Aurelia Butler

One of China’s biggest water-heater manufacturers said its US clients had demanded it move production out of China in response to rising geopolitical tensions.Lu Yucong, chair of Guangdong Vanward New Electric, blamed American and European protectionism for the shift. The move highlights how not just foreign companies but also Chinese groups are being forced to change supply chains.Multinationals are reassessing their global operations after Russia’s invasion of Ukraine, the pandemic and growing tensions between Beijing and Washington. They are also increasingly concerned about China’s relations with Russia and the threat of sanctions.“[American companies] . . . had specific requirements that we build factories outside of China, in countries such as Vietnam and Thailand, to continue co-operation with them,” said Lu.“It’s been getting increasingly obvious over the last two, three years. Not only the US but also European countries are carrying out acts of deglobalisation. It’s protectionist.”Lu said rising tariffs on Chinese-made goods were also hitting the company, which has annual revenues of around $1bn.“Clients asked me to move production out of China as we all felt like costs couldn’t be lowered any further [due to rising tariffs],” he said. “That’s how we lose our competitive edge and the buyers cannot accept it as well.”Vanward decided to shift some of its factories from an industrial region in southern China to Egypt and Thailand, despite operations being more difficult.“South-east Asia is an under-developed region . . . like China two decades ago. Problems like officials using their position for personal gain exist there,” Lu said.“Labour costs may be lower in Thailand, but the supply chain there is not as comprehensive as that in China,” he added. “The purpose of the move is mainly to avoid risks related to China-US trade friction.”Companies such as clothing retailer Mango have said they are planning to diversify their supply chain outside China in the past year.Chinese companies are also proposing new production bases in south-east Asia, including fabric manufacturer Luthai Textile and tyremaker Jiangsu General Science Technology.At the Global Sources Consumer Electronics Trade Show in Hong Kong last week, some Chinese manufacturers posted flags above their booths, advertising to buyers that they had factories in Vietnam or other countries.One battery manufacturer at the show said his European clients were paring back orders as they were concerned about China’s relationship with Russia following the Ukraine invasion. “There should be many more buyers here,” he said.

More companies with a substantial presence in China are contemplating similar changes. In its 2023 business climate report, the American Chamber of Commerce in China said 24 per cent of surveyed members were considering or had started moving production capacity out of the country, a 10 per cent rise over the year before.The head of a Hong Kong-based, China-focused factory-sourcing agency said his western clients were “aggressively” looking to relocate parts of their supply chain outside the mainland, leaving factories in China on the back foot.“I used to deal with abrupt behaviour,” he said. “Now [factory owners] are overly friendly, maybe overpromising. The atmosphere has changed, the ball is in our court right now. They understand the climate.”Additional reporting by Gloria Li in Hong Kong More

China is starting to target western interests in the country after five years of snowballing trade and technology restrictions spearheaded by the US under presidents Donald Trump and Joe Biden.Over the past two months, Chinese officials have slapped new sanctions on US weapons companies Lockheed Martin and Raytheon, launched an investigation into US chipmaker Micron, raided US due diligence firm Mintz and apprehended local staff, detained a senior executive from Japan’s Astellas Pharma group and hit London-headquartered Deloitte with a record fine. President Xi Jinping’s administration is now considering curbing western access to materials and technologies critical to the global car industry, according to a commerce ministry review.The response to what Beijing has described as a US-led “technology blockade” reveals Xi’s strategy of narrowly targeting industries and companies with little risk of damage to China’s own interests.“China has not abandoned its strategy of restraint to shift to a new position of wide-ranging retaliation, but they’re going to surgically select companies to demonstrate their frustration,” said Paul Haenle, a former China adviser to US presidents George W Bush and Barack Obama.However, the decision to conduct raids and detain staff from foreign companies has raised the spectre that Beijing will escalate hostage diplomacy if relations with the west deteriorate.

