Aurelia Butler

BRUSSELS (Reuters) -The European Commission will analyse the U.S. ban on new U.S. investment in China in sensitive technologies as the issue is also important to the European Union’s economic security, the EU executive said on Thursday.U.S. President Joe Biden on Wednesday signed an executive order to prohibit or restrict U.S. investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.The Commission, which in June presented its own economic security plan consisting of stronger controls on exports and outflows of technologies that could be put to military use by rivals like China, said it took note of the U.S. ban.”We will be analysing the Executive Order closely. We are in close contact with the US administration and look forward to continued cooperation on this topic,” a Commission spokesperson said in an email.”We recognise the significance of the topic, which was an important element in the recent Joint Communication on economic security.” “The EU and Member States also have a common interest in preventing that our companies’ capital, expertise and knowledge fuel technological advances that enhance military and intelligence capabilities of actors who may use them to undermine international peace and security,” the spokesperson said.The Commission will present an initiative on the topic by the end of the year.A spokesperson for the German economy ministry took note of the commission’s move to assess the ban and told Reuters: “We will be actively involved in this process.”Still smarting from a breakdown in its economic ties with Russia, Berlin has called for a de-risking approach to China and begun looking at measures to address risky foreign investments. More

The EU has signalled that it will not immediately follow the US in issuing outright bans on investment in China’s cutting-edge technology sector, saying instead that it will make its own proposal by the end of the year.The White House issued an executive order on Wednesday that will limit some US investment in sectors deemed by President Joe Biden as posing “significant national security risks” in the hope that allies might follow its lead.The European Commission responded that it was in “close contact” with the White House but that it would not follow suit right away.Brussels announced in June that it was planning to put forward proposals on how to limit potential security risks to outbound investments by the end of the year. Germany, France and other member states have sought to damp that drive, pointing out that Europe’s economies are far more intertwined with China’s than the US is.“The EU and member states . . . have a common interest in preventing the narrow set of technological advances that are assessed to be core to enhancing military and intelligence capabilities of actors who may use them to undermine international peace and security,” the commission said in June.One EU diplomat said that many member states “have reservations and believe a proper assessment is needed before putting such an instrument in place, as it has a possible huge impact on business”.They also pointed to differences between the US and EU economies, such as less venture capital in Europe, resulting in a need to take a different approach. The debate over trade controls comes amid escalating tensions over Chinese access to key technologies in the defence and digital sectors, as well as concerns over its dominance of supply chains crucial to the green transition.But the EU has largely taken a more hesitant approach than the US towards limiting investment in China, pursuing instead a policy of “de-risking” amid fears that outright bans could prompt unintended consequences for the bloc’s financial markets. The UK has also taken a more cautious stance.France and Germany have both sought to thread the needle between maintaining economic ties with China and taking a harsher stance on key technologies. Responding to Biden’s executive order, the German economy ministry said on Thursday that it would “actively participate” in the EU discussion about the approach that the continent should take.Berlin last month affirmed its “responsibility and determination” to co-ordinate with allies on preventing cutting-edge technologies from being used to further develop Beijing’s military capabilities and threaten international security. It added that measures “designed to counter risks connected with outbound investment could be important” as a supplement to existing instruments.But the German government has struggled to find a unified approach towards China, the country’s biggest trading partner, with Scholz advocating more caution than his more hawkish Green coalition partners in charge of foreign policy and economic matters.The Élysée Palace declined to comment on Thursday and the French finance ministry did not return a request for comment on the US plans.French president Emmanuel Macron went on a high-profile trip to Beijing in April accompanied by dozens of French chief executives scouting deals to develop economic ties, and is also pushing to reduce French dependencies in strategic industries such as semiconductors and electric batteries.In late July while on a trip to China, French finance minister Bruno Le Maire declined to comment on US restrictions on technology transfers to China, and added that France was “opposed to decoupling global supply chains which would have a major economic cost”.EU trade chief Valdis Dombrovskis told the Financial Times this month that the commission was exploring ways to monitor European investments overseas but wanted to maintain good relations with Beijing and that any measures would be narrowly focused on products with specific national security concerns.But he also hit back at restrictions announced by China on exports of gallium and germanium, metals key to the manufacture of chips and electric vehicles, saying that the policy went “beyond what is needed to protect the essential security interests”.Foreign direct investment from the EU into China has amounted to more than €140bn over the past 20 years, according to the commission. More

