Month: August 2018

Chinese state media are reacting to U.S. President Donald Trump’s trade actions against China in diverse ways. While denouncing the U.S. leader’s actions, Beijing is also using its media to calm markets and express concern about the impact on the Chinese economy.

An editorial in the Communist Party’s People’s Daily said that by raising tariffs and then offering negotiations, the Trump administration is trying to use “carrot-and-stick diplomacy to bully China into unilateral trade concessions.” The paper went on to say “China will eventually defeat the trade blackmail of the U.S. and it is impossible to force China into surrender to the U.S. coercion.”

However, a Chinese senior official attached to the country’s Supreme Court recently expressed worry that the trade friction with the U.S. would result in bankruptcies for state-owned companies.

“It is hard to predict how this trade war will develop and to what extent,” Du Wanhua, deputy director of an advisory committee to the Supreme People’s Court said in an article also in the People’s Daily.

“But one thing is sure: if the U.S. imposes tariffs on Chinese imports following an order of $60 billion, $200 billion, or even $500 billion, many Chinese companies will go bankrupt,” he said.

Ineffective retaliation

Beijing recently slapped additional duties ranging from five to 25 percent on $60 billion worth of American goods. This was in response to Trump administration’s proposal of a 25 percent tariff on $200 billion worth of Chinese imports.

Experts said China has realized that retaliatory action would not persuade the U.S. President to stop his trade actions.

“They switched gear a bit because, I think, they realized that they have the weaker hand here in terms of their ability to retaliate, partly because they import far less from the U.S. than the U.S. imports from China, but also [because] a portion of [goods] they import from China is, you know, high-tech that are quite difficult to import from elsewhere,” Julian Evans-Pritchard, senior China economist at Capital Economics told VOA.

Washington says its actions are aimed at correcting the level playing field because the U.S. suffers from a severe trade deficit in its business with China.

Reassuring markets

Chinese officials are trying to reassure markets and the local population that the U.S. moves would have little impact. Huang Libin, a spokesman for the Ministry of Industry and Information Technology recently said there has not been any significant impact on industrial output.

“We hear complaints from [Chinese] companies that U.S. clients have requested a suspension of orders and deliveries, but so far it has had only a limited impact on the industrial sector,” he said.

The state-run Global Times, responded to White House economic adviser Larry Kudlow’s remarks that China should not underestimate Trump’s resolve, saying that China was not afraid of “sacrificing short-term interests”. “China has time to fight to the end. Time will prove that the U.S. eventually makes a fool of itself,” the paper said.

The official China Daily has joined government officials in an effort to reassure the market. “Market participants foresee a relatively stable Chinese currency in the near term, without fear of impacts from the U.S.-China trade dispute. They expect solid economic growth momentum amid policy fine-tuning,” it said.

“Leading China’s economy on a stable and far-reaching path, we have confidence and determination,” another commentary in the main edition of the People’s Daily said.

Another reason China is worried is because Washington’s actions have come when the domestic Chinese economy is going through a bad time. The last three months have seen a series of corporate defaults besmirching China’s reputation for many fewer loan defaults as compared to most developed countries.

“[The] economy is now slowing and balance sheets are coming under strain after they tightened monetary policy last year and pushed up borrowing costs. This is the main reason why we are seeing this uptrend in bankruptcies and uptrend in corporate bond defaults,” Evans-Pritchard said. “I think the main driver is domestic. Obviously, the U.S. tariffs won’t help and they are going to cause some damage,” he said.

In its latest report, Capital Economics said that it would be naive to dismiss the possibility of financial instability given the rapid rise in debt levels in the country over the past decade. Chinese banks face the grave emerging scenario of bad loans and non-performing assets weighing heavily on their balance sheets, it said.

 
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Longtime PepsiCo CEO Indra Nooyi will step down as the top executive and the world’s second-largest food and beverage company.

Nooyi, who was born in India, is a rarity on Wall Street as a woman and a minority leading a Fortune 100 company. She oversaw the company during a turbulent time in the industry that has forced PepsiCo, Coca-Cola Co., Campbell Soup Co. and Mondelez International Inc. to shake up product portfolios that had been the norm for decades as families seek healthier choices.

