Aurelia Butler

WELLINGTON (Reuters) – As New Zealand Prime Minister Chris Hipkins prepares to lead a trade delegation to China seeking greater access for both the country’s primary exports and emerging sectors such as gaming, producers are diversifying away from their biggest market. Beijing’s attempts to punish neighbouring Australia through trade for perceived intransigence over issues from the origin of COVID-19, to spying and human rights, has been noted in New Zealand. The percentage of New Zealand’s goods exports going to China dropped to 29% in the year to April from 31% in 2022, the first time since 2015 that the share of exports to China has dropped.Wellington has historically taken a more conciliatory approach towards China than Australia or its other Five Eyes security partners. It signed an upgraded Free Trade Agreement during the pandemic and when former Prime Minister Jacinda Ardern met with President Xi Jinping in November last year, the Chinese leader noted New Zealand’s independent foreign policy. But in recent years, New Zealand has become increasingly vocal on issues including human rights, the international rules based order and potential militarisation of the Pacific. This month, it signed a joint statement of Western allies condemning economic coercion through trade.“The heightened implication of the geopolitical landscape is huge,” said Mathew Talbot, general manager for Alliance, one of New Zealand’s largest beef and sheep meat exporters. “Building of North Asia (markets) and the building of Southeast Asia (markets) is really, really crucial because it’s de-risks that dependency,” Talbot said.After New Zealand signed on to a joint statement condemning economic coercion, without citing the agreement directly, Chinese Ambassador to New Zealand Wang Xiaolong tweeted: “More often than not, those that seek to sanction other countries to stunt their progress to no avail have only hurt themselves.”He did not respond to a request for comment.CALLS FOR DIVERSIFICATIONThere is no expectation that New Zealand will stop selling to China. China needs the food and fibre that New Zealand produces and is prepared to pay for it. But calls for diversification are growing, driven on two fronts. Firstly, fears the market could become more challenging if geopolitical challenges heat up, but secondly, by a growing number of small companies that see markets in Australia and North America as offering better opportunities as they will pay for premium and sustainable products. Hipkins, who heads to China on a trade mission for six days on Sunday, is aware of the need to seek new buyers. The government has signed seven new or upgraded free trade agreements as “part of our really concerted effort to diversify our overall market shares,” Hipkins told media last week after announcing the trip.At the same time, he said China was a valuable partner.Twenty-nine businesses leaders from a range of sectors will accompany Hipkins, who also has visits with the President Xi Jinping, Premier Li Qiang, and the Chairman of the Standing Committee of the National People’s Congress Zhao Leji, on his visit.“I think we’ll have a fairly broad ranging conversation (with Xi Jinping) … It’s an opportunity for me to underscore the importance of the New Zealand-China relationship,” said Hipkins on Monday at his weekly press briefing. A Chinese embassy spokesperson said in an email the bilateral relationship has come a long way with many firsts created, greatly benefiting the two countries. They hoped the Hipkins visit would result in a deepening of mutual understanding and trust between the two countries.“China is going to be a really, really fundamental trading partner for this country for the foreseeable future,” Pete Chrisp, chief executive of government funded international business development agency New Zealand Trade and Enterprise. “But there is some hedging around other markets…The market diversification is driven by both the need to find premium consumers who are going to pay for sustainability credentials, but also they’ll be making their own geopolitical assessment and they’ll be doing the ‘China And’ not “China Or’ (strategy).” More

Habeck’s officials have four times rejected new applications from German companies for their investments in China, totalling 101 million euros, the report said. Four extension applications worth 554 million euros were not permitted and new applications amounting to four billion euros were not accepted for decision. In addition, the ministry postponed applications for extensions worth 282 million euros because the companies had possible business relationships in the Uyghur province of Xinjiang.As a result, the number of newly approved applications for state guarantees in China transactions fell to nine last year from 37 in 2013. According to the report, only five permits have been granted this year. The total guarantees approved since Habeck took office amount to almost 780 million euros, plus extended approvals for investment guarantees with a volume of 1.1 billion euros.Habeck is a member of the green party and took up his current positions in December 2021 under the then incoming chancellor Olaf Scholz.Last November, Habeck changed course in regard to German-Chinese economic policy, pursuing a so-called “risk reduction approach.”($1 = 0.9129 euros) More

