“China’s plans to power these islands may add a nuclear element to the territorial dispute,” the Pentagon said in its 2018 report to Congress titled “Military and Security Developments Involving the People’s Republic of China.” “China indicated development plans may be underway to power islands and reefs in the typhoon-prone South China Sea with floating nuclear power stations; development reportedly is to begin prior to 2020.”
The China Securities Journal -- a Chinese state-run financial newspaper -- said in 2016 that China could build as many as 20 floating nuclear plants to “speed up the commercial development” of the South China Sea, the South China Morning Post reported last year. Several Chinese state-run companies last year established a joint venture that aims to strengthen China’s nuclear power capabilities in line with its ambitions to “become a strong maritime power,” the Post said, citing a statement released by the venture.
“The best-case scenario for the region would be China reconsidering the electricity supply source for its controlled islands, or at least a delay in the deployment of the fleet,” given potential safety challenges and security risks from pirates or regional terror groups, Viet Phuong Nguyen, a nuclear researcher at the Korea Advanced Institute of Science and Technology, wrote in the Diplomat website that month.
To read what else was in the report, click on the link.
“This will be ‘talks about trade talks,’” said Gai Xinzhe, an analyst at the Bank of China’s Institute of International Finance in Beijing. “Lower-level officials will meet and haggle and see if there is a possibility for higher-level talks.”
To restart trade negotiations with the U.S., China must offer a package of measures, according to Jacob Parker, the vice president for China operations for the U.S.-China Business Council in Beijing. China needs to make an offer that slashes the bilateral trade surplus, lowers import tariffs, provides better protection for intellectual property and stops forced technology transfers, Parker said earlier this month.
While the talks are at a relatively low level for now, the market reaction clearly shows that people and investors in Asia are hopeful for successful negotiations.
The commerce ministry reiterated in the statement that China is against trade protectionism and won’t accept any unilateral trade restrictions. “China welcomes communications and dialogue on the basis of reciprocity, equality and integrity,” it said.
Wang, who is the key official leading China’s trade talks worldwide, led an advance team to Washington in May. In a July interview, he told Bloomberg that he didn’t understand why the U.S. quickly reversed its course.
“Good faith negotiation is required,” Wang said then. “For any talk to be successful, no party should point a gun at the other party.”
Economists weren’t expecting much from the planned talks.
“David Malpass, the Undersecretary for International Affairs for the US has no trade authority,” said Derek Scissors, chief economist at the China Beige Book. “But nice for Chinese stocks.”
Media reports suggested Friday that officials at the European Central Bank (ECB) are concerned over southern European banks, which have lent significant amounts of money in Turkey. This suggests that investors holding stock in European banks could be at risk. The ECB declined to comment on the reports.
Data from the Bank for International Settlements (BIS) — often called the central bank of central banks — shows that Spanish banks are owed $83.3 billion by Turkish borrowers; French lenders $38.4 billion; and banks in Italy are owed $17 billion. Regulators in Europe are reportedly worried that the weaker currency will lead to defaults in foreign loans.
(In God We Trust...All Others Pay Cash)
"There are various campaigns being carried out. Don't heed them," the president said. "Don't forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now," Erdogan told supporters. (Yes, look at you know).
When asked about the impact of the ongoing troubles in Turkey, Timothy Ash, a senior emerging markets strategist at Bluebay Asset Management, told CNBC via email that "it's likely mostly banking exposure at this stage."
However, he added that exposure is "pretty international." "European, U.S., Japan, China, Middle East — everyone," he added.
The BIS cross-border figures also show that Japanese banks are owed $14 billion, U.K. lenders $19.2 billion and the United States about $18 billion.
Suppose a Chinese electric carmaker wants to win market share by selling cars with the best cutting-edge battery technology. How does it get that technology? It can hire some engineers, build a lab and try to develop it in-house. It can collaborate with a university research lab to create it. Alternatively, it can buy an American company that already has the technology.
