Month: April 2019

China is getting ready to welcome representatives from 150 nations, including senior leaders of 40 countries, to discuss its international infrastructure program at the second Belt and Road Forum, beginning Thursday and running through Saturday in Beijing.

Analysts say it is not merely a conference on infrastructure building, but an attempt by China to display its popularity and power as a political rallying force. This is significant in view of severe criticism by the United States, which has described the Belt and Road Initiative, or BRI, as China’s “vanity project.”

“It is a political show of strength. BRI has assumed the characteristics of a global public good,” said Sourabh Gupta, senior fellow at the Institute for China-America Studies in Washington. “In a sense, conceptually, it is about China slipping itself into American clothing which the U.S. itself has discarded. It is about mainstreaming China as a leader of the global development system.”

China has repeatedly denied it has a political purpose in trying to construct connectivity projects across the world. “The ‘Belt and Road Initiative’ is not a geopolitical tool but a platform for cooperation. We welcome all parties to take part in it,” Chinese State Councilor and Foreign Minister Wang Yi said at a recent press conference.

The forum is expected to see an emphasis on the importance of multilateralism and its criticism of protectionism in business and world affairs. Some observers see this as a veiled attempt by Beijing to build up world opinion against the United States.

Countering US clout

Zhiqun Zhu, chair at the department of international relations at Bucknell University in Pennsylvania, said the meeting will reflect China’s growing clout. “When the U.S. focuses on “America first” under President [Donald] Trump, China is quickly emerging as a leader in the global economy and global governance.”

Political clout comes from success in international affairs, however, and not by merely hosting political theater. Although China has achieved some success in its infrastructure program, it has faced several setbacks, with Sierra Leone, Malaysia and Myanmar canceling or scaling back previously negotiated construction deals.

“A lot of the forum will be an attempt at restoring the Belt and Road brand, which has been tarnished over the past two years,” said Jonathan Hillman, director of the Reconnecting Asia project at the Center for Strategic and International Studies in Washington.

The U.S. has said it will not send a high-level delegation to the forum. It expressed disappointment at Italy’s recent decision to join the BRI. “Secretary Pompeo has very publicly gone to every corner of the world and denigrated China’s overseas development lending and projects-based model,” Gupta said, referring to U.S. Secretary of State Mike Pompeo.

Foreign Minister Wang Yi said no country has a right to stop others from attending the forum. “All countries have the freedom to participate, but they don’t have the right to prevent other countries from taking part,” he said.

Zhiqun Zhu said instead of running a smear campaign, the U.S. should work with China to ensure that investments in BRI projects are more rule-based and transparent.

World opinion

Germany, France, Japan and Australia are expected to send mid-level officials. They have raised serious objections, saying they would like to see BRI become more transparent, environmentally sustainable and offer equal business opportunities to all participating countries.

“At the end of the day, Europe genuinely wants China to grow into the role of a ‘responsible stakeholder;’ but, responsible stakeholder-ship means that China needs to up its game and conform to prevailing international standards in its practices – be it trade, investment or development,” Gupta said.

India, China’s neighbor, is expected to stay away from the forum. It has said the BRI program violates the country’s sovereignty because some of its projects are located in Pakistan-controlled areas that India regards as its own. India was the only major country to stay away from the first meeting of the forum in 2017.

“India’s stand has increased international attention on some of the troubling aspects of the BRI plan,” said Ananth Krishnan, visiting fellow at Brookings India.

“India was the only country to publicly flag issues such as opacity and debt when the first Belt and Road Forum was held in 2017.”

Gupta at the Institute of China-America Studies thinks many of the objections raised against BRI will be sorted out in negotiations between China and different countries.

“A Chinese menu is on offer but it is not pre-set and it is not being force-fed to host countries,” he said. “It is for host countries, though, to impose themselves and set the minimum standards of project integrity – although China would do well to set a reasonably high bar in this regard of its own volition.”
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U.S. Treasury Secretary Steven Mnuchin on Tuesday failed to meet a final congressional deadline for turning over President Donald Trump’s tax returns to lawmakers, setting the stage for a possible court battle between Congress and the administration.