China has recently launched an investigation into US chipmaker Micron © GDA/AP

The Mintz and Astellas cases have sparked an urgent review of employee safety and the immediate suspension of some travel plans to China, according to two people from foreign risk consultancy groups.“This has been a wake-up call for the industry,” one of the people said. “It is hard for the due diligence players — the levels of paranoia in China are so high — but it also affects ‘blue-chip’ service firms and outfits like Bain, McKinsey and Boston Consulting Group.”Experts said Japan was particularly vulnerable to Beijing’s hostage diplomacy because it lacks a sophisticated intelligence agency of its own and lacks tools to negotiate the return of its own citizens.Since China passed a counter-espionage law in 2014, 17 Japanese nationals have been arrested. Five of them, including the Astellas employee, remain in detention, according to Japan’s foreign ministry.In February, China imposed new sanctions on Lockheed and Raytheon, two of the biggest US defence companies. The move reflected Chinese opposition to weapons sales to Taiwan but had little commercial impact as the groups were not allowed to sell military equipment to China.Beijing’s investigation into Micron, launched last month on national security grounds, is viewed as the clearest signal of Xi’s retaliation gathering momentum.Dexter Roberts, a senior fellow at the Atlantic Council, a Washington think-tank, said he was surprised by Beijing’s restraint given the US-led campaign to cut off China from core chipmaking technologies had “struck right at the heart of China’s global advanced technological ambitions”.Despite Beijing’s anger, Xi’s economic planners are wary of undermining efforts to use foreign investors to help restart the Chinese economy after the pandemic. This means Beijing is expected to refrain from acting against companies and industries seen as critical to economic recovery.“It all goes back to the fact that China is facing a lot of challenges this year, particularly on the economic side,” Roberts said. “The last thing they need to do is be distracted by an even more hostile relationship with the US.”Following the finance ministry’s record $31mn fine on Deloitte over audit deficiencies, experts said they expected pressure to increase on the Big Four accounting firms.Cheng Lin, an accounting professor at China Europe International Business School in Shanghai, said while audit quality had long been problematic at foreign and local firms, the “main drivers” were Beijing’s worries about data and national security.The carmaking sector is also braced for the outcome of a 2022 commerce ministry review of technology export restrictions, including possible controls on some rare earth materials and lidar technology used in mapping for driverless cars.

Tu Le, founder of Sino Auto Insights, a Beijing consultancy, said any decision by China to “weaponise their dominance in mining and refining” of materials used by the electric vehicle industry would create “immediate anxiety for the US, European, Japanese and Korean governments”.The restrictions could also be used as leverage to bargain for a loosening of semiconductor controls, said Arthur Kroeber, head of research at Gavekal Dragonomics, a Beijing consultancy.Soo Kim, a former CIA analyst and Asia expert, expects Beijing’s retaliatory moves to expand because there appears to be no near-term fix to US-China relations.“With so many pieces in the US-China competition, Beijing has many levers it can pull,” she said, “including exerting pressure on US allies and partners whose economies are dependent on trade with China.”Additional reporting by Primrose Riordan and Gloria Li in Hong Kong More

New home prices in March edged up 0.5% month-on-month after a 0.3% rise in February, marking the fastest pace since June 2021 and the third consecutive monthly rise, according to Reuters calculations based on National Bureau of Statistics (NBS) data.Prices in annual terms showed the smallest drop since June 2022, down 0.8% in March after a 1.2% decline in February, the 11th month of declines on an annual basis.”The housing price index shows a trend of stabilization and recovery, fully indicating the overall real estate is out of last year’s trough,” said Yan Yuejin, an analyst at the Shanghai-based E-house China Research and Development Institution.Strong home sales in March drove up an improvement in house prices, said Yan.The property sector, accounting for roughly a quarter of China’s economy, was hit hard last year as a regulatory crackdown on developers’ high debt levels snowballed into a financing crunch, stalling construction on housing projects. Some buyers boycotted mortgage repayments, further weakening consumer sentiment amid tough COVID restrictions.Major cities have seen a rebound in home sales over the past month, as pent-up demand was unleashed after China abruptly rolled back COVID curbs in December.Among 70 cities surveyed by the NBS, 64 cities saw an uptick in new home prices in monthly terms, the most cities since May 2019 and up from 55 in February.The increase in house prices was broad-based among all city tiers which all extended their month-on-month gains.However, analysts say it is still too early to tell whether the nascent property recovery will be sustained, because of the uncertainty over consumer confidence.”The property sector recovery should be gradual and bumpy, due to the challenging demographic trend, still-tight financing conditions for troubled developers and policymakers’ long-held stance that ‘housing is for living in, not for speculation’,” said analysts at Goldman Sachs (NYSE:GS) commenting on the data.Last month, more than 50 cities introduced stimulus policies or relaxed some property rules, including subsidies, more housing provident funds and easing home purchase curbs.”The biggest problem in the economy is insufficient demand with increasing deflationary pressure, the continued stabilization of real estate is critical as recent data showing sales growth has slowed,” said Wu Jinhui, analyst at CSCI Pengyuan Credit Rating Limited.”In the second quarter, there is room for policy relaxation on both the supply and demand side, such as a balance sheet improvement for high-quality property firms, smaller down payments and cuts in mortgage rates.”Credit data this week suggested the growth of household medium-to-long term loans, which are mostly mortgages, accelerated in March, in line with improved property transactions.Earlier in April, the central bank released a quarterly survey of urban depositors that showed 17.5% of respondents have plans to buy a home during the next three months, up from 16% in the previous quarterly survey.China will release property sales and investment data for March on Tuesday, along with economic activity data and first quarter gross domestic product (GDP). ($1 = 6.8690 Chinese yuan renminbi) More