The latter move might be profitable for both the acquirer and the target, but it can stifle a whole ecosystem from developing around that company in the U.S. The Chinese company will likely take the battery technology back to China with it, producing the batteries in China and sourcing the parts in China. Had the company not been acquired, it might have spawned a network of American suppliers and customers. Some of its employees would have left and gone to work for those suppliers and customers, or for competitors, or spun off their own businesses. They would have taken their knowledge of the first company’s technologies with them, where those ideas -- whether protected by nondisclosure agreements or not -- would combine with those of others, potentially creating whole new innovations. Instead, since a Chinese company now takes the tech back with it, that virtuous cycle will now happen in China instead, and the U.S. economy as a whole will lose out.
That scenario might be prevented by timely action by the Committee on Foreign Investment in the U.S. CFIUS, as it is known, is officially supposed to deal with risks to national security -- for example, if foreign powers use acquisitions to erode the U.S.’s edge in military technology. In practice, national security concerns can almost never be separated from economic considerations like the scenario described above, because technological dominance has both military and economic implications. When CFIUS successfully persuaded Donald Trump to block the takeover of American telecommunications-equipment maker Qualcomm Inc. by rival Broadcom Inc., it did so out of fear that the move would lead to cuts in research spending and weaken American dominance in that area of technology, giving a competitive edge to Chinese rival Huawei Technologies Co.
CFIUS has been around since the 1970s, but China’s rise as an economic, technological and military rival and Trump’s pugnacious approach to trade have generated a burst of deal cancellations in the last two years.
This may only be the beginning, as CFIUS may soon be beefed up considerably. Trump and his Treasury secretary, Steve Mnuchin, are considering using emergency powers to block Chinese investment in U.S. tech companies, and CFIUS may administer the restrictions. In addition, there has been a bipartisan legislative effort to strengthen CFIUS, and broaden its oversight to include many minority investments by Chinese companies.
Why minority investments? If a Chinese company buys only a minority stake in a U.S. company, it can’t carry out the scenario described above. What it might do is to send its employees to work with the U.S. company, allowing them to copy, learn or steal designs, ideas and process knowledge, and transfer these to Chinese companies. A stronger CFIUS might prevent that.
This is probably a good idea. Depriving U.S. companies of Chinese capital isn’t a big danger. Thanks to investors like Softbank’s Vision Fund and deep-pocketed U.S. venture capitalists, with tech company valuations soaring, and with interest rates low, companies are hardly starved for capital. The drawbacks of forcing China to go slow on its flood of acquisitions and investments -- at least in the technology industry -- seem minimal.
The latest bit of America’s energy sector to feel the over-the-shoulder lash is the liquefied natural gas-export business. On Friday, LNG joined the list of goods that China will hit with tariffs in retaliation for U.S. ones. This is problematic when you consider China has taken 13 percent of U.S. LNG exports (and more like a quarter last winter), according to Bloomberg New Energy Finance.
As I wrote here about U.S. oil, a tariff imposed by one of the world’s largest importers of fuel will act as an effective tax on exporters. China buys U.S. LNG on the spot market, so its demand is very sensitive to the spread between benchmark U.S. natural gas prices and Asian prices. That spread has to absorb the cost of converting U.S. gas into a liquid (typically a 15 percent premium) and shipping it across the world (about $2 per million BTU via the Panama Canal, according to BNEF’s LNG Shipping Calculator).
Like with most other trades, everything is connected. So apart from the LNG sector, these tariffs could really cause problems for a bigger business up the pipe: the Permian basin’s oil producers.
How so? A side-effect of the surge in Permian oil output is a similar surge in associated gas that comes up alongside it. As long as oil prices encourage more fracking for oil, the gas essentially comes for free. This is a problem in west Texas because, short of coming up with an ingenious method allowing local residents to breathe the stuff, there isn’t enough demand there to take it all. Hence, gas priced in Waha, Texas, trades at a discount of almost 80 cents per million BTU, or 28 percent, to the Henry Hub benchmark.