The outcome, which was widely expected, could prompt House Ways and Means Committee Chairman Richard Neal to subpoena Trump’s tax records as the opening salvo to a legal fight that may ultimately have to be settled by the U.S. Supreme Court.

Neal set a final 5 p.m. EDT (2100 GMT) deadline for the Internal Revenue Service and Treasury to provide six years of Trump’s individual and business tax records. But the deadline passed without the panel receiving the documents.

After the deadline lapsed, Mnuchin released a letter to Neal in which he pledged to make “a final decision” on whether to provide Trump’s tax records by May 6. It was the second time the administration has missed a House deadline for the tax returns since Neal requested them on April 3.

“Secretary Mnuchin notified me that once again, the IRS will miss the deadline for my … request. I plan to consult with counsel about my next steps,” Neal said in a statement.

In his letter, Mnuchin said he was still consulting with the Justice Department about Neal’s request, which he termed “unprecedented.”

“The department cannot act upon your request unless and until it is determined to be consistent with the law,” the Treasury secretary told Neal.

‘Not Up to the President’

Earlier on Tuesday, the White House said Trump was unlikely to hand over his tax returns. “As I understand it, the president’s pretty clear: Once he’s out of audit, he’ll think about doing it, but he’s not inclined to do so at this time,” White House spokesman Hogan Gidley told Fox News in an interview.

“This is not up to the president. We did not ask him,” said a Democratic committee aide, who cited a law saying the Treasury secretary “shall furnish” taxpayer data upon request from an authorized lawmaker.

Neal informed IRS Commissioner Charles Rettig earlier this month that failure to comply with the deadline would be viewed as a denial.

Legal experts said House Democrats could vote to hold Mnuchin or Rettig in contempt of Congress if they ignored a subpoena, as a pretext to suing in federal court to obtain Trump’s returns. Experts say administration officials could ultimately risk financial penalties and even jail time by defying the committee.

As Ways and Means chairman, Neal is the only lawmaker in the House of Representatives authorized to request taxpayer information under federal law. Democrats say they are confident of succeeding in any legal fight over Trump’s tax returns.

“The law is on our side. The law is clearer than crystal. They have no choice: they must abide by (it),” Representative Bill Pascrell, who has been leading the Democratic push for Trump’s tax records, said in a statement to Reuters.

Democrats want Trump’s returns as part of their investigations of possible conflicts of interest posed by his continued ownership of extensive business interests, even as he serves the public as president.

Republicans have condemned the request as a political “fishing expedition” by Democrats.

Despite the law’s clarity, Democrats have long acknowledged that the effort would likely result in a legal battle that could end up with the U.S. Supreme Court.

“If the IRS does not comply with the request, it is likely that Chairman Neal will subpoena the returns,” Representative Judy Chu, a Democratic member of the Ways and Means Committee, told Reuters.

“If they do not comply with that (subpoena), a legal battle will begin to defend the right of oversight in Congress,” she said.

Trump broke with a decades-old precedent by refusing to release his tax returns as a presidential candidate in 2016 or since being elected, saying he could not do so while his taxes were being audited.

But his former personal lawyer, Michael Cohen, told a House panel in February that he does not believe Trump’s taxes are under audit. Cohen said the president feared that releasing his returns could lead to an audit and IRS tax penalties.
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A top White House economic adviser said on Tuesday the United States and China were making progress in trade negotiations and he was “cautiously optimistic” about the prospects for striking a deal.

Speaking at a luncheon at the National Press Club, National Economic Council Director Larry Kudlow said the two nations still had issues to address and were discussing a “visitation exchange” as part of their ongoing talks.

“We’re not there yet, but we’ve made a heck of a lot of progress,” Kudlow said in response to questions from reporters.

“We’ve come further and deeper, broader, larger-scale than anything in the history of U.S.-China trade.”

“We’ve gotten closer and we’re still working on the issues, so-called structural issues, technology transfers,” Kudlow added. “Ownership enforcement is absolutely crucial. Lowering

barriers to buy and sell agriculture and industrial commodities. It’s all on the table.”

