Aurelia Butler

BEIJING (Reuters) – China will boost its defence spending by 7.2% this year, fuelling a military budget that has more than doubled under President Xi Jinping’s 11 years in office as Beijing hardens its stance on Taiwan, according to official reports on Tuesday. The increase mirrors the rate presented in last year’s budget and again comes in well above the government’s economic growth forecast for this year.China also officially adopted tougher language against Taiwan as it released the budget figures, dropping the mention of “peaceful reunification” in a government report delivered by Premier Li Qiang at the opening of the National People’s Congress (NPC), China’s rubber-stamp parliament, on Tuesday.Tensions have risen sharply in recent years over Taiwan, the democratically ruled island that China claims as its own, and elsewhere across East Asia as regional military deployments rise. Li Mingjiang, a defence scholar at the Rajaratnam School of International Studies (RSIS) in Singapore, said that despite China’s struggling economy, Taiwan is a major consideration in Beijing’s defence spending.”China is showing that in the coming decade it wants to grow its military to the point where it is prepared to win a war if it has no choice but to fight one,” Li said.Since Xi became president and commander-in-chief more than a decade ago, the defence budget has ballooned to 1.67 trillion yuan ($230 billion) this year from 720 billion yuan in 2013.The percentage rise in military spending has consistently outpaced the annual domestic economic growth target during his time in office. This year the growth target for 2024 is about 5%, similar to last year’s goal, according to the government report.The defence budget is closely watched by China’s neighbours and the United States, who are wary of Beijing’s strategic intentions and the development of its armed forces.Based on data from the London-based International Institute for Strategic Studies (IISS), this year’s budget marks the 30th consecutive year of Chinese defence spending increases.Japanese government spokesperson Yoshimasa Hayashi on Tuesday urged greater openness from Beijing, warning of serious international concerns.China’s continuous military spending increases without sufficient transparency were “the greatest strategic challenge ever to ensure the peace and stability of Japan and the international community and strengthen international order”, Hayashi said in Tokyo.South Korea’s defence ministry declined to comment. Australia’s defence ministry did not immediately respond to a request for comment.James Char, a security scholar at the RSIS, said that despite the defence budget’s outpacing GDP growth, it had remained at about 1.3% of overall gross domestic product in the last decade and had put no stress on the national coffers.”Of course, the country’s longer-term economic fortunes will determine whether this can be sustained going forward,” Char said.The purchase of new equipment is likely to take up the largest single chunk of the budget as the military works to meet Xi’s goal of full modernisation by 2035, the IISS said in research published last month.That push continues across several fronts, with China producing weapons ranging from warships and submarines to drones and advanced missiles that can be equipped with both nuclear and conventional warheads.Char said tighter management would also be a priority for military leadership after high-profile personnel purges related to weapons procurement.The Central Military Commission, China’s top military body, last July ordered a “clean up” of the procurement process and invited the public to report irregularities.The commission has not announced the results of its investigation, but at least nine generals, including four directly in charge of procurement, have been stripped of their title as parliamentarians, a necessary procedure before they can be charged in court.Two former defence ministers, Li Shangfu and Wei Fenghe, have also gone missing without explanation, which in China often means they are under investigation.Li had been in charge of military procurement from 2017 to 2022. When asked whether Li would attend the parliament sessions, parliament spokesman Lou Qinjian told Singapore paper Lianhe Zaobao on Monday that Li “cannot attend because he is no longer a delegate”. In the government work report, China reiterated a call for “reunification” with Taiwan, but added emphasis that it wants to “be firm” in doing so and dropped the descriptor “peaceful”, which had been used in previous reports.Although it is not the first time that China had omitted the word “peaceful”, the change in language is closely watched as a possible sign of more assertive stance towards Taiwan.Taiwan’s Mainland Affairs Council on Tuesday urged China to accept the fact that the two sides are not subordinate to each other, and urged China to create health cross-strait exchanges.The island’s defence minister had said on Tuesday Taiwan’s armed forces would increase the number of missile drills they hold this year.Wen-Ti Sung, a political scientist and fellow at the Atlantic Council, said that the language on Taiwan has “moderately hardened”. “Beijing appears to be balancing between projecting increased toughness on Taiwan with stabilising relations with Taiwan’s international friends,” he said.After the Democratic Progressive Party’s Lai Ching-te won the presidential election in Taiwan, the Chinese Communist Party’s fourth-ranked leader, Wang Huning, said at a high-level Taiwan policy meeting last month that China would “resolutely combat” any efforts towards Taiwan independence this year. Previous statements from the annual meeting only vowed to “resolutely oppose” Taiwan independence.($1 = 7.1987 Chinese yuan renminbi) More

