Aurelia Butler

BEIJING (Reuters) -China said on Wednesday that U.S. high altitude balloons flew over its Xinjiang and Tibet regions, and that it will take measures against U.S. entities that undermine Chinese sovereignty as a diplomatic dispute festered.Washington and Beijing are locked in a tussle over flying objects after the U.S. military this month shot down what it called a Chinese spy balloon over the coast of South Carolina. Beijing says its balloon was a civilian research vessel mistakenly blown off course, and that Washington overreacted.This week, China countered that U.S. balloons had flown over its airspace without permission more than 10 times on round-the-world flights since May 2022.”Without the approval of relevant Chinese authorities, it has illegally flown at least 10 times over China’s territorial airspace, including over Xinjiang, Tibet and other provinces,” Wang told a regular daily briefing on Wednesday.The White House has disputed China’s allegations.Washington has added six Chinese entities connected to Beijing’s suspected surveillance balloon program to an export blacklist.”The U.S. has abused force, overreacted, escalated the situation, and used this as a pretext to illegally sanction Chinese companies and institutions,” Wang said.”China is firmly opposed to this and will take countermeasures against relevant U.S. entities that undermine China’s sovereignty and security in accordance with the law,” Wang said, without specifying the measures.The balloon dispute has delayed efforts by both sides to mend relations, although U.S. President Joe Biden has also said that he does not believe ties between the two countries were weakened by the incident.U.S. Secretary of State Antony Blinken, who postponed a planned trip to Beijing over the balloon, is considering meeting China’s top diplomat Wang Yi in Munich this week, sources have said. More

Dutch chip toolmaker ASML has revealed an employee in China recently stole information about its technology which may have resulted in export controls being violated, in an incident that underscores the company’s importance in the global battle to produce advanced semiconductors.ASML, the international leader in the production of so-called lithography machines that use light to etch semiconductors, said in its annual report on Wednesday that it had been “subject to misappropriation of data relating to proprietary technology by a (now) former employee in China”. “Although we do not believe that the misappropriation is material to our business, certain export control regulations may have been violated,” it added, given that recent international export controls relate to the supply of information as well as physical tools. The company said it had reported the incident to the Dutch and US authorities.ASML, the largest tech company in Europe with a market capitalisation of €248bn, holds a unique and crucial position in the chip supply chain as the only company able to make highly sophisticated extreme ultraviolet lithography (EUV) machines. It has also found itself entangled in the trade war between Washington and Beijing since 2019 when a shipment of one of its EUV machines to China was blocked.

Peter Wennink: ‘If countries or trade blocks withdraw into their own territories, then innovation will be less effective and more expensive’ © SeongJoon Cho/Bloomberg

The issue of IP theft and tech transfer is not new to ASML. Its last annual report flagged concerns that a Chinese company specialising in products to improve chip yields had potentially infringed its intellectual property, though the incident in question took place in 2015. After a concerted lobbying effort by the US, the Dutch and Japanese governments agreed last month to further tighten their restrictions on certain tools and technologies that could support the expansion of China’s advanced chip sector.Peter Wennink, ASML’s chief executive, said in a statement accompanying the report that he understood that these new measures “cover advanced lithography tools as well as other types of equipment”.“On a geopolitical level, the bifurcation of socio-economic blocks — with the associated export and import controls — is threatening the development of the global village that contributed so much to a lot of the innovation we have seen in recent years,” he said. “If countries or trade blocks withdraw into their own territories, then innovation will be less effective and more expensive.” 