Washington and Beijing have engaged in a tit-for-tat trade war that has seen both countries imposing tariffs on billions of dollars’ worth of each others’ imports.

The United States is seeking structural changes in China’s economy, from reducing industrial subsidies to halting forced technology transfers by U.S. companies seeking to enter the Chinese market.
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The Justice Department on Tuesday announced indictments against two Chinese nationals accused of working together to steal trade secrets from General Electric.

Xiaoqing Zheng pleaded not guilty Tuesday in U.S. federal court in Albany, New York.

Co-defendant Zhaoxi Zhang is believed to be in China.

Both are charged with economic espionage and stealing trade secrets. Zheng is also charged with lying to FBI investigators.

“The indictment alleges a textbook example of the Chinese government’s strategy to rob American companies of their intellectual property and to replicate their products in Chinese factories, enabling Chinese companies to replace the American company first in the Chinese market and later worldwide,” U.S. Assistant Attorney General John Demers said.

He said the United States will not stand by and watch the world’s second-largest economy commit “state-sponsored theft.”

Zheng was an engineer at General Electric’s power and water plant in Schenectady, New York.

U.S. prosecutors allege he stole multiple electronic files describing designs and engineering of GE gas and steam turbines and emailed them to Zhang. The indictments accuse the pair of using the stolen information to profit from their business interests in two Chinese companies — Liaoning Tianyi Aviation Technology and Nanjing Tianyi Avi Tech.

Prosecutors say the two defendants knew their activities would benefit the Chinese government.

If convicted, Zheng and Zhang could spend 25 years in prison and be fined more than $5 million. Zheng could also face an additional five years and a $250,000 fine for allegedly lying to the FBI.
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Stock investors had to go on a harrowing round trip over the last seven months, but the market may be in a healthier place after it.

The S&P 500 index of big U.S. stocks is back to a record high, closing above 2,930 on Tuesday for the first time since Sept. 20. On the way, though, it took investors on a terrifying plunge of nearly 20%, amid worries that the economy would tip into recession. After hitting bottom in December, stocks took off on a nearly mirror-image rally .

Even though the S&P 500 is back at the same level, analysts say many of the market’s vital signs look different today than in late September.

Worries about a possible recession have dimmed, in large part because of a change in stance by the Federal Reserve. That has many investors predicting more gains for the market this go-around, despite risks still hanging over stocks, such as the still simmering global trade war and slower growth for economies and corporate profits around the world.

Here’s a look at some of the changes for the market, and one big similarity, between then and now:

AN EASIER FEDERAL RESERVE

This is the biggest difference by far, investors say.

Last autumn, the Federal Reserve was deep into its plan to gradually raise interest rates, after having kept them pinned at nearly zero for years. Higher rates would slow the economy, but it would also reduce the risk of higher inflation and the job market was in much better shape than in the aftermath of the Great Recession. When the S&P 500 set its record on Sept. 20, the Fed was a week away from raising its key short-term rate by a quarter of a percentage point for the seventh time in eight quarters.

But those and other moves by the Fed raised worries along Wall Street that the central bank was moving too fast and could push the economy into recession.

“I was feeling very cautious on the market last fall because you were seeing a lot of straws in the wind that the Fed was too tight,” said Margie Patel, senior portfolio manager at Wells Fargo Asset Management. “Even though rates were low, you could see housing and autos looking weak, and in the stock market, every now and then, you’d see a sector of the stock market plunge for really no reason.”

In December, the Fed raised rates again and said another two increases may come in 2019. But officials changed their outlook early this year, following the plunge in stock prices, and officials pledged to be patient in raising rates. Then, in March, the central bank said it may not raise rates at all in 2019.

The easier tone sent the yield on the 10-year Treasury’s yield, which affects rates for mortgages and other loans, down to 2.57% from 3.07% in late September. That’s a boost for the economy, as well as for stock prices.

“Recession, I think it’s off the radar now,” Patel said.