Germany has signed another long-term deal to import more US liquefied natural gas, as Berlin moves to replace Russian energy in its economy amid Moscow’s war in Ukraine.SEFE, or Securing Energy For Europe — the company born out of Berlin’s effective nationalisation of the German operations of Russia’s state-owned Gazprom — will purchase 2.25mn tonnes a year of the super-chilled gas from Venture Global LNG, an American developer of export terminals along the Gulf of Mexico.The 20-year duration of the supply contract is an indication that Germany — which began importing LNG just seven months ago — expects gas consumption will endure in its economy despite a goal of cutting 95 per cent of net carbon emissions by 2045. SEFE is entirely owned by the German state.Egbert Laege, SEFE’s chief executive, said the deal marked “another important step on our mission to secure energy for European customers” and would “contribute to the further diversification and sustainability” of the continent’s supplies.Venture Global chief executive Mike Sabel hailed the “strategic partnership” with Germany, saying his company was “honoured to support a key US ally”.The companies did not disclose the price at which the gas — equivalent to about 5 per cent of Germany’s demand — would be sold.The deal is Germany’s second 20-year agreement with Venture Global, following one for 2mn t/y signed by utility EnBW, which is largely owned by the south-west state of Baden-Württemberg. The agreements will make Venture Global Germany’s largest LNG supplier.Germany’s RWE last year agreed a deal to source Qatari LNG for 15 years — significantly shorter than the Gulf state sought, having signed deals with Chinese companies in recent months for as long as 27 years. Norway’s Equinor this week also signed a 15-year deal with US-based exporter Cheniere Energy.US LNG exports to Europe soared last year as the energy crisis deepened and gas prices rose, with shipments of more than 40mn tonnes easing supply shortages. The extra flows have helped Europe build ample gas stocks as it prepares to enter the 2023 winter.Germany, which spent decades building an industrial sector reliant on once cheap Russian gas, has been especially exposed to supply losses after Moscow’s full-scale invasion of Ukraine and mysterious explosions last year that demolished parts of the Nord Stream pipeline system from Russia.Before the energy crisis Germany was the only big economy in Europe without LNG import capacity, such was its reliance on pipeline gas from Russia.

But in the past 18 months it has fast-tracked a number of floating LNG import facilities. The country has taken in a total of 2.4mn tonnes of LNG since December, according to Refinitiv, with more than 70 per cent coming from the US.The lower forty-eight states of the US only began producing LNG in 2016, but Gulf coast projects under construction from companies including Cheniere, Venture Global and ExxonMobil will make the country the world’s largest exporter by far. US exporters have signed contracts for future supply amounting to more than 70mn t/y since the start of 2021, according to S&P Global.Just weeks after Russia’s latest invasion of Ukraine last year, US President Joe Biden and European Commission president Ursula von der Leyen announced a strategic pact under which EU companies would seek to guarantee more demand for American LNG — a bid to spur construction of more export capacity.Venture Global said the LNG would be exported from a new plant, CP2, at Calcasieu Pass on the Louisiana coast, that it hopes to begin building later this year. The company’s first plant began producing at Calcasieu Pass in January 2022 and in April Venture Global moved ahead with another project that will eventually ship 20mn t/y of LNG. More