(Reuters) – A look at the day ahead in Asian markets from Jamie McGeever.Top-tier Chinese economic data including first-quarter GDP grabs the Asian spotlight this week, as investors across the region and beyond weigh whether the U.S. banking ‘crisis’ is in the rear view mirror or if there’s more serious trouble ahead.The Asian calendar on Monday is light, with only Indonesian trade and Indian wholesale price inflation potentially moving markets. Indonesia’s central bank begins a two-day meeting, and will announce its policy decision on Tuesday. GRAPHIC: Indian WPI inflation (https://fingfx.thomsonreuters.com/gfx/mkt/klvygmbmxvg/IndiaWPI.jpg) Investors will also have the first opportunity to react to two developments over the weekend – a policy steer from China’s central bank chief, and Saturday’s apparent attack on Japanese Prime Minister Fumio Kishida.People’s Bank of China Governor Yi Gang said China can phase out currency intervention by gradually reducing the amount and frequency of its forays into the market, underscoring Beijing’s resolve to boost the yuan’s global presence.Yi also said the central bank will seek to get real interest rates slightly below the potential growth rate.Meanwhile, in Japan on Saturday, bodyguards bundled PM Kishida to safety after a man threw what appeared to be a smoke bomb at him during an election campaign stop at a fishing port in the west of the country. This was an eerie reminder of the assassination of former PM Shinzo Abe last year. GRAPHIC: China economic surprises index(https://fingfx.thomsonreuters.com/gfx/mkt/jnvwylrzovw/USDJPY.png) Figures on Monday are expected to show that wholesale price inflation in India virtually halved in March to a 1.87% annual rate from 3.85%. It was 16% less than a year ago.Investors expect data on Tuesday to show that China’s gross domestic product growth rose sharply in the first quarter after COVID-19 lockdown restrictions were lifted, up 4.0% from a year ago and up 2.9% in the previous three months.Don’t be surprised by an upside event – China’s economic surprises index is at its highest in 17 years. GRAPHIC: Dollar/yen (https://fingfx.thomsonreuters.com/gfx/mkt/zjvqjaookpx/ChinaSurprises.png) The broader tone this week will be set by investors’ stance on the U.S. banking crisis. Or shock. Or blip. The solid recovery in equities and slump in market volatility gauges suggests investors are increasingly sanguine.Some big U.S. banks on Friday reported strong Q1 earnings – JP Morgan shares surged 7.5% – fueling hopes that the policymakers’ bold and swift action a month ago has worked.The S&P 500 and MSCI World Index have rebounded almost 10% from the March low, while euro zone stocks on Friday hit their highest level in 22 years.But complacency would be dangerous. As Morgan Stanley (NYSE:MS) analysts note, U.S. credit growth is shrinking, credit availability for small businesses fell in March at its fastest rate in 20 years, and interest costs are at a 15-year high. Here are three key developments that could provide more direction to markets on Monday:- G7 foreign ministers summit in Japan- India WPI inflation (March)- ECB’s Christine Lagarde speaks in New York (By Jamie McGeever; Editing by Diane Craft) More

