Aurelia Butler

Trade officials were assessing the fallout from the latest escalation in the US-China technology battle after Beijing said it would impose curbs on exports of metals used in chipmaking.South Korea’s commerce ministry convened an emergency meeting to discuss China’s decision to control exports of gallium and germanium, metals used in chips, electric vehicles and a range of telecoms products.“We can’t rule out the possibility of the measure being expanded to other items,” said Joo Young-joon, South Korea’s deputy commerce minister. Japanese trade minister Yasutoshi Nishimura said Tokyo was studying the impact on its companies as well as checking Beijing’s plans for implementing the controls. Tokyo kept the door open for action at the World Trade Organization, warning that it would oppose any breach of international rules.South Korea and Taiwan are home to Samsung and TSMC, companies that dominate semiconductor manufacturing, while Japanese groups play a critical role in the chip supply chain.Taiwan’s deputy foreign minister Roy Lee said Beijing’s move was likely to have some short-term impact, including price increases. The export controls “will be a kind of accelerator for countries including Taiwan, South Korea and Japan to reduce our dependence on China for supplies of those critical materials”, Lee added.In Germany, Europe’s biggest importer of the metals, Wolfgang Niedermark, board member at industrial lobby group BDI, said the controls illustrated how perilous Europe’s dependency on China was. There was “urgency for Europe and Germany to quickly reduce dependence” on China for critical raw materials, he added. The German government will hand Intel €10bn in subsidies for a project to build a fabrication plant in Magdeburg.Beijing’s announcement on Monday showed how President Xi Jinping’s administration is willing to target western interests in response to Washington tightening curbs on China’s access to sophisticated technology. The metal restrictions are significant because China dominates the production of many raw materials critical to modern technology and infrastructure.China’s foreign ministry spokesperson Mao Ning said on Tuesday that China had “always implemented fair, reasonable and non-discriminatory export control measures”. She said the measures were “a common international practice and do not target any specific country”. Gallium and germanium are among dozens of minerals classified by the US government as critical to economic and national security. The US state department did not immediately respond to a request for comment.

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The move comes just days ahead of US Treasury secretary Janet Yellen’s visit to Beijing, which begins on Thursday, in a trip billed as a bid to stabilise the turbulent US-China relationship. “This looks like a punch from China thrown at the US — a warning about what supply chain disruptions can do to inflation, interest rates and the presidential election,” said CW Chung, an analyst at Nomura, in Singapore.According to officials and experts in China, Beijing is expected to introduce further retaliatory measures in response to the expansion of US-led controls on technology exports. “There will be more retaliatory measures against the snowballing semiconductor export controls from western countries,” said one senior official close to the Chinese commerce ministry.Shares in Chinese producers of gallium and germanium rose on Tuesday following the announcement, with traders expecting the export controls to push up the price of the metals.Yunnan Lincang Xinyuan Germanium Industrial closed by the maximum 10 per cent allowed in Shenzhen on Tuesday, while shares in Yunnan Chihong Zinc & Germanium closed 6 per cent higher. The rally added a combined $350mn to the companies’ combined market cap. “We’ll be seeing China engage in extraterritorial application of its laws, reneging on treaty obligations, and imposing countermeasures in a tit-for-tat manner — all in the name of China’s perceived national security and public interest,” said James Zimmerman, a lawyer at Perkins Coie in Beijing.Zimmerman also pointed out that China last week passed a foreign relations law that, in Beijing’s eyes, has strengthened the legal basis for countermeasures against western threats to national and economic security.