He noted however that he did not expect these new measures to have a material impact on ASML’s business for 2023.Last month, the toolmaker reported a record order backlog of more than €40bn and forecast that sales would increase by 25 per cent this year. Wennink said that any sales lost through export controls could be recouped by selling to customers in its growing backlog. Given ASML’s effective monopoly on the advanced machines required to make advanced chips, some analysts have questioned whether intensifying restrictions could turbocharge China’s efforts to develop its own domestic toolmaking industry.In December of last year, Huawei reportedly filed a patent application for one of the most advanced facets of an EUV machine. More

MUMBAI/NEW DELHI (Reuters) – The Indian government could consider reducing taxes on some items such as maize and fuel in response to the central bank’s recommendations to help rein in climbing retail inflation, two sources with knowledge of the discussions told Reuters.However, a decision will only be taken after the release of February inflation data, one of the sources said.India’s annual retail inflation rate rose to 6.52% in January from 5.72% in December, data showed this week.”Food inflation is likely to stay high, prices of milk, maize and soy oil are adding to inflation worries in the near term,” a senior source familiar with the central bank’s and government’s thinking on the matter said.”The government is looking at cutting import duties on products like maize, which attract a 60% basic duty, while taxes on fuel could also be reduced again,” the source added.India’s finance ministry and Reserve Bank of India (RBI) did not immediately respond to Reuters’ queries.Though global crude oil prices have eased and stabilised in recent months, fuel companies have not passed on the lower import costs to consumers or companies trying to make up for previous losses.India imports more than two-thirds of its oil requirements. A cut in taxes by the central government could push pump operators to pass on the benefits to retail consumers and help bring down inflation.January’s retail inflation was above the RBI’s upper target limit of 6% for the first time since October and much higher than an estimate of 5.9% in a Reuters poll of 44 analysts.”We have some recommendations from them (central bank) which is a usual practice,” a second source said.”This has been one of the ways in which government and RBI has coordinated to create a stable macroeconomic environment. Fuel and maize are part of duties. We will probably wait for at least one more print before we decide on these,” he added.Though calls for another rate hike have risen sharply following the RBI’s hawkish monetary policy tone last week and the CPI shocker earlier this week, the view is not universal.”The RBI’s decision and stance remains vindicated by this number and it would be fair to surmise that if inflation remains above the 6% mark in the next couple of months there could be a further rate hike considered,” Madan Sabnavis, chief economist at Bank of Baroda said in a note, though he added that the probability of a hike was low.He said there was scope for the federal and local governments to consider lowering taxes, especially for fuel, to cool inflation.($1 = 82.7400 Indian rupees) More

SOULAC-SUR-MER, France (Reuters) – When it was built at the end of the 1960s on one of France’s most glorious Atlantic coastlines, the beach was over 200 metres (656 ft) away. Today, the hulk of the 80-flat Le Signal apartment block perches precariously on a dune just metres from the water and local authorities are tearing it down before it tumbles. Four stories high, it targeted vacationers in Soulac-sur-Mer, at the northernmost tip of the Gironde estuary in southwest France, known for its broad golden beaches and pine forests. But with beaches disappearing at a rate of about 2.5 metres per year in past decades, Soulac-sur-Mer suffered some of the fastest coastal erosion in France. By 2010, the ocean was lapping at the dune on which Le Signal was built.In 2014, the local government decided to relocate the building’s inhabitants and began the long process of expropriation and removing asbestos before starting demolition earlier this month.Behind a fence on a sunny day in February, residents and vacationers watched as an excavator bit pieces out of Le Signal’s empty hulk.”The demolition of this building puts a finger on a key question of our times, climate change and its impact on ocean levels,” said 71-year-old local resident Guy Bouyssou, who also feared the village itself, just north of Le Signal, could be the next in line for water damage. Adrien Privat, an official at French coast protection agency Conservatoir du Littoral, said that threat is very real.”Le Signal’s situation is largely symbolic for what is happening in terms of coastal erosion France,” he said. Privat said that global warming was having a major impact as higher average sea levels exacerbate other factors that cause erosion and make shorelines more vulnerable to storms.He added the boxy building was a typical example of the extensive build-up of coastal areas in the second half of the 20th century, when urban planners had little regard for the fact that shorelines are dynamic and ever-changing. “We estimate that some 50,000 residences are in zones that will require them to be moved by the end of the century. All of France’s coasts are under threat, and sandy coastlines more than rocky ones,” he said. He said ever-rising sea levels and increasingly violent storms made it impossible to let people live in Le Signal without costly shore protection measures that could also have negatively impacted nearby shorelines. He added that long expropriation procedures and the struggle to finance an environmentally sound demolition was a necessary rehearsal for things to come. “Le Signal is a warning for what could happen in other zones and for the need to prepare for it now,” he said. More