WASHINGTON (Reuters) – Japan’s new central bank Governor Kazuo Ueda gave a clear message to policymakers gathered for global finance meetings here over the last week: The country will remain a dovish outlier by keeping interest rates ultra-low – at least for now.Since taking the helm a week ago, Ueda has dropped some hints the massive stimulus of his dovish predecessor Haruhiko Kuroda will eventually be phased out.But discussions over when and how to shift away from the ultra-loose policy will take time, giving Ueda every reason to reassure the world any change won’t happen quickly.”In many countries, inflation is very high or not slowing enough. The important thing is that the situation is quite different in Japan, which I explained at the meeting,” Ueda told reporters on Wednesday after attending a finance leaders’ meeting of the Group of Seven advanced economies, held alongside the spring meetings of the International Monetary Fund and World Bank.Japan’s inflation, now around 3%, will slow back below the BOJ’s 2% target later this year on falling import costs, Ueda told Thursday’s bigger gathering of ministers from the Group of 20, in explaining his plan to keep monetary policy ultra-loose for now.The dovish remarks likely underscore the BOJ’s desire to avoid a repeat of January, when markets anticipating a swifter pivot by the BOJ to tweak to its yield curve control (YCC) policy pushed up long-term interest rates.Under YCC, the BOJ guides short-term rates at -0.1% and the 10-year Japan government bond yield around zero with an implicit cap of 0.5%. With inflation exceeding the BOJ’s target and the cost of prolonged easing increasing, markets are rife with speculation that Ueda will move towards tweaking YCC this year.The 10-year yield is currently a shade below the cap at 0.47%, but on repeated occasions earlier this year traders drove it above 0.5%, pressing the BOJ to defend the mark. GRAPHIC: Defending the yield cap in Japan (https://www.reuters.com/graphics/IMF-WORLDBANK/JAPAN/xmvjkjyxnpr/chart.png) SCOPE TO TWEAK THIS YEARUeda will chair his first BOJ policy meeting on April 27-28, when the board will issue fresh quarterly growth and inflation forecasts that will come under scrutiny for signs on how soon the central bank projects inflation to sustainably hit its 2% target.Uncertainty over the world economy, highlighted by the International Monetary Fund’s stark warning of global recession risks on Tuesday, adds reasons for Ueda to move slowly and cautiously.And yet, analysts say Ueda’s remarks leave scope for changes to YCC, which has drawn criticism for distorting the shape of the JGB yield curve and crushing financial institutions’ margin.While stressing that the BOJ’s focus now should be to avoid a premature exit, Ueda said on Wednesday he won’t deny the risk of being behind the curve in addressing too-high inflation.That followed his remarks on April 10 that the BOJ must make “pre-emptive” decisions on the timing of normalizing policy, as waiting too long could make the adjustment disruptive.”We’ll discuss all options at each of our policy meetings,” Ueda said on Monday, when asked about the chance of adjusting the BOJ’s guidance committing to keep interest rates ultra-low.”Ueda and his deputies are taking care not to give any hint on the timing of a policy tweak,” said former BOJ official Nobuyasu Atago, currently an analyst at Ichiyoshi Securities.”But they also haven’t completely ruled out the chance of a near-term tweak to YCC,” he said. GRAPHIC: Japan inflation (https://www.reuters.com/graphics/IMF-WORLDBANK/JAPAN/gdvzqnaeepw/chart.png) SUPPLY SHOCKS, TRADE OFFSIntensifying global debate over the cost of delaying monetary tightening could challenge the BOJ’s view the recent cost-driven inflation will prove temporary.IMF First Deputy Managing Director Gita Gopinath said the days when central banks could focus on demand, and assume that supply would be elastic and a given, may be over.”We’re in an economy where we’re going to be hit more by supply shocks, and monetary policy will face more serious trade-offs,” she said on Friday.The IMF had a piece of advise to Ueda: relax the BOJ’s control and allow long-term rates to rise more flexibly – a move that will help ease the strain on the banking sector.Ranil Salgado, the IMF’s Japan mission chief, sees scope for the BOJ to modify the long-term yield target this year, given heightening prospects of durable wage growth.As long as the short-term rates remain zero or slightly negative, the BOJ can keep monetary policy accommodative even if it tweaks the yield target, he said.”We are advising (the BOJ) to pretty much already be thinking about it,” Salgado said on the idea of tweaking YCC. More