Kim Yang-paeng, a researcher at the Korea Institute for Industrial Economics and Trade, said the restrictions were “worrisome” for South Korean chipmakers.“Korean companies can find alternative sources, but it will take some time . . . if you lack some materials, no matter how important they are, this could hit chip production,” he said.Samsung and SK Hynix, the world’s two biggest producers of memory chips, declined to comment. Infineon, the largest supplier of semiconductors to the car industry, said it did not see any “major impact” on material supplies. The Munich-based company added that the ban followed a “multi-sourcing strategy to include suppliers in different geographies”. Chinese nationalist tabloid the Global Times said the export controls followed the US and some of its allies “relentlessly stepping up crackdowns on China’s technological development”.Reporting by Edward White and Song Jung-a in Seoul, Qianer Liu, Hudson Lockett, Gloria Li and Greg McMillan in Hong Kong, Kathrin Hille in Taipei, Kana Inagaki in Tokyo and Patricia Nilsson in Frankfurt More

Here’s what people are saying about the measure: LUCY CHEN, VICE PRESIDENT AT TAIPEI-BASED ISAIAH RESEARCH:”We believe that gallium and germanium are indeed important raw materials for the semiconductor industry, and China currently accounts for at least 80% of their supply. The gallium and germanium export controls that China has recently implemented have a direct impact primarily on the field of compound semiconductors, such as GaAs substrate suppliers Sumitomo, Freiberger and AXT (NASDAQ:AXTI), as well as U.S. GaN substrate suppliers including Cree (NYSE:WOLF) and II-VI. This also has a knock-on effect on the production of related products such as radio frequency, power amplifier, LED and communication equipment.””Although the above-mentioned substrate suppliers rely on gallium imported from China as raw materials, there are other secondary suppliers in Japan, South Korea, Europe, America and other regions that can provide materials, which can control the risk of upstream material shortages. However, under China’s export controls, the cost of gallium and germanium may increase. Whether other suppliers can provide enough material to meet demand is also the focus of our continuing observation.”JOHN STRAND OF STRAND CONSULT: “Gallium and Germanium are not like the rare earths where there is almost no alternative suppliers. These are metals that can be gotten in other ways, by-product of coal mining. The effect of restriction would yes be an increase in price, but not at all as painful for the rest of the world as chip restrictions are for China.”BEN WOOD, CMO OF INDUSTRY ANALYSIS FIRM CCS INSIGHT:”There has been speculation for some time that China would respond to the escalating sanctions it has faced from the U.S. and others. This is a bold move that will take time to filter through the supply chain but there is little doubt raw materials play a key role across numerous sectors which could cause some disruption over time.”KAZUMA KISHIKAWA, ECONOMIST AT DAIWA INSTITUTE OF RESEARCH: “From what I’ve seen, they haven’t narrowed down the countries targeted by the export restrictions, but since Japan, the U.S., and the Netherlands will naturally be included, I think it’s fair to say that this is a de facto retaliatory measure.” PETER ARKELL, CHAIRMAN OF GLOBAL MINING ASSOCIATION OF CHINA: “It hardly comes as a surprise that China would respond to the American-led campaign to restrict China’s access to microchips. With roughly 90% of global production of these minor metals, China has hit the American trade restrictions where it hurts. It seems to be a pretty fundamental trade negotiation tactic. “Gallium and germanium are just a couple of the minor metals that are so important for the range of tech products and China is the dominant producer of most of these metals. It is a fantasy to suggest that another country can replace China in the short or even medium term.”STEWART RANDALL AT SHANGHAI-BASED CONSULTANCY INTRALINK:”Chinese suppliers would lose customers, and in the short term it would cause supply issues if China did actually deny exports. “To me it doesn’t seem as much of a chokepoint because there’s no difficult technological blocker. It is a logistical supply chain blocker of finding new raw materials suppliers.”MANAGER AT A CHINA-BASED GERMANIUM PRODUCER, WHO DECLINED TO BE NAMED DUE TO THE SENSITIVITY OF THE MATTER: “The number of enquiries from abroad surged overnight after the export control news. Many overseas buyers are asking, mainly from Europe, Japan and the United States, as it may take as long as two months to get licence permit for exports, so overseas buyers will need to stockpile more cargoes in advance to sustain production in at least two months.”Offer prices in the domestic market and the export market have increased to 10,000 yuan ($1,380) per kg and over $1,500 per kg, respectively.” More

