, but was then loaded at the same dock onto Chinese-operated vessels. Those vessels stated their destination in Russian port control documents as North Korea, according to a source in Sakhalin port administration who spoke on condition of anonymity.

Reuters has seen the port control documents which state the destination of the coal as North Korea. But the vessels that loaded the North Korean coal sailed instead for the ports of Pohang and Incheon in South Korea, ship tracking data showed.

The Chinese commerce ministry did not immediately respond to a request for comment.

The U.S. Treasury on Wednesday included the owner of the Ul Ji Bong 6 under sanctions for delivering North Korean coal to Kholmsk after the sanctions took effect.

It was unclear which companies profited from the coal shipments.

Asked about the shipments, a South Korean foreign ministry official said:c“Our government is monitoring any sanctions-evading activities by North Korea. We’re working closely with the international community for the implementation of the sanctions.”

The official declined to say whether the ministry was aware of the shipments reported by Reuters.

The Japanese foreign ministry did not immediately respond to a request for comment.

The European security sources said the route via Russia had developed as China, North Korea’s neighbour and lone major ally, cracked down on exports from the secretive Communist state.

“The Chinese have cracked down on coal exports from North Korea so the smuggling route has developed and Russia is the transit point for coal,” one of the European security sources said.
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