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1. Futures lowerU.S. stock futures dipped on Tuesday, as investors geared up for key economic data and testimony from Federal Reserve Chair Jerome Powell later in the week.By 03:16 ET (08:16 GMT), the Dow futures contract had shed 67 points or 0.2%, S&P 500 futures had fallen by 11 points or 0.2%, and Nasdaq 100 futures had shed 81 points or 0.4%.The main averages closed lower following choppy trading on Monday. The benchmark S&P 500 briefly touched intraday record highs thanks in part to a jump in chip stocks fueled by hype around the products that underpin artificial intelligence, although this momentum faded heading into the end of the session.Traders are gearing up for the release of the February nonfarm payrolls report on Friday, which could provide some insight into the health of the U.S. labor market. The reading may also factor into how Fed officials approach potential interest rate reductions this year.Powell, meanwhile, will testify to lawmakers on Wednesday and Thursday.2. Target to reportBig-box retailer Target (NYSE:TGT) is slated to report its latest quarterly results on Tuesday that could give markets an updated glimpse into the state of U.S. consumers.Figures from rival Walmart (NYSE:WMT) suggested that shoppers, conscious of both high inflation and elevated interest rates, are choosing to forego larger purchases in favor of essential items.While Walmart’s focus on low-price groceries has bolstered its operations against the cooling in customer spending, Target has been hit by patrons pulling back expenditures on its home goods, electronics and apparel. The Minneapolis-based company flagged in November that although this slowdown appears to be ebbing, headwinds like increased borrowing costs and student loan repayments may maintain the pressure.In response, Target said it would roll out cheaper toys and decorations during the holiday season, as well as discounts on some jewelry and kitchenware.3. Tesla shares slump on weak shipments from Chinese factoryShares in Tesla tumbled by more than 7% in extended hours trading after the electric vehicle (EV) giant said shipments of its China-made cars dropped to a 14-month low in February.Tesla announced a 19% year-on-year decline in deliveries of EVs made at its plant in Shanghai to 60,365, the lowest level since December 2022, likely due to disruptions caused by the Lunar New Year holidays.The drop came as the firm engaged in a bitter price war with its Chinese peers to capture the world’s largest EV market. Last week, Tesla introduced just under $5,000 worth of new incentives in a bid to entice Chinese customers to buy its Model Y and Model 3 cars.Weakening demand also brings up the prospect of more price cuts in the country — a trend that bodes poorly for all EV players in China, given that it has eaten into profit margins.Shares in Chinese EV players like BYD (HK:1211), Nio (HK:9866), Xpeng (HK:9868) and Li Auto (NASDAQ:LI) Inc (HK:2015) all slid in Hong Kong trade, dragging down the broader Hang Seng index.4. Bitcoin briefly clears $68,000The price of Bitcoin temporarily cleared key levels in Asian trade on Tuesday, lifting the token up to just under $1,000 shy of a record high hit during the peak of a bull run in 2021.The world’s largest cryptocurrency had risen by 1.8% to $66,487 by 03:17 ET. Hours earlier it had surged by as much as 8.4% to an over two-year high of $68,450.9 — within spitting distance of an all-time high of $68,999 reached in late-2021.Gains in Bitcoin were driven chiefly by steady capital inflows into the digital asset, especially after the approval of several U.S. exchange-traded funds that directly track the token’s price. Its correlation with technology stocks also played into recent gains. Meanwhile, markets awaited an upcoming halving in the rate at which new Bitcoin is generated, an event that is expected to tighten markets.Data from digital asset manager CoinShares showed Bitcoin-linked investment products saw a fifth straight week of capital inflows in the week to March 4, a total of $1.7 billion. While short positions on Bitcoin increased, U.S.-listed ETFs linked to it, particularly the iShares Bitcoin Trust (NASDAQ:IBIT)) and the Fidelity Wise Origin Bitcoin Fund (NYSE:FBTC), commanded the lion’s share of inflows.5. Oil prices dipOil prices moved down in European trade on Tuesday, nursing some losses from the prior session and seeing little support as top importer China presented a middling economic growth forecast for 2024.China set a gross domestic product (GDP) target of 5% this year. The goal and other economic proposals were unveiled in an official report released during the annual National People’s Congress.While Beijing outlined more economic changes to help shore up growth, the government’s messaging was largely unchanged from its prior signals, providing little to brighten investors’ view of what has largely been a sluggish economic rebound in China.Speculation over an Israel-Hamas ceasefire and fears of worsening demand also remained in play, largely offsetting a tighter outlook for supply. While prices had initially taken some support from the Organization of the Petroleum Exporting Countries and its allies extending its current run of production cuts, this trend has appeared to have lost some steam.Brent oil futures expiring in May had dropped by 0.4% to $82.49 a barrel, while West Texas Intermediate crude futures fell 0.5% to $77.78 per barrel by 03:18 ET. More