SYDNEY (Reuters) – Australia’s fourth largest pension fund suspended new work with PwC Australia on Tuesday, the latest in a string of funds to pause work with the accounting firm over a scandal which first surfaced in January over the misuse of government tax plans.The decision by UniSuper, which manages A$115 billion ($77 billion), means five of Australia’s largest pension funds, managing a total of some A$865 billion, have paused work with PwC, which says it is a “leading adviser” to the sector.UniSuper said it was concerned by recent events at PwC and the fund had suspended new contracts for the “immediate future”.The move comes a day after the “big four” accounting firm sacked eight partners, including its former chief executive, who had yet to leave the firm, in a bid to “re-earn trust”.PwC, which was UniSuper’s internal auditor according to the fund’s 2022 annual report, declined to comment.”While PwC has provided the Fund with an assessment that the relationship we have built over years has not been affected by this situation, we have sought further assurances on this matter,” a UniSuper spokesperson said.Tax authorities revealed in January a former PwC partner who advised the Australian government on anti-tax avoidance laws had shared confidential drafts about the government’s plans with colleagues then used this to drum up business with companies.The scandal has already cost PwC a string of high profile clients, including the Reserve Bank of Australia, and forced the sale of its lucrative government consulting business for A$1.($1 = 1.4972 Australian dollars) More

1. Global stocks muted amid U.S. holiday, light data calendarEuropean and Asian stock markets hovered broadly around the flatline on Tuesday as investors were searching for cues in a light data calendar and a U.S. holiday.At 05:07 ET (09:07 GMT), the DAX index in Germany slipped 6 points or 0.04%, France’s CAC 40 rose by 3 points or 0.05%, and the pan-European Stoxx 600 gained 1 point or 0.23%. In the U.K., the FTSE 100 index edged up by 8 points or 0.11%.The muted trading in the region comes after shares in Asia moved in a flat-to-low range, with a string of weak data prints from major economies denting risk appetite. Japanese stocks, in particular, slid from 33-year highs, in a sign that a recent rally in equities in the country may be stalling.Elsewhere, China’s Shanghai Shenzhen CSI 300 and Shanghai Composite posted small increases, while the KOSPI in South Korea shed 0.35%.Markets on Wall Street, meanwhile, will be closed today for the Independence Day holiday.2. Meta’s Twitter rivalFacebook-owner Meta (NASDAQ:META) is set to unveil its answer to Twitter later this week, according to a listing in the Apple App Store, piling pressure on Elon Musk’s social media company to retain users who have become disgruntled over the billionaire’s management of the business.Meta’s new service, Threads, will launch on Thursday. The “text-based conversation” app, which will be directly linked to Meta’s mega-popular photo-sharing platform Instagram, claims that it will be place “where communities come together to discuss everything from the topics you care about today to what’ll be trending tomorrow.”The release of Threads could prove to be yet another challenge for Twitter. Users have already begun to seek alternatives to the platform in response to controversial decisions taken by Musk, who bought the company for $44 billion in October.Most recently, Musk announced that limits will be placed on the number of posts that can be viewed, saying it was necessary in part to “address extreme levels of data scraping.” The decision was widely slammed by users, many of whom pay monthly fees for increased prominence on the site.3. China curbs exports of semiconductor metalsChina has restricted access to exports of two crucial minerals used in the creation of computer chips, in the latest salvo in the war over semiconductors between Beijing and the West.According to China’s Ministry of Commerce, the minerals gallium and germanium will be subject to unspecified export controls starting next month. The U.S. has said the metals are crucial in the production of microchips, military equipment, and communications.In a statement, the Chinese ministry said the measure will help protect “national security and interests.”Meanwhile, the Wall Street Journal reported on Tuesday the U.S. is also preparing to place restrictions on Chinese companies’ access to cloud computing services, including those of Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).4. Supply cuts push up oilOil prices climbed on Tuesday, as traders weighed increased supply cuts by key exporters Saudi Arabia and Russia against signs of weakening global economic activity.At 05:10 ET, U.S. crude futures traded 0.70% higher at $70.49 a barrel, while the Brent contract added 0.74% to $75.39 per barrel.Saudi Arabia announced