Just as lifting the crude-oil export ban helped alleviate a similar problem in oil a couple of years ago, so the ability to get gas to the Gulf Coast and ship it worldwide is a vital escape valve here.
In an analysis published in May, Sanford C. Bernstein estimated that rising associated gas production – the vast majority of it from the Permian basin – would be enough to meet most of the increase in domestic U.S. demand and exports through 2025. And given that U.S. gas demand is barely growing – in part because it is in a knife fight with renewable energy in markets such as Texas and California – exports are key.
Click here to download a pdf of this article, Missile.pdf
"The positioning here is that the other countries are all free trade and the U.S. is not. If that's really what we're saying then just drop all tariffs and all non-tariff barriers. Go down to zero. That would be better outcome for the whole world," Bullard told CNBC's "Squawk Box Europe" Monday.
Countries espousing free trade in response to U.S. trade war threats should just drop all their own tariffs to zero — but they won't, says St. Louis Federal Reserve Bank President James Bullard.
"Why is that not going happen? Because they're protecting their industries, that's why it's not going to happen. So, they're protectionist."
Beijing heavily subsidizes domestic industries, creating an uneven playing field for global competition, and has strict foreign ownership limits on most sectors. It does not allow foreign investors equal access to its industries, and engages in practices like forced technology transfers, which require international businesses operating in China to share their technology and operate without adequate protection of their intellectual property. U.S. and other foreign businesses operating on the ground have long called for reforms in these areas.
In terms of tariffs, the European Union has in fact been a bigger offender than the U.S. According to calculations by the Munich-based Ifo Center for International Economics, the unweighted average EU customs duty on American goods is 5.2 percent, versus the U.S. rate of 3.5 percent.
Some examples of steeper EU tariffs on U.S. products include a tax of 20 percent tax on grapes and 17 percent on apples. But the U.S. also imposes higher duties on particular European goods, like its 20 percent tax on certain milk products and 25 percent tax on small trucks. Each instance can be seen as protection of domestic industries.
The vast annual military operation known as the Rim of the Pacific Exercise (simply RIMPAC in Pentagon jargon) just concluded on the beaches of Southern California with a huge demonstration of an amphibious assault, which involves sending troops ashore from warships at sea — a highly complex maneuver whether D-Day or present day.
The exercise is held every two years all over the Pacific Basin, and is the largest international maritime exercise in the world. It is globally regarded by naval officers as the Olympic Games of naval power. Run by the U.S. Pacific Fleet, which is headquartered in Pearl Harbor, it normally includes warships and troops from every branch of the U.S. armed forces, and those of than 20 foreign nations.
They have been held since the early 1970s, and include nations not only from the Western Pacific rim — Japan, South Korea, Australia, New Zealand, Brunei, Vietnam, Thailand, Singapore and so on — but also from the Pacific coast of South America, including Mexico, Peru, Chile and Colombia.
But this year, in a break with recent tradition, China was “disinvited” in May because of its militarization of a variety of artificial islands in the volatile South China sea, where it is sending troops and setting up combat-aircraft, runways and missile systems.
While I’ve repeatedly criticized Trump for his dealings with allies and foes, cutting Beijing “out of the pattern” this year was the right decision. It deprived China of not only the chance to observe and learn about allied naval practices, but also of the prestige of engaging with the top navies in the world. The increasing involvement of India — the obvious strategic counterweight to China — as well as this year’s addition of Vietnam — a growing naval actor deeply concerned about Chinese dominance in the South China Sea — sends a powerful signal.Click here to download a pdf of this article, Missile.pdf
Jacob Parker, the vice president for China operations for the U.S.-China Business Council in Beijing. While China can likely do more to cut tariffs and reduce its trade surplus with the U.S. beyond previous offers, there are still wide differences between the two on structural issues including technology transfers, he said.
“When we talk to the U.S. government, they indicate that there needs to be specific, immediate, measurable action,” Parker said in an interview on Thursday. “This can’t be a promise for some future liberalization. Both the business community and the U.S. government are just suffering from this promise fatigue from China.”