Rishi Sunak did his best to sound reassuring after the Bank of England hiked interest rates to 5 per cent and sent a chill through a country already facing rising mortgage costs and serious cost of living pressures. Vowing to work with the BoE to “root out inflation”, the prime minister on Thursday backed Andrew Bailey, the central bank’s embattled governor, adding: “These things are tough and require difficult decisions.” “I’m totally, 100 per cent on it,” he told a press conference at an Ikea distribution centre in Kent. “It’s going to be OK and we are going to get through it.”Seldom have the decisions taken at Threadneedle Street had such a direct bearing on the potential outcome of a future general election. Sunak is expected to go to the country in the summer or autumn of 2024.One of the prime minister’s five pledges is to halve inflation to 5.4 per cent by the end of the year, tying his fortunes even more closely to decisions taken by the BoE’s monetary policy committee.On three separate occasions on Thursday, Sunak’s spokesperson declined to say Bailey was doing a good job, but said: “He continues to have the prime minister’s support.”Some Conservative MPs have criticised the central bank governor for failing to get a grip on inflation earlier, an alleged tardiness that some Tories believe could cost them their seats and potentially next year’s election.

Sir Jake Berry, a former Tory party chair, has accused the BoE of being “asleep at the wheel” and has warned that a “mortgage bomb” is primed to explode the finances of many households.Andrea Leadsom, former Tory business secretary, has said the BoE has done “too little, too late” to tame inflation, while Jacob Rees-Mogg, another former cabinet minister said the central bank had “failed” on inflation.However both Sunak and chancellor Jeremy Hunt remain publicly and privately supportive of Bailey, conscious of the potential damage to market confidence if any rift was seen to open up.Hunt has told colleagues he is “100 per cent supportive” of Bailey and that the best thing the government can do in such tough times is “to do no harm” when it comes to fiscal policy.“Jeremy and Rishi are clear — we will back the bank, said one senior Tory. “They will do what it takes to make their job easier not harder. It’s a bigger challenge than we expected but sound money is a basic Tory tenet.”The Conservatives have had first-hand experience of how the markets can be spooked when politicians challenge the BoE’s independence. Liz Truss in her 2022 leadership campaign talked about changing the Bank’s mandate.Truss’s supporters criticised Bailey for failing to tighten monetary policy to counter inflation, while at the same time backing a £45bn fiscal loosening in her disastrous “mini” Budget last September. Senior Tories reject out of hand any suggestion the government might remove the governor and on Thursday Hunt expressed his “full support” for Bailey after he raised rates to 5 per cent.“Businesses and households should have confidence that the government and the Bank of England understand the challenges they face from rising prices, and be in no doubt that we will act together to bring inflation under control,” said Hunt.

Sunak argues that economic growth must be founded on low inflation. He acknowledged on Thursday that the tax cuts demanded by many Tory MPs ahead of the election would be hard to justify until prices came under control.While the opposition Labour party says it would be more attentive to the problems facing households through higher mortgage bills, it has not proposed any fiscal intervention to soften the pain.Sunak has also ruled this out and has tried to switch the focus on to whether other economic actors — notably banks and supermarkets — are treating struggling households fairly.Hunt will meet mortgage lenders on Friday to urge them to “live up to their responsibilities”, while Sunak reopened a familiar, tabloid-friendly critique that supermarkets might be ripping off their customers.“We’re looking at the supermarkets making sure that they’re behaving responsibly and fairly when it comes to pricing all those products, to make sure that it eases the burden on your weekly shop,” he said. More