ANKARA (Reuters) – Turks will get little reprieve from a soaring cost of living this summer as economists expect prices to jump by as much as 8.5% in August, underlining Ankara’s challenge as it embarks on a painful path toward more orthodox policies.The sustained inflationary pressure, driven by a lira drop and tax hikes, comes as President Tayyip Erdogan’s new finance minister and central bank chief orchestrate a policy U-turn including interest rate hikes that are expected to slow domestic demand.The monetary tightening – after years of aggressive rate cuts – is meant to cool inflation by mid-2024. But in the meantime the U-turn has hammered the currency and left authorities asking already-stretched households for patience.In July, consumer prices soared nearly 10% sequentially due to tax hikes and a lira crash. This month, forecasts by five economists show them rising between 5.5% and 8.5%, with fallout from mid-July tax hikes lagging into August.The economists told Reuters that food prices would jump this month due to a July 16 fuel tax hike, which was meant to help fund a 1.12 trillion lira ($42.2 billion) rise in the budget after February’s earthquakes and May elections boosted spending.The tax rise sent petrol prices up 45% to 36 lira per litre. Separately this week, public transportation and taxi fares were raised by 51% in Istanbul, Turkey’s largest city, with short-distance taxi fares up 75%.Erdogan’s previous drive to slash interest rates sent annual inflation soaring to a 25-year high above 85% last year and left the lira heavily state managed.Yet after he was re-elected in May, Erdogan, facing an unstable economy and depleted reserves, named a new cabinet to reverse policy. The central bank under new Governor Hafize Gaye Erkan has since hiked rates by 900 basis points and the lira, freer to float, has plunged 26%.ERDOGAN’S SUPPORTDespite Erdogan’s outspoken opposition to high rates in the past, Erkan has vowed to continue her gradual tightening.Yet partly due to currency depreciation, the central bank expects annual inflation to rise until the second quarter of 2024 when it peaks above 60%, spelling more cost-of-living strains for Turks.Erdogan publicly backs the goal of lowering inflation to single digits but said on Monday the government will at the same time “never compromise” on employment and economic growth.Some analysts have questioned how far he will allow rates to rise and growth to slow, especially given nationwide local elections set for March, prompting Finance Minister Mehmet Simsek to stress that he has Erdogan’s full support.A Turkish official familiar with the matter said the gradual tightening aimed to preserve growth and avoid shocks to employment and the economy.Moody’s (NYSE:MCO) said it could raise Turkey’s credit ratings if the shift to orthodoxy is sustained. Yet because it will slow growth, it said the “key challenge is to balance the need for decisive action…with the political imperative for continued robust economic growth.”BETTER DATASince Simsek and Erkan took the reins two months ago, economists say the Turkish Statistical Institute (TUIK) has published data with higher-quality price measurements.The 9.5% monthly inflation reading in July “fully reflected the tax and fuel changes, marking a clear difference between the quality of June and July readings compared to those at the start of the year,” said an economist who requested anonymity due to the sensitivity of the issue.Since 2018, some economists and opposition politicians have criticised TUIK’s data on grounds it did not match street prices.After years of divergence with market expectations, the central bank matched those last month when it raised its end-2023 annual inflation forecast to 58.0% from a previous 22.3%. More

HONG KONG/WASHINGTON (Reuters) -President Joe Biden’s move to prohibit some U.S. technology investments in China is expected to keep investors on the sidelines, concerned that tougher measures are ahead as tensions simmer between the world’s two biggest economies.U.S. private equity and venture capital investors have already hit the brakes on sensitive technologies in China as relations have worsened since the administration of Biden’s predecessor, Donald Trump, over issues from tech to China’s industrial policies to national security.Aiming to keep U.S. capital and expertise from helping China’s military modernisation and harming U.S. national security, Biden’s executive order on Wednesday was limited, for example by applying only to new investments. But it will not be the end of measures to tighten scrutiny of American investments in China, which is struggling to get back on its feet since the COVID-19 pandemic, dealmakers and analysts say.The order authorises the Treasury secretary to prohibit or restrict U.S. investments in Chinese firms in semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.Congress may introduce legislation expanding on Biden’s restrictions, said Weiheng Chen, senior partner and head of Greater China practice at law firm Wilson Sonsini.Indeed, congressional Republicans immediately criticised the order by Democrat Biden as not going far enough.”Certain U.S. investors may just choose to wait for the implementation rules before making investment decisions in these covered sectors,” Chen said.SHIFT TO YUANAcquisitions of Chinese companies by U.S. firms have sunk almost 60% so far this year to $3.5 billion from $8.8 billion for the same period last year, according to Dealogic data, while deal value in the tech sector has plunged to $815 from $6.1 billion.China-U.S. tensions and Beijing’s regulatory crackdown on its private enterprises have prompted many fund managers to pivot from the country or shift to local-currency investments.”The situation is already very bad for dollar-based funds to invest in China’s tech sector. There isn’t much room for things to get worse,” said Beijing-based China Growth Capital partner Wayne Shiong.Biden’s move will likely make China-focussed venture capital firms feel more urgency to raise yuan funds from Chinese investors, he said.The executive order and the prospects of a pause in private equity investments in China across the board come as Beijing seeks to attract capital to revive its slowing economy. Pan Yuan, a researcher at the Chinese Academy of Social Sciences, a top government think tank, said despite Biden’s restrictions, China will maintain an open policy to attract foreign capital.To counter the U.S. curbs, China must focus on improving its domestic technology capabilities, Pan said.TECH DISPUTESChina hawks in Washington blame American investors for transferring capital and valuable know-how to Chinese technology companies that could help advance Beijing’s military capabilities. Beijing, for its part, has been seeking self-sufficiency in the escalating tech disputes.On Monday, Hua Hong Semiconductor, China’s number two chip foundry, made its Shanghai market debut, raising $3 billion and joining a long queue of local chipmakers to tap the stock market to fund expansion.In response to Biden’s executive order, China’s commerce ministry said it was “gravely concerned” and reserved the right to take countermeasures.Analysts said, however, Beijing’s retaliation options are limited and would unlikely escalate the matter, especially given tight scrutiny since the Trump era.”The main Chinese reaction will be to discourage other countries from copying American actions,” said Derek Scissors, senior fellow and expert on U.S.-China economic relations at the pro-business American Enterprise Institute.”China could act in non-reciprocal fashion, retaliating somewhere other than on the investment side. But the executive order is barely going to do anything, and China escalating would risk turning a molehill into a mountain.” More