Chinese stock market hits 31-month low as Xi and Putin blast protectionismas it happened

14-Sep-2018 Intellasia | The Guardian | 6:00 AM Print This Post

All the day’s economic and financial news, as Chinese leader calls for Asian states to unite against US protectionist trade policies

Gordon Brown: The world is sleepwalking into another crisis

And finally, former prime minister Gordon Brown has warned that the world risks blundering into a new financial crisis.

Brown told the Guardian that nationalism, and the lack of a co-ordinated global response, means global leaders are failing to tackle important problems.

He’s well-positioned to comment, having been UK PM when the Lehman Brothers crisis blew up a decade ago.

Our economics editor Larry Elliott reports:

“We are in danger of sleepwalking into a future crisis,” Brown said when asked to assess the risks of a repeat of 2008. “There is going to have to be a severe awakening to the escalation of risks, but we are in a leaderless world

Brown also singled out the recent turbulence in emerging markets as a key concern, saying:

“It is very difficult to say what will trigger it [the next crisis] but we are at the latter end of the economic cycle where people take greater risks. There are problems in emerging markets.”

In an unusual development, the Takeover Panel has forced Sports Direct to rule out a bid for Debenhams.

This was triggered by those comments from non-executive director Simon Bentley, revealing that the SPD board had discussed the idea of a takeover.

In a statement tonight, SPD says:

Further to recent press speculation in relation to Debenhams plc, Sports Direct confirms that it does not intend to make an offer to acquire the entire issued and to be issued ordinary share capital of Debenhams plc.

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Elsewhere in the markets, the oil price rose after the latest US crude inventory figures showed a 5.3 million barrel drop last week.

CNBC has the details:

Brent crude futures were last up 58 cents on the day at $79.64 a barrel and briefly broke above $80. US crude futures rose $1.15, or 1.7 percent, to $70.40 a barrel.

The Energy Information Administration said Wednesday that US crude oil inventories dropped by 5.3 million barrels last week.

“We think oil market fundamentals are increasingly supportive of crude prices, at least at current levels,” said Gordon Gray, HSBC’s global head of oil and gas equity research.

Britain’s FTSE 100 has outperformed the Chinese stock market today.

It ended the session up 39 points at 7,313, a gain of 0.5 percent.

Ryanair’s ever-quotable CEO has weighed in on Brexit, by urging the UK’s transport minister to help stop flights being grounded after Britain leaves the EU:

Trade war concerns are keeping a cap on the markets today.

On Wall Street, the Dow Jones has risen by just 0.1 percent in early trading. The Nasdaq is down 0.3 percent, as some semiconductor firms drop.

Most European stock markets have risen, with the FTSE 100 up 32 points.

But energy stocks are suffering, after SSE surprised the City with a profits warning following the hot summer (which hit demand for heating). Its shares are down 8 percent, while Centrica is down almost 3 percent.

Back in Vladivostok, presidents Putin and Xi have visited the Okean Russian Children’s Centre.

Ten years ago, the centre took in around 2,000 children from China’s Sichuan and Gansu provinces who had been affected by the devastating Wenchuan earthquake, which killed almost 70,000 people. These children received recreation and medical treatment at the centre, to help them recover and recuperate from their ordeal.Xi visited the centre in 2010 when he was vice-president.

They have also visited the local university, to underline the economic ties between the two countries.

UK retailer Sports Direct has been making plenty of headlines today, as it holds its AGM.

The first: chair Keith Hellawell has stepped down, following scathing criticism of the company’s corporate government in recent years. This move spares Hellawell another shareholder protestlast year, barely half of investors supported his re-election.

Secondly, senior non-executive Simon Bentley told the meeting that SPD had discussed merging its new acquisition, House of Fraser, with struggling retailer Debenhams.

Bentley insisted, though, that no move was imminent as the group might “have its hands full” with House of Fraser, which it rescued from administration last month.

Intriguingly, SPD boss Mike Ashley showed up at the AGM, having previously indicated he was too busy. So he may have heard from fans of Newcastle United, Ashley’s football club, who turned up to protest against him.

Despite Donald Trump’s strident criticism of China, could the US president end up striking one of his famous deals with Beijing?

Ursula Johnston, head of customs at law firm Gowling WLG, thinks multinational firms must prepare for a full-blown trade war, by working out how their supply chains will be hit by higher tariffs.

But in the end, perhaps peace will break out?

An exercise to identify the most cost sensitive supply chains can be undertaken by utilising existing company trade data which can be readily sourced from a variety of internal and external sources including government border authorities and customs brokers.