The People’s Bank of China will promote steady growth of loans to micro and small businesses and will strengthen financial support to rental housing, it said after an annual financial markets and credit policy work conference, which took place on Feb. 10.”We will support the high-quality development of the real economy and actively prevent and control risks in key areas of the financial market,” the central bank said.Chinese banks have been gearing up to enhance credit support to prop up the economy after harsh COVID measures and a crisis in the property sector dragged China’s growth in 2022 to one of its worst rates in nearly half a century. The central bank will push platform companies’ financial businesses to finish their overhaul and will support healthy development of the companies. The central bank will orderly promote the two-way opening of the financial market and deepen opening up of bond and derivative markets, it said. The central bank also said it will promote launch of corporate bond management rules and revisions of note rules. More

MUMBAI/ISLAMABAD (Reuters) – Inflation in Pakistan could average 33% in the first half of 2023 before trending lower, and a bailout from the International Monetary Fund alone is unlikely to put the economy back on track, a senior economist with Moody’s (NYSE:MCO) Analytics told Reuters.”Our view is that an IMF bailout alone isn’t going to be enough to get the economy back on track. What the economy really needs is persistent and sound economic management,” senior economist Katrina Ell said in an interview on Wednesday.”There’s still an inevitably tough journey ahead. We’re expecting fiscal and monetary austerity to continue well into 2024,” she added.Pakistan government and the IMF could not reach a deal last week and a visiting IMF delegation departed Islamabad after 10 days of talks, but said negotiations would continue. Pakistan is in dire need of funds as it battles a wrenching economic crisis.An agreement on the ninth review of the programme would release over $1.1 billion of the total $2.5 billion pending as part of the current package agreed in 2019 which ends on June 30. The funds are crucial for the economy whose current foreign exchange reserves barely cover 18 days worth of imports.”Even though the economy is in a deep recession, inflation is incredibly high as (result of) part of the latest bailout conditions,” Ell said.”So what we’re expecting is that through the first half of this year, inflation is going to average about 33% and then might trend a little bit lower after that,” she added.The consumer price index rose 27.5% year-on-year in January, its highest in nearly half a century.Low income households could remain under extreme pressure as a result of high inflation on account of being disproportionately exposed to non-discretionary items.”Food prices are high and they can’t avoid paying for that, so we’re going to see higher poverty rates as well feed through,” the economist said.NO OVERNIGHT FIXEll said Pakistan has not has a great track record when it comes to IMF bailouts, so infusing additional funds alone may prove to be of little use.”If we’re going to see any improvement, it’s going to be very gradual. There’s just no overnight fix,” she said.The weaker rupee, which is plumbing record lows, is adding to imported inflation while domestically high energy costs on the back of tariff increases and still elevated food prices is likely to keep inflation high.Moody’s expects economic growth for the 2023 calendar year of around 2.1%.”It is likely that we will see further monetary tightening in Pakistan to try and stabilise inflation and also with the weakness in the FX they might kind of intervene there to try and force in stability, but again it’s not going to be a silver bullet,” Ell said.Last month, the central bank raised its key interest rate by 100 basis points (bps) to 17% in a bid to rein in persistent price pressures. It has raised the key rate by a total of 725 bps since January 2022.With significant recession-type conditions in Pakistan, skyrocketing borrowing costs could really exacerbate domestic demand struggles, she said.”You really need to see sustained sound macroeconomic management, and just injecting further funds in there without decent backing is not going to deliver the results that you’re looking for.” More