on Monday it will extend its recently announced 1 million barrels per day cuts to August and potentially beyond, while Russia also said it will trim its oil exports by 500,000 bpd.However, any gains are likely to be limited with U.S. markets on holiday.5. RBA keeps interest rates steadyThe Reserve Bank of Australia has decided to maintain its cash rate at an 11-year high of 4.10% on Tuesday, as it attempts to gauge the impact of the 400 basis points of hikes since last May on the broader economy.But Australia’s central bank flagged that further tightening may still be needed to bring down elevated price growth. Inflation rose by 5.6% on an annual basis in May, according to official data, although this was slower than a recent peak of 8.4% in December.”Inflation is still too high and will remain so for some time yet,” warned RBA governor Philip Lowe in a statement.The RBA is one of several central banks to embark upon a campaign of aggressive borrowing cost increases recently; the trend that has been a major driver of trading sentiment throughout 2023. More

BEIJING (Reuters) – China’s appointment of financial technocrat Pan Gongsheng to a top political post at the central bank points to growing concerns within the country’s leadership over systemic risks in its sprawling financial sector, policy insiders and analysts said.Pan, who came to prominence fighting capital outflows, will be in position to take over the top job at the People’s Bank of China (PBOC) when Governor Yi Gang steps down, two policy sources told Reuters.The central bank did not immediately respond to Reuters’ request for comment. Pan, central bank deputy governor since 2012 who turns 60 this month, is not expected to deviate from China’s measured pace of policy easing to support the recovery, analysts said. He has forged a reputation as a risk averse central banker, playing a key role in enforcing several crackdowns on perceived financial threats in the past decade. His appointment comes as China tries to ward off major challenges to its financial stability from about $9 trillion of local government debt and a downturn in the property sector, which accounts for roughly a quarter of economic activity.”He will be able to implement key financial policies from the top to cope with economic uncertainties,” said a source involved in policy discussions who preferred not to be identified due to the sensitivity of the matter.”His professional ability will help safeguard the bottom line of systemic financial risks, especially as the property sector is slowing, and fend off a big systemic crisis.”In 2016, Pan also took on the role of China’s top foreign exchange regulator, managing the world’s largest foreign exchange reserves of around $3.2 trillion. He is known for taking a tough stance against currency speculators and was also involved in state banking reforms, tightening property market and fintech regulations, and in banning cryptocurrencies.In a speech in late May, Pan spoke at length about preventing and resolving financial risks as an “eternal theme,” calling for better coordination between regulators in the context of a “complex and ever-changing external environment.” It is not immediately clear how Pan will look to make an impact, but PBOC watchers expect him to steer policy to support the economy, even as the central bank has limited room to manoeuvre, and use its macro-prudential rules to curb risks. “Pan’s appointment will help maintain policy continuity and stability, as we face pressures internally and externally,” said Gu Tianyong, an influential economist at the Central University of Finance and Economics in Beijing. In an unexpected move, the ruling Communist Party appointed Pan as the central bank’s party secretary on Saturday, taking over from Guo Shuqing. The Wall Street Journal, citing people familiar with the matter, said the move was a prelude to replacing Yi.Yi’s predecessor Zhou Xiaochuan also held the governor and party secretary roles simultaneously. If confirmed, Pan, who did post-doctoral research at Cambridge University and was a senior research fellow at Harvard University, will have a consolidated position of power, albeit in an institution reporting into new regulators.China has taken a series of steps this year to tighten party control over the country’s vast, but largely closed, financial system, including plans to set up the Central Financial Commission to oversee the PBOC and other financial regulators.Zhou and Yi introduced pro-market reforms during their mandates, but the new structure limits PBOC’s policymaking abilities and fits better with Pan’s focus on risks, analysts said.MEASURED EASINGThe world’s second-largest economy, under an overall debt burden of three times its output, is struggling to gain momentum due to waning external demand and its failure to lift household consumption, a long-standing weak spot.But on monetary policy, risk-wary Pan is seen likely to support the current path of measured easing steps.”We need to consider how to stimulate the economy, but we should first make sure risks are under control,” said a second policy insider.The PBOC cut its benchmark interest rates for the first time in 10 months in June by a modest 10 basis points, and further easing measures in coming months are expected to be similarly restrained, especially as credit demand remains subdued.”The room for monetary policy easing is limited and the effectiveness faces many constraints,” said Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science. More