“However in the long-term, given that both the US and China are starting to realise the realities of an aggressive, closed approach to trade in recent months, one wonders if the more open and collaborative trading relationship with Mexico that has been recently implemented is more typical of what will end up happening in reality.”

Associated Press is reporting that China is putting off accepting license applications from American companies.

It suggests that Beijing is widening its retaliation against the US trade tariffs moving simply beyond slapping tariffs on imports.

AP explains:

The license delay applies to industries Beijing has promised to open to foreign competitors, according to Jacob Parker, vice president for China operations of the US-China Business Council. The group represents some 200 American companies that do business with China.

In meetings over the past three weeks, Cabinet-level officials told USCBC representatives they are putting off accepting applications “until the trajectory of the US-China relationship improves and stabilises,” Parker said.

Chinese authorities have promised to increase foreign access to areas including banking, securities, insurance and asset management.

“There seem to be domestic political pressures that are working against the perception of US companies receiving benefits” during the dispute, Parker said.

China and Russia’s concerns about protectionism may be well-merited, but neither country has a clean slate on the issue.

China has long been criticised for protecting its own companies at the expense of foreign rivals. It uses the power of the state to support domestic firms in a way that EU and US rivals can only dream of.

Beijing’s policy of ‘forced technology transfers’ is particularly controversial it makes foreign firms share technology if they want to do business in China. A chance to steal US secrets?

Russia has also been accused of protectionism. Critics cite cuts in foreign worker quotas, and state support for the rare earth metals industry, agriculture and aircraft makers.

Back in June, the European Union warned that China and Russia are actually the most trade protectionist countries. China set up 10 new trade barriers in 2017, according to the EU, followed by Russia with 6.

That meant Russia now imposes 36 barriers to free trade with the EU, followed by China with 25 and Indonesia with 23, hindering EU export and investment opportunities.

Newsflash: The chair of Royal Bank of Scotland has warned that taxpayer can’t expect to recoup the money spent rescuing the bank.

Speaking on the 10th anniversary of the financial crisis’s worst moments, Howard Davies said RBS had been focused on ‘survival’ ever since its GBP 45bn rescue in autumn 2008.

He cautioned that the government is “unlikely to recoup its investment in full”, adding:

“The focus on survival over a decade has had a cost.

“The bank has lost almost 130 billion during the period. That amounts to around four-and-a-half times the bank’s current market capitalisation.”

RBS shares are currently trading at 245p, less than half the 502p at which the bank was rescued. The UK government began cutting its majority stake in the bank in June by selling some shares, at a paper loss of GBP 2bn.

RBS management have spent the last decade cutting the size of the bank, and resolving legal challenges from regulators over misconduct before the financial crisis.

The scale of that task, Davies says, helps explain why RBS isn’t worth more today:

“It seems clear that, in aggregate, the cost of these remedies to the bank and its shareholders was very much greater than could reasonably have been forecast at the time.

“It is another important reason why the book value of the bank is not greater than it is today.”

Ouch! Factory output across the eurozone fell unexpectedly in July.

Industrial production fell by 0.8 percent during the month, compared with June. Durable consumer goods production shrank by 1.9 percent, while non-durable consumer goods fell by 1.3 percent.

On an annual basis, production was 0.1 percent lower than in July 2017the first annual decline since 2016led by sharp falls in Italy.

This may be a sign that trade war angst is hurting the global economy, and hurting demand for goods.

Trade war angst has pulled emerging market stocks down to their lowest level since May 2017 today.

Some traders are pointing to China’s decision, yesterday, to ask the World Trade Organisation for permission to impose $7bn a year in sanctions on the United States.

The move is retaliation on Washington for not complying with an earlier WTO ruling.

It all centres on the duties which America imposes on China for ‘dumping’ goods on the US market at artificially low prices. That process, The US calculation method, known as “zeroing”, has been ruled illegal in a series of trade disputes brought to the WTO.

China says America hasn’t obeyed these previous rulings, so now wants authorisation to impose $7bn of tariffs in response.

There are also signs in Vladivostok that relations between China and Japan are warming up.

Japanese PM Shinzo Abe told the economic forum that he hopes to visit China soon, and to welcome Xi to Japan in the future too.

Abe said:

“In response to China’s gracious invitation, I intend to visit China this year, the year in which we commemorate the 40th anniversary of the conclusion of the Treaty of Peace and Friendship between Japan and China,”

“After that, I very much wish to invite President Xi to Japan. Through this exchange of visits at the leaders’ level, I hope to raise Japan-China relations to a new stage.”

That may just sound like warm words (the diplomatic equivalent of “darling, you really must come round for supper!”). But don’t forget, Tokyo and Beijing were recently at odds over a group of islands in the East China sea (known as the Senkaku islands in Japan and the Diaoyu islands in China).