The Bank of England came out swinging at inflation — and, implicitly, at its own critics — when it raised interest rates on Thursday by twice what investors had expected. That markets took the move largely in their stride is a sign of how serious they believe Britain’s persistent inflation problem has become. The 50 basis point increase — taking the base rate to 5 per cent, its highest since 2008 — and the hawkish tone in its accompanying statement were welcome signs of intent to get a grip on soaring prices. But the BoE needs to do much more to regain the confidence of investors, and households, that it is up to the task.There is no longer much doubt that Britain is an outlier on inflation. While price growth has fallen recently in the US and eurozone, it stayed stuck at 8.7 per cent in the UK last month. One or two upside wage and inflation surprises earlier this year were easier to look beyond, but these have now become a trend. Core price inflation, which excludes energy and food, rose in May to its highest in more than three decades, but is on its way down in America and Europe. The BoE can no longer hide behind global price pressures. Britain has its own inflation problem, and misjudgments by the bank’s Monetary Policy Committee have contributed to it. A priority for central bankers over this rate-raising cycle was to prevent a dreaded “wage price spiral”; when high inflation becomes entrenched as rising prices drive up wage demands in a self-reinforcing process. The chance of this occurring in the UK has greatly increased — annual wage growth recently hit 7.2 per cent — as the BoE has consistently underestimated the risk of price growth becoming persistent. Indeed, in early March, its governor Andrew Bailey signalled that interest rates, then at 4 per cent, were close to their peak. Central bank governors embody their institution, and Bailey has too often appeared to be behind the curve rather than ahead of it.Britain’s extra-tight job market has not helped. High levels of inactivity and changes to immigration rules post-Brexit have exacerbated staff shortages, which have added to wage pressures. This is out of the MPC’s control, but its failure to accurately assess the lack of spare capacity in the labour market has only made things worse. The BoE’s recently announced plan to review its forecasting processes will be important to avoid similar errors in the future.Faith in the bank’s understanding of the economy is crucial to manage the rate and inflation expectations of investors, businesses and households. With each missed forecast, that has started to evaporate. A BoE survey showed public satisfaction in the institution had fallen to an all-time low last month. Financial markets have also nudged their end-of-year rate expectations up to 6 per cent — from about 4.5 per cent at the start of the year. Some analysts do not think they will need to go that high. Either way, markets are likely to price higher for now — representing a premium for the BoE’s past errors — and this influences how commercial banks price mortgages.The BoE’s bold rate rise, coupled with Bailey’s pledge on Thursday to do “whatever is necessary”, was a step towards getting inflation under control. But it unfortunately means inflicting more pain on households and businesses and potentially even pushing the economy into a recession — Britain’s cost of living crisis is broadening out into a cost of borrowing crisis.In coming weeks the MPC, and particularly the governor, will need to convince markets that the bank is resolute. Further rate rises will need to remain on the table. Its next meeting and quarterly monetary policy report in August will have to show it understands its errors, and has a handle on Britain’s inflation problem. The credibility of the institution is at stake. More

For the Bank of England and its under-fire governor Andrew Bailey, the central bank’s half-percentage-point rise in interest rates was an attempt to finally get on the front foot in the fight against high inflation.The BoE aimed to banish its timid image on curbing price rises, in which it appeared to follow rather than lead events. The central bank instead sought to be decisive in its efforts to get a grip on inflation.The change of tack on Thursday was clear both in the BoE Monetary Policy Committee’s decision on interest rates and its explanations. The MPC raised rates more than financial markets had expected, to 5 per cent. It made no attempt to cushion the blow for households, with Bailey giving the tough message that despite the pain looming for households with mortgages, “if we don’t raise rates now it could be worse later”.