UK supermarket chain J Sainsbury has provided further evidence that food price inflation is easing, as the group reported an almost 10 per cent increase in sales.“Food inflation is starting to fall and we are fully committed to passing on savings to our customers,” Sainsbury’s chief executive Simon Roberts said in a trading update on Tuesday. “Prices on our top 100 selling products are now lower than they were in March.”Households are facing the biggest squeeze in living standards since the 1950s. Inflation remained at 8.7 per cent in May, according to official figures, while mortgage borrowing costs have risen sharply. Data provider Kantar published figures last week showing food price inflation had slowed for a third consecutive month, although it remained a big factor in overall inflation. The comments by Roberts echo those of Tesco chief executive Ken Murphy who last month said there were “encouraging” signs that inflationary pressures were easing.Sainsbury’s on Tuesday reported a 9.8 per cent increase in like-for-like sales, excluding fuel, for the three months to June 24, driven by volume growth rather than price increases, the company said. Grocery sales rose 11 per cent, with general merchandise up 4 per cent, ahead of analysts’ expectations. Roberts warned that although food price inflation was coming down, prices were “not going back to where they were because the cost of producing food is clearly elevated from where it was a year or two ago”. Labour costs are up 10 per cent year on year, he added. Food prices were falling most in fresh food, where they had risen the most over the past year or so, but inflation was more persistent in other categories. Roberts again rejected claims that supermarkets were “profiteering” on food prices, saying profit margins of less than 3 per cent were at their lowest “for a number of years”.The group kept its forecast of underlying profit before tax of between £640mn and £700mn for the year unchanged. Asked who might be benefiting from surging inflation, Roberts said: “No one wants inflation at this level. Customers don’t want it. No business wants it. Clearly the government doesn’t want it.” More

SYDNEY (Reuters) -Australia’s central bank on Tuesday held interest rates steady saying it wanted more time to assess the impact of past hikes, but reiterated its warning that further tightening might be needed to bring inflation to heel.Wrapping up its July policy meeting, the Reserve Bank of Australia (RBA) kept its cash rate at an 11-year high of 4.10%, having lifted rates by 400 basis points since May last year, in its most aggressive tightening cycle in modern history to tame inflation.Markets had been leaning towards a pause, but economists were split on the outcome, with 16 out of 31 polled by Reuters expecting a hike and the rest forecasting the bank to stand pat. [AU/INT] . [AU/INT] The Australian dollar dipped 0.4% to $0.6647, but has since recouped all the losses to trade at $0.6682 as traders expect at least one more hike in the current cycle. The market has now shifted to imply around a 50-50 chance of a hike to 4.35% in August, while scaling back the risk of a further move to 4.6%.In Tuesday’s policy statement, RBA Governor Philip Lowe said that higher interest rates are working to establish a more sustainable balance between supply and demand in the economy. “In light of this and the uncertainty surrounding the economic outlook, the Board decided to hold interest rates steady this month.”The RBA chief pointed to uncertainties about the outlook for household consumption and regarding the global economy. However, Lowe repeated previous warnings that some further tightening of monetary policy might be required as “inflation is still too high and will remain so for some time yet.” “Today’s decision to pause rate hikes shows the RBA has realised the economy is on a knife’s edge and that it must pivot to achieve its goal of threading a ‘narrow path’ through current economic conditions,” said Stephen Smith, Deloitte Access Economics partner. The RBA first paused in April and then surprised markets by resuming its hikes both in May and June, a hawkish tilt that led many economists to see a higher chance of a recession this year given anaemic economic growth. Economic data over the past month have been mixed. A