Those clashes raised fears of a military clash between the two Asian powerhouses so today’s friendly noises are significant.

As a teetotaler, Donald Trump wouldn’t have appreciated the vodka being quaffed in Vladivostok. But the US president should still note the warmth between Xi and Putin this week.

Such clear chumminess suggests that the White House’s belligerence over trade is encouraging friendships and alliances elsewhere.

Naeem Aslam, analyst at Think Markets, believes America could lose out, if its rivals band together:

President Xi Jinping, already said during his speech at Eastern Economic Forum in Russia that the country’s relationship with Russia is at all-time high. His message was clear that his country is ready to study other relationship and work on different projects with them. Putin just added more fuel on the fire during the conference and criticised those countries who favour protectionism- a direct hint to US.

Trump needs to change his attitude or the US will become the biggest loser of this trade war…

In fact, we think that we are moving fast toward a moment when the US will lose all of its control because other countries will have much stronger position because working together.

President Vladimir Putin has now echoed Xi’s attack on US trade policies.

He told the Eastern Economic Forum (EEF) in Vladivostok that “new forms of protectionism” are on the rise, threatening the Asia-Pacific region.

Putin said:

“Basic principles of trade competition and mutual economic benefit are depreciated and unfortunately undermined, they’re becoming hostages of ideological and fleeting political situations, in that we see a serious challenge for all of the global economy, especially for the dynamically-growing Asia-Pacific and its leadership,” he added.

Other Asian stock market also fell today, dragging shares across the region to their lowest levels in 14 months.

Japanese stocks fell by around 0.5 percent, while the Hong Kong Hang Seng shed another 0.3 percent.

Chinese stocks hits 31-month low

While Xi was speaking in Vladivostok, the Chinese stock market was heading into the red again.

The Shanghai Composite index fell by 0.3 percent to close at its lowest level since late January 2016, as traders continued to be dogged by trade war worries.

Indeed, it came within a whisker of hitting its lowest since 2015.

Stocks in China have suffered badly from the impact of Trump’s tariffs, as they will hurt demand for Chinese goods in America. Beijing’s tit-for-tat retaliation is also dragging on the market, as it makes US goods pricier in China.

Yesterday Russian president Vladimir Putin treated Xi Jinping to pancakes with caviar, washed down with best vodka, on the sidelines of the Vladivostok economic forum.

It’s a sign that the leaders are committed to their alliance against America powerful position.

As the San Francisco Chronicle puts it:

Beijing and Moscow have developed a “strategic partnership” reflecting their shared opposition to the “unipolar” world, the term they use to describe perceived US global domination.

The rapprochement has been driven by a strong personal relationship between Putin and Xi, seen as the most powerful Chinese leader since Mao Zedong. The two have met nearly 30 times, and Putin said that the Chinese president is the only world leader whom he once invited to celebrate his birthday.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Trade wars are on investor’s minds again today, as the president of China launches a coded attack on Donald Trump’s economic policies.

Chinese President Xi Jinping warned this morning that the political landscape was becoming increasingly dominated by protectionism and unilateralism.

Speaking at the Eastern Economic Forum in Russia’s Vladivostok, Xi warned that:

“There are deep and complex changes underway in the international situation, the politics of force, unilateral approaches and protectionism are rearing their head.”

Xi’s comments come a few days after Trump threatened China with a further $267bn in tariffs, on top of the $50bn already implemented and $200bn under consideration.

Faced with such firepower from Washington, the Chinese leader is now pushing for closer ties to Moscow.

He told an audience in Vladivostok that China is keen to participate in development projects in Russia’s eastern flank, arguing:

“We have unique geographic benefits. China and Russia are the biggest neighbours, we have solid political ties.

Chinese and Russian relationships are at all times high level.”

That last line may raise eyebrows in London, as the UK pushes for an international response to the Salisbury Novichok poisoning…..

Xi’s comments suggest Beijing is rather concerned by Trump’s enthusiasm for imposing tariffs to get America ‘fair trade’.

He’s not alone. Yesterday, IMF chief Christine Lagarde warned that the US-China trade war could deliver a “shock” to emerging markets, which are already suffering from “fragmented vulnerabilities”.

She told the FT that a new wave of tariffs could cause economic disruption and hurt poorer consumers.

“Trade is a positive, trade is a plus, trade needs fixing certainly but it is a tool and an engine for growth that should not be under threat, particularly at the moment.”

Later today, new output data may show whether the trade dispute is hurting eurozone factories.

Traders will also be watching the oil price, as hurricane Florence approaches the US coast.


Category: China

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