BOTTOMING GROWTH EXPECTATIONS

Companies are in the middle of telling investors how much profit they made during the first three months of 2019, and analysts have prepped for disappointment. Wall Street is forecasting a drop of more than 3% for S&P 500 companies, the first decline in nearly three years.

That’s a concern for investors because stock prices tend to track profits over the long term. But analysts expect growth to return and accelerate as the year progresses. After hitting bottom in the first quarter, analysts expect S&P 500 profit growth to ramp back up to 8.5% in the fourth quarter thanks to stronger than expected revenues.

Economic data has been improving around the world, which is raising optimism.

When the S&P 500 set its record last fall, dueling import taxes by the United States and China threatened global growth, higher mortgage rates were hurting home sales and the initial October jobs report hinted at slower hiring.

Now, U.S.-China trade tensions have dialed down, even if underlying conflicts are unresolved. Mortgage rates have fallen, home sales have recovered somewhat and the labor market has been solid, on average.

The economy still appears on course for slower economic growth this year than the roughly 3% pace achieved in 2018, with economists outside of the Trump administration generally pegging the annual gain at closer to 2%. But investors see a much lower risk of recession in 2019.

A LESS EXPENSIVE MARKET, THOUGH STILL NOT CHEAP

Stock prices may be back to where they were in September, but they don’t look quite as expensive by some measures of value.

One of the main ways that analysts measure the value of a stock is to measure its price against the company’s earnings. In September, the S&P 500 was trading at 20.6 times its earnings per share over the prior 12 months. That was well above its average of 16.3 over the prior 15 years.

Today, the S&P 500 is still trading above its long-term average, but not by as much: It’s closer to 18.7.

STILL HESITANT INVESTORS

When interest rates are low for a long time, the concern is that it will inflate a bubble. Two decades ago, investors piled into dot-com stocks and pushed them to prices that markets now see as ludicrous. In the middle of the last decade, it was housing prices that soared too high, too fast.

So far, at least, investors are still hesitant to pile into stocks. This is actually a reason the market may be primed for more gains, some analysts say.

Investors have pulled more money out of U.S. stock funds in the last few months than they’ve put in, according to the Investment Company Institute. If those skeptical investors come back to stocks, it could provide a further lift.

Of course, many risks still remain for markets, and few analysts are predicting the S&P 500 to continue rising in a straight line, as it has for much of 2019. Negotiations on the U.S.-China trade war are still ongoing. Low interest rates have encouraged U.S. companies to gorge themselves on debt, and some ideas percolating in Washington, such as universal health care, could drag down corporate profits.

Still, many investors are feeling better about the market’s health this go-around, most of all because the easier Fed has helped diminish threat of recession.

“This 2,900 is better than the 2,900 we had a few months ago,” said Steve Chiavarone, equity strategist at Federated investors.
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Chinese tech giant Tencent Holdings has invested in Argentine mobile banking service Uala, which also counts George Soros and Point72 Ventures LLC among its investors, the start-up’s founder said.

Uala founder Pierpaolo Barbieri said the company planned to collaborate with the Chinese social media-to-gaming giant to further develop its app. He declined to disclose the amount of Tencent’s investment.

Tencent, one of Asia’s most valuable listed companies, announced last year it would boost investments in a number of “key areas” including digital payment, where its service jostles with rival Alipay, backed by Alibaba Group Holding Ltd.

Tencent’s own messenger-to-payment app WeChat now has more than 1 billion users in China and has launched in-app services that compete with Apple and Google apps.

“We are proud of their interest in Uala and look forward to collaborating on new products and services. This investment will allow us to grow even faster with our product roadmap,” Barbieri said in an email to Reuters.

Argentine startups face regulatory hurdles in South America’s second largest economy, but the country has spawned some of the region’s most successful tech startups, including U.S.-listed online marketplace MercadoLibre and Internet travel agent Despegar.com.

The country, which has a large unbanked population, is also seeing a boom in digital finance from start-ups like Uala to a new wave of online banks competing with more traditional lenders.
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