sharp cooling in a volatile monthly inflation reading argued for a pause, but a blockbuster jobs report and strong retail sales point to some work to be done by the RBA. Sustained gains in housing prices, improving housing finance and a strong rebound in building approvals suggest financial conditions might have not been as tight as desired.HIKE IN AUG?Indeed, many economists see a decent chance of a hike in August after the release of the second-quarter inflation figures in late July, which is likely to reveal inflation remained sticky. “With the labour market still very tight, house prices rebounding strongly and unit labour costs surging, another 25bp rate hike in August still looks likely and we suspect the Bank will follow that up with another one in September,” said Marcel Thieliant, a senior economist at Capital Economics.The central bank currently forecasts headline inflation – which was running at 7% in the first quarter – to return to the top of its target range of 2-3% by mid-2025.Global policymakers are still grappling with relatively high inflation despite sweeping rate increases for more than a year. Both the Federal Reserve and the European Central Bank are almost certain to hike by a quarter-point this month, which could pressure an already soft Australian dollar. Lowe is also set to find out this month whether he would be reappointed for a second term. The governor, a four-decade veteran at the bank, has been under a cloud since repeatedly saying in 2021 that interest rates would not rise until 2024, only to reverse course and hike in mid-2022 when inflation unexpectedly surged. More

SHANGHAI/BEIJING (Reuters) – China’s major state banks have lowered their dollar deposit rates for the second time in a month, seven banking sources with direct knowledge of the matter said, as authorities have stepped up efforts to arrest a slide in the yuan.Interest rates offered by the “Big Five” state-owned lenders on most dollar deposits are now capped at 2.8%, down from 4.3% previously, said the people, who declined to be named as they were not authorised to speak to the media.The People’s Bank of China, which typically issues guidance on dollar deposit rates to state banks, did not immediately comment on the matter.The lenders – Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China (OTC:ACGBF), China Construction Bank (OTC:CICHF) and Bank of Communications – did not immediately respond to requests for comment.Traders and analysts said policymakers, worried that a prolonged yuan slide could both discourage foreign investment and spur an outflow of funds abroad, want to bring down dollar deposit rates – which typically track offshore rates – towards domestic rates, which have been cut to aid the flagging economy.The yuan is one of the worst-performing Asian currencies this year, knocked nearly 5% lower against the dollar by a slowdown in China’s economy and widening yield differentials with the United States. “It shows that the move is to narrow the interest rate advantage of the U.S. dollar in onshore markets,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.”It is likely aiming to prevent stockpiling dollars and encouraging (foreign exchange) settlements.”The lower rates could both discourage households from putting savings into higher-yielding dollar deposits and nudge Chinese firms, especially exporters, to settle foreign exchange receipts in yuan.The new rates came into effect on July 1, said two of the sources, adding that some of the banks were not offering rates above the 2.8% cap for large deposits. Banks typically offer higher rates to deposits exceeding $1 million.The PBOC, China’s central bank, has recently moved to brake the yuan’s slide against the dollar, setting stronger-than-expected daily fixings for the currency, while state banks have also been spotted selling dollars on occasion in both the onshore and offshore markets, trading sources said.The latest cut in dollar deposit rates was the second in barely a month. In early June, sources told Reuters the big state banks had lowered such rates as much as 100 basis points from the previous ceiling of 5.3%.Sources also told Reuters last week that the central bank has surveyed some foreign banks about the interest rates they offer to their clients for dollar deposits.The PBOC said last Friday it would continue to keep the yuan basically stable and guard against the risk of large exchange rate fluctuations.Some currency traders also said the cuts in dollar deposit rates would ease pressure on commercial lenders’ net interest margin, as banks’ dollar deposit rates had risen above lending rates before the recent adjustments.The latest PBOC data showed that the weighted-average interest rate on large dollar deposits stood at 5.67% in March, up 4.15 percentage points from a year earlier, while the weighted-average dollar lending rate was up only 3.74 percentage points at 5.34%. More