Nooyi, 62, has been with PepsiCo Inc. for 24 years and has held the top job for 12.

Ramon Laguarta, who has been with the company for more than two decades, will take over as CEO in October, the company said Monday. Nooyi will remain as chairman until early next year.

“Today is a day of mixed emotions for me. This company has been my life for nearly a quarter century and part of my heart will always remain here,” Nooyi said in a prepared statement. “But I am proud of all we’ve done to position PepsiCo for success, confident that Ramon and his senior leadership team will continue prudently balancing short-term and long-term priorities, and excited for all the great things that are in store for this company.”

Nooyi took over as CEO in October 2006. Between 2007 and 2017, revenue at Pepsico has risen about 61 percent.

The 54-year-old Laguarta has held various positions in his 22 years at PepsiCo, which is based in Purchase, New York. He currently serves as president, overseeing global operations, corporate strategy, public policy and government affairs. He previously served as CEO of the Europe Sub-Saharan Africa region. Prior to joining PepsiCO, Laguarta worked at confectionary company Chupa Chups.

Laguarta will be the sixth CEO in PepsiCo’s history, with all of them coming from within the company.

 
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Russia engaged in more extensive oil exports to North Korea than had been previously reported, by setting up an illicit trade network that is likely still being used today to evade United Nations sanctions, according a South Korean research organization.

A recent report issued by the Asan Institute for Policy Studies in Seoul used Russian customs data to document how “one North Korean state enterprise purchased 622,878 tons of Russian oil worth $238 million,” between 2015 and 2017.”

While China is North Korea’s main oil supplier, the ASAN estimate for Russian oil exports to North Korea is significantly higher than the $25 million in sales for the same period that was reported by the Korea International Trade Association (KITA) in Seoul.

“Smuggling has always been an important element in the cross-border trade between North Korea and it’s important allies. What the Chinese government and the Russian government to a lesser extent have been doing is to turn a blind eye to these activities,” said Go Myong-Hyun, a North Korea analyst with the Asan Institute For Policy Studies in Seoul.

Russian evasions

The Asan report comes amid allegations that Russia potentially violated international sanctions imposed on North Korea by granting thousands of new work permits to North Korean laborers. Moscow had denied any such actions.

The Trump administration also imposed targeted U.S sanctions on a Russian bank for allegedly doing business with a person blacklisted for involvement with North Korea’s nuclear weapons program.

On Friday U.S. Ambassador to the United Nations Nikki Haley called the allegations against Russia, “very troubling.” U.S. Secretary of State Mike Pompeo called on “the Russians and all countries to abide by the U.N. Security Council resolutions and enforce sanctions on North Korea,” while attending the ASEAN Regional Forum in Singapore on Saturday.

United Nations sanctions imposed in September of 2017 prohibit member countries from “providing work authorizations” permits to North Korean workers.

In December of 2017 the U.N. Security Council further strengthened the sanctions to cut North Korean oil imports by a third, and to impose a total export ban on North Korea’s $3 billion coal and other mineral industries, its $800 million clothing manufacturing output, and its lucrative seafood industry.

Shell companies

The ASAN report is centered on the activities of the Independent Petroleum Company (IPC), a Russian firm that the U.S. Treasury Department targeted in June 2017 for violating restrictions on selling oil to North Korea. IPC has since changed its name. 

IPC was found to have sold large quantities of oil to Russian affiliated companies, such as the Pro-Gain Group Corporation (PGGC) that was actually operating on behalf of North Korea’s state owned Foreign Trade Bank. The North Korean bank has been under U.S. sanctions since 2013.

“The entities involved tried to cover up the transactions by falsifying destination countries for the purchases,” said the ASAN report entitled The Rise of Phantom Traders.

The report notes that PGGC is owned by Taiwan citizen Tsang Yung Yuan. Tsang was sanctioned earlier this year by the U.S. for facilitating North Korean coal exports using a Russia-based North Korean broker. PGGC has headquarters listed both in Taipei and Samoa.

North Korea has also been accused of conducting illicit ship-to-ship transfers of oil, and to conceal these operations by disabling the Automatic Identification System (AIS) transponder of vessels in order to hide their location. There have also been reports of North Korea changing vessel names and identification numbers, even painting over or altering the numbers on the ships’ exteriors.