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Hawkish policymakers at the European Central Bank have been emboldened to resist calls for an imminent cut to interest rates at their meeting this week after inflation proved stickier than expected in February.Until a few months ago, investors were betting the ECB would cut borrowing costs as early as this month, encouraged by how swiftly eurozone inflation has fallen from its peak above 10 per cent to below 3 per cent.However, those expectations have faded in recent weeks, as ECB policymakers signalled they were in no rush to loosen monetary policy despite the swift easing of consumer price rises and continued stagnation in the eurozone economy.Friday’s release of inflation data for the single currency bloc, showing it fell less than expected from 2.8 per cent in January to 2.6 per cent in February, has reinforced the determination of the ECB’s more hawkish rate-setters to resist pressure for rate cuts.“We watched inflation data coming in from [the] European and country level, and what we see is that they confirm my view that we have to wait, have to be attentive and cannot rush to a decision,” Austria’s hawkish central bank chief Robert Holzmann said on Friday. Even some of the more dovish rate-setters seem reconciled to a wait-and-see approach on lowering borrowing costs, underlined by Greek central bank governor Yannis Stournaras’s comment last week that such a move should come “no later than June”.Economists pointed to persistently high services inflation as the key factor making rate-setters nervous about the risk of cutting rates too soon. Eurozone services prices rose 3.9 per cent in February, only a slight dip from consecutive 4 per cent rises in each of the previous three months. This “sticky” services inflation figure “will embolden the many members of the governing council that are calling for patience, making any rate cut before June highly unlikely”, said Marco Valli, chief European economist at Italian bank UniCredit.Tomasz Wieladek, an economist at investor T Rowe Price, said it was a “very worrying sign” that eurozone inflation picked up on a month-on-month basis to 0.6 per cent in February, the fastest pace since last April.Last week’s data prompted several analysts, including those at Barclays and Goldman Sachs, to delay their forecasts of when the ECB will start cutting rates from April to June.Recent hotter than expected US inflation data and more hawkish signals from the US Federal Reserve could also give ECB rate-setters more confidence to take their time on rate cuts. The ECB will want to “minimise the risk of being caught on the wrong foot by an upward surprise in inflation, all the more as the Fed became more hawkish as of late”, said Martin Wolburg, economist at Italy’s Generali Investments.ECB policymakers are this week expected to reiterate their concern that rapid wage growth may keep prices rising too fast in the labour-intensive services sector, which is especially important as it accounts for 45 per cent of all prices used to calculate inflation.Annual rises in collectively negotiated wages, which cover the majority of eurozone workers, slowed from a record high of 4.7 per cent in the third quarter to 4.5 per cent in the fourth quarter of last year. But that is still well above the 3 per cent level the ECB says is needed for inflation to hit its 2 per cent target.The strength of the region’s labour market, with unemployment remaining at a record low of 6.4 per cent in January, is a pivotal factor behind the ECB’s patient approach to easing monetary policy, after it raised its main policy rate to an all-time high of 4 per cent last year.“The key to all this is the continued resilience in the labour market,” said Katharine Neiss, chief European economist at investor PGIM Fixed Income. “Any whiff that this is deteriorating sharply, with rising unemployment and the prospect for insolvencies, would prompt the ECB to be proactive in cutting not only early but aggressively.”Some European politicians are, however, already calling for the ECB to do more to support the euro area’s struggling economy, which flatlined in the fourth quarter after stagnating for much of last year. The Italian and Portuguese finance ministers both appealed for a swift reduction in borrowing costs during last week’s G20 meetings in São Paulo.The central bank is widely expected to cut its growth and inflation forecasts while keeping rates unchanged at its meeting on Thursday. This could intensify fears in some quarters that it is squeezing the economy more than needed to tame price pressures, especially after eurozone bank lending to businesses and households declined in January.“The conditions are there for a cut now,” said Annalisa Piazza, a fixed income research analyst at MFS Investment Management. “But I expect the ECB will keep stressing the need to see more wage data, which I don’t think is really necessary.”Yet despite widespread gloom about economic weakness in much of Europe, particularly in Germany, there have also been some signs of a nascent rebound in activity that hawkish ECB policymakers are likely to seize on as further proof they should not rush into loosening monetary policy.These faint green shoots include an upgrade to fourth-quarter gross domestic product estimates for both France and Italy that suggest the overall eurozone growth figure may get revised upward into positive territory. Having been widely criticised for being too slow to start raising rates in response to the biggest surge in inflation for a generation in 2022, the ECB now seems determined to take its time before loosening policy to avoid being in the line of fire once more. “To some extent, the fact that they underestimated the inflation surge means that they will now stick to the tightening bias,” said Carsten Brzeski, an economist at Dutch bank ING. More