To restart trade negotiations with the U.S., China must offer a package of measures that slashes the bilateral trade surplus, lowers import tariffs, provides better protection for intellectual property and stops forced technology transfers.
The U.S.-China Business Council is a Washington-based group representing about 200 companies doing business in China. Here are some key areas Parker says China must make progress on to entice the U.S. back to the negotiating table:
While China now imposes about three times the number of tariffs as the U.S., the Trump administration has indicated it wants China’s import tariffs to mirror those in the U.S. Parker said. Slashing that many tariffs would be challenging but it wouldn’t be a surprise for additional flexibility from China, he said. The Chinese International Import Expo in Shanghai that’s scheduled for November would be a good opportunity to announce further cuts, he said.
At earlier talks China offered to increase purchases of U.S. energy and agricultural products by between $75 billion to $100 billion, Parker said. The next step might be to broaden that offer to include sectors such as technology, financial services and cloud computing, he said.
“We’ve seen parts of this package offered in the past but I think the Chinese government underestimated the need to address the structural issues in their previous negotiations,” Parker. “That now seems to be dawning on them a little bit more.”
intellectual Property Rights
China must impose criminal penalties for commercial-scale infringement of intellectual property, according to Parker, who claimed that police shut factories and confiscate products and equipment now, but soon after the factories reopen. “These people should go to prison so there’s a real deterrent,” he says. “That’s something that China could implement fairly quickly.”
Forced Technology Transfers
Foreign companies being forced to transfer technology to domestic Chinese partners was among key sticking points in previous negotiations, Parker said. According to conversations with both sides, the U.S. views any joint venture requirement as a de-facto technology transfer requirement whereas the Chinese view them as allowed under World Trade Organization rules, he said.
Made in China 2025
The Trump administration is concerned that subsidies for industry under China’s controversial Made in China 2025 plan, which aims for global dominance in 10 key strategic industries, are so great that they may distort global markets, says Parker.Click here to download a pdf of this article, Missile.pdf
“Make no mistake. We will be watching what the IMF does,” Pompeo said. “There’s no rationale for IMF tax dollars, and associated with that American dollars that are part of the IMF funding, for those to go to bail out Chinese bondholders or China itself,” Pompeo said.
The Financial Times reported on Sunday that senior Pakistani finance officials were drawing up options for Khan to seek an IMF bailout of up to $12 billion.
An IMF spokeswoman said: “We can confirm that we have so far not received a request for a Fund arrangement from Pakistan and that we have not had discussions with the authorities about any possible intentions.”
In an interview with CNBC television, Pompeo said the United States looked forward to engagement with the government of Pakistan’s expected new prime minister, Imran Khan, but said there was “no rationale” for a bailout that pays off Chinese loans to Pakistan.
Building on President Donald Trump's "Indo-Pacific" strategy, U.S. Secretary of State Mike Pompeo will announce a series of investment initiatives in Asia on Monday focusing on digital economy, energy, and infrastructure.
The announcement, to be made at a U.S. Chamber of Commerce forum in Washington, comes at a time when trade frictions with China have given U.S. trade diplomacy a sharper edge.
"The Indo-Pacific is an absolute priority of U.S. policymakers in the executive branch and in Congress," Brian Hook, Pompeo's senior policy advisor, told journalists in a conference call.
Countries in the region have been worried by Trump's "America first" policy, withdrawal from the Trans Pacific Partnership trade deal, and pursuit of a trade conflict with China that threatens to disrupt regional supply chains.
Hook said the United States approach to development of the region was not aiming to counter China's Belt and Road Initiative, which comprises of mostly state-led infrastructure projects linking Asia, parts of Africa and Europe.
"It is a made in China, made for China initiative," he said. "Our way of doing things is to keep the government's role very modest and it's focused on helping businesses do what they do best."
Critics of Beijing's Belt and Road Initiative, which aims to recreate the ancient Silk Road, say it is more about spreading Chinese influence and hooking countries on massive debts. Beijing says it is simply a development project that any country is welcome to join.
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