Rajin-Khasan Exemption

A large number of oil shipments were also delivered to the Russian-North Korean border village of Khasan, which is connected by rail to the North Korean port terminal at Rajin.

The Rajin-Khasan rail project was exempted from U.N. sanctions to allow Russia to use the North Korean seaport to export Russian coal.

Trade records show that oil deliveries arriving in Khasan were on their way to China, but the report suggests it is more likely North Korea was the final destination. Since 2015, the ASAN report says, only PGGC and Velmur, two companies with ties to North Korea, listed Khasan as the point of delivery for oil shipments. 

According to the ASAN report, Moscow and Pyongyang are likely exploiting the Rajin-Khasan rail exemption to evade restrictions on North Korean oil imports.

In 2016, South Korea suspended its participation in the Rajin-Khasan rail project to comply with U.S. unilateral sanctions imposed on North Korea trade.

Recently some officials in Seoul have called for these sanctions affecting the Rajin-Khasan Project to be lifted, so that investment can proceed in connecting South Korean rail both to North Korea, and to the intentional railway system beyond that can reach Europe.

Sanctions effectiveness

The sanctions are intended to cut North Korea off from foreign currency and materials needed for weapons production, and to impose economic pain on the leadership to persuade Pyongyang to give up its nuclear and ballistic missile development programs.

Despite increased reports of sanctions evasions, Cheong Seong-chang, a North Korea analyst with the Sejong Institute in South Korea, says the recent report of an 88 percent decline in North Korean trade in the first quarter of this year indicates the economic situation there is in dire condition.

“If the sanctions from the U.N. Security Council continue, economic breakdown in North Korea will be inevitable,” said Cheong.

Talks between Washington and Pyongyang have made little significant progress toward ending the North’s nuclear program since June, when North Korean leader Kim Jong Un reaffirmed his commitment to denuclearization during his meeting with U.S. President Donald Trump in Singapore.

The U.S. insists that the North completely end it nuclear weapons program before any concessions are granted, while Pyongyang wants early sanctions relief.

On Sunday Pompeo said that North Korean Foreign Minster Ri Yong Ho reiterated a “very clear” commitment to denuclearize when the two met at the ASEAN conference in Singapore.

Lee Yoon-jee contributed to this report.
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Washington is observing the latest escalation in tensions between the United States and its trading partners, with China threatening to slap tariffs on more than 5,000 American-made products totaling $60 billion. VOA’s Michael Bowman reports, Beijing’s announcement came after the Trump administration proposed raising tariffs on $200 billion of Chinese goods, continuing a tit-for-tat trade battle that is alarming many in the U.S. business community and dividing the Republican Party.
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British Trade Minister Liam Fox said “intransigence” from the European Union was pushing Britain toward a no-deal Brexit, in an interview published on Saturday by the Sunday Times.

With less than eight months until Britain quits the EU, the government has yet to agree a divorce deal with Brussels and has stepped up planning for the possibility of leaving the bloc without any formal agreement.

Fox, a promiment Brexit supporter in Prime Minister Theresa May’s cabinet, put the odds of Britain leaving the European Union without agreeing upon a deal over their future relationship at 60-40.

“I think the intransigence of the commission is pushing us towards no deal,” Fox told the Times after a trade mission in Japan.

“We have set out the basis in which a deal can happen, but if the EU decides that the theological obsession of the unelected is to take priority over the economic well-being of the people of Europe, then it’s a bureaucrats’ Brexit — not a people’s Brexit — [and] then there is only going to be one outcome.”

It was up to the EU whether it wanted to put “ideological purity” ahead of the real economy, Fox said.

If Britain fails to agree the terms of its divorce with the EU and leaves without even a transition agreement to smooth its exit, it would revert to trading under World Trade Organization rules in March 2019.

Most economists think this would cause serious harm to the world’s No. 5 economy as trade with the EU, Britain’s largest market, would become subject to tariffs.

Supporters of Brexit say there may be some short-term pain for Britain’s $2.9 trillion economy, but that in the long term it will prosper when cut free from the EU, which some of them cast as a failing German-dominated experiment in European integration.

On Friday, Bank of England Governor Mark Carney said the chances of a no-deal Brexit had become “uncomfortably high.”
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