NEW DELHI (Reuters) – India is drafting a proposal for G20 countries to help debtor nations badly hit by the economic fallout from the pandemic and Ukraine war, by asking lenders including China, the world’s largest sovereign creditor, to take a large haircut on loans.Two Indian government sources told Reuters of the proposal as finance ministers and central bank chiefs from the Group of 20 prepared to meet in Bengaluru next week. The gathering will be the first major event of India’s one-year presidency of the G20, a bloc composed of the world’s biggest economies.The International Monetary Fund (IMF) said on Tuesday it would hold a virtual meeting with the World Bank, India, China, Saudi Arabia, the United States and other wealthy Group of Seven (G7) democracies on Friday to try to reach understandings on common standards, principles and definitions for how to restructure distressed country debts.”India is designing a proposal” to try to persuade countries like China to take a big haircut in lending to nations in difficulty, said one of the Indian officials, both of whom declined to be named as they were not authorised to talk to the media.China and other G20 countries were aware that India was working on a proposal, the officials said.China’s Ministry of Foreign Affairs told Reuters on Wednesday it had nothing to share beyond spokesperson Wang Wenbin’s comment at a news conference on Tuesday.”China takes the debt issue of developing countries seriously and supports relevant financial institutions to put forward solutions,” he said.”It is our consistent stance that multilateral financial institutions and commercial creditors, which hold the bulk of the debt of developing countries, should participate in the debt relief efforts.”The People’s Bank of China and the Finance Ministry did not immediately respond to requests for comment.India’s finance and foreign ministries did not immediately respond to emails and messages seeking comment either.New Delhi expects the United States to be one of the main backers of its proposal, said one of the sources.A spokesperson for the U.S. Treasury declined to comment.U.S. Treasury officials have previously said that they are opposed to China’s demand that multilateral development banks also take haircuts on debt principal in any restructurings. It was unclear whether the Indian proposal would advocate multilateral lenders taking haircuts.Two of India’s neighbours, Pakistan and Sri Lanka, are in economic crisis, and urgently seeking international help before they run out of foreign currency to pay for vital imports.India and the Paris Club of creditors recently told the IMF they supported Sri Lanka’s debt restructuring plan as the bankrupt nation sought a $2.9 billion loan. The United States said earlier this month it was willing to do its part too but that “we need to see credible and specific assurances that (China) will meet the IMF standard of debt relief”.The Export-Import Bank of China has offered Sri Lanka a two-year moratorium on its debt and said it would support the country’s efforts to secure an IMF programme, which a Sri Lankan government source said was not enough.The IMF, the World Bank and the United States have pushed for the so-called Common Framework – a G20 initiative that was launched in 2020 to help poor countries delay debt repayments – to be expanded to include middle-income countries but China has resisted.In December, World Bank President David Malpass said the world’s poorest countries owed $62 billion in annual debt service to bilateral creditors, a year-on-year increase of 35%, triggering higher risk of defaults. More

If you want to see why the Bank of Japan’s yield curve control — and whether it survived a change of governorship at the central bank — is a hugely important question for the entire world, take a look at this killer chart.This comes to us from Apollo’s chartmeister (and chief economist) Torsten Sløk, and shows how the Bank of Japan is now buying so many bonds to defend its yield ceiling that its counteracting all the balance sheet shrinkage by the Fed, BoE and ECB.As Sløk says:BoJ purchases of JGBs to keep yields low are now bigger than Fed QT, and the result is that central banks are once again adding liquidity to global financial markets, which was likely contributing to the rally in equities and credit in January. With YCC still in place in Japan, QE will continue to support global financial markets.We’re (very) unconvinced that the BoJ continuing to hoover up the GB market has played a meaningful role in the global market rally we’ve seen since the autumn. That looks far more driven by signs that inflation is slowing, economic growth is firmer than expected, and central banks are becoming less aggressive about tightening monetary policy.But the BoJ’s actions still clearly matter to the bond market. Its policy of keeping Japanese government bond yields rooted near zero has acted as an anchor for the entire global fixed income complex. At the very least that has helped moderate the rise in bond yields driven by faster inflation and punchy interest rate hikes elsewhere.The new incoming BoJ governor Kazuo Ueda has been tight-lipped on what he thinks about the current monetary stance, only telling reporters that it was “appropriate” and that “for now, I think it is necessary to continue easing measures”. But if YCC is finally killed off — or even just tweaked — it will probably be a major event for markets everywhere. More