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And Bailey and his fellow rate-setters did not push back against markets’ predictions that the BoE benchmark interest rate will peak at about 6 per cent. Chancellor Jeremy Hunt weighed in behind the governor, saying the BoE had his “full support” and needed to tackle inflation “relentlessly”.Senior figures in the Treasury expect inflation to come down from 8.7 per cent in May to the BoE’s 2 per cent target within 18 months. The problem for the BoE, as its officials acknowledged in private, is that this is not the first time the central bank has attempted to restore its credibility in fighting inflation.The past two-and-a-half years have been very difficult for the BoE, especially as what was a global inflation problem is now lasting longer in the UK than elsewhere. The central bank’s actions and communications have regularly looked far too complacent about price rises since the start of 2021. BoE officials scoffed at Andy Haldane, the central bank’s then chief economist, after he warned in February 2021 that an inflationary “tiger” was stirring in the UK economy.Officials refused to halt the BoE’s quantitative easing unleashed during the Covid pandemic when it became inappropriate as price rises accelerated in the summer of 2021. Taking his cue from the US Federal Reserve, Bailey spoke of “transitory” inflation for much of that year. In October 2021, the BoE hinted it was about to raise interest rates, then backed off. When it did start to raise rates that December, Bailey talked for months about walking along a “narrow path” between curbing high inflation and unleashing a recession.The central bank’s forecasts have persistently underestimated the peak and duration of the period of high inflation. For most of 2022 the BoE warned about the possibility of a wage-price spiral — when companies increase the price of their products in response to rising costs, prompting workers to demand pay rises in a repeating, self-fulfilling process — without noticing it had already started.The BoE finally acknowledged this error last month, but still managed to be overly optimistic in its forecasts for wages and prices before Bailey admitted inflation was taking “a lot longer” than hoped to come down. When some of these errors were pointed out to the governor in a testy news conference in May, the governor rounded on journalists for “using the language of blame”. Over time, MPs and the public have noticed the BoE’s mis-steps. With mortgage rates rising back to levels recorded in the aftermath of Liz Truss’s disastrous “mini” Budget, the central bank’s survey of public attitudes this month found a record level of dissatisfaction with its efforts to curb inflation.Worse, an Ipsos opinion poll this week showed most people surveyed thought BoE decisions had contributed to the soaring cost of mortgages — with more pinning the blame on the central bank than the government, Brexit or Russia’s full-scale invasion of Ukraine. The question after Thursday’s surprise interest rate rise is whether the BoE has restored its credibility or whether this is viewed as a panic move, reflecting its weakness. Bailey and the BoE will be pleased with market reaction, which was muted in the afternoon following the rate decision. The value of sterling and yields on government bonds barely changed, with market expectations for the peak in interest rates also registering little movement. But not all the commentary after the MPC meeting was favourable. Julian Jessop, fellow at the Institute of Economic Affairs, a think-tank, said: “A more credible central bank might have been able to leave interest rates on hold today.”Henry Cook, senior economist at MUFG, the investment bank, said: “The decision to move back to a larger [interest rate] increment is a tacit admission that policymakers have got it wrong on inflation.” Others warned that the BoE might now be willing to kill the economy in a bid to restore its own standing. Martin Beck, economic adviser to the EY Item club, said: “If the MPC’s concern about regaining ‘credibility’ causes policymakers to focus too little on what’s to come and too much on what’s already passed, monetary policy could be tightened unduly, pushing the economy into an unnecessarily substantial downturn.”

However, much of the commentary by economists was neutral about Bailey and the BoE, with analysts preferring to plump for a figure for how high rates are likely to go. There were some positive reviews that raised the possibility that the BoE might have got it about right, just as Bailey did during the pension fund crisis last October following Truss’s “mini” Budget. Ellie Henderson, economist at Investec, said: “Today the Bank of England successfully managed to increase the bank rate by 0.5 percentage points without triggering panic in markets and a sense of ‘When will this end?’, which was a concern of ours heading into the [MPC] meeting.”Jamie Niven, senior fund manager at Candriam, the asset manager, added: “While a hawkish surprise, [the rate rise] may result in a return of credibility to the bank.”Bailey and the other eight MPC members will hope more people come round to this view in the coming weeks. More

Rich countries agreed in 2021 to rechannel some of their unused IMF special drawing rights, an international reserve currency, to poor countries.The plan was to make $100 billion available by lending the SDRS back to the IMF so that it could in turn lend the funds at below-market rates to low-income countries.”We have reached $100 billion on lending of SDRs. That was our target from 2021, we have achieved that target and 60 billion of those are already in the Fund working for countries,” Georgieva said on a panel.Reaching the target was one of the main announcements at the Paris summit focused on how to help low-income countries cope with debt burdens while making more climate financing available. More