Aurelia Butler

The two men going head to head to become Kenya’s next president agree on one thing: China is at the heart of next week’s election. For deputy president William Ruto, it is the spread of Chinese nationals in cities, many of whom are trying to earn a living selling local street food dishes. And former prime minister Raila Odinga has made much of the high cost of the east African country’s borrowing from Beijing, which it is now struggling to service. Their focus highlights the central role China has occupied during the election campaign. Chinese workers are an increasingly common sight in cities and a large proportion of repayments for debts racked up over the past decade are owed to Chinese lenders. Total debt servicing eats up 3 per cent of the country’s gross domestic product. China has embarked on a 20-year lending spree that has made Beijing Africa’s largest source of development finance and a big financier of legacy infrastructure projects in Kenya under current president Uhuru Kenyatta, who is standing down after serving two terms and is backing Odinga after falling out with Ruto. Speaking to the Financial Times, Ruto defended his sharp criticism of some Chinese arrivals, including a threat to deport those who set up small retail businesses or sell popular street food dishes such as roasted maize.“That’s my position,” he said, reaffirming the comments he made during a campaign event in Nairobi in June that “we have enough aeroplanes to deport them back to where they came from”. A senior aide to Ruto, who has been in contact with Chinese officials, admitted that the comments went down badly in Beijing. Ruto, who has served as deputy president for almost a decade, said: “They [the Chinese] want to protect jobs for their people. We want to do it too.” His comments come at a time when Kenyans are struggling to cope with a rapidly rising cost of living, with inflation at a five-year high of 8.3 per cent in July.Presidential candidate Raila Odinga arrives at a campaign rally in Kiambu on Monday © Ed Ram/Getty ImagesOdinga, who is making his fifth attempt to be elected president, has focused on Chinese loans to Kenya, which have risen from $4.1bn to $6.4bn over the past five years, according to official numbers. As prime minister, he negotiated deals with China including a $3.8bn railway linking the port of Mombasa with Nairobi that has been criticised over the alleged opaqueness of its financial terms. Odinga said he intended to renegotiate loans with some creditors, including China, if he won. Some loans could be converted so they had longer repayment periods and lower interest rates to release money for new development projects, he suggested. Ruto, by contrast, has made it clear that he is “not looking at negotiating any debt”, referring to existing borrowing. Kenya’s total external public debt topped $36.7bn, or 34.4 per cent of GDP, at the end of last year, putting the country at “high risk of distress”, according to the IMF. China is among the top lenders, but trails behind multilateral creditors. An Afrobarometer poll from late last year showed that 87 per cent of Kenyan respondents felt their country had overborrowed from Beijing.

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Only last week, Kenyatta inaugurated the country’s first-ever public-private partnership road project, a $588mn highway in Nairobi with pagoda-like toll booths that was designed, financed and built using Chinese funds. China’s ambassador to Kenya, Zhou Pingjian, said at the inauguration that the “brotherly relationship” between Beijing and Nairobi had reached “a new height unmatched in history”. Any change in Nairobi’s stance towards Beijing would mark a shift in tone and policy, say analysts, making Tuesday’s vote one of Africa’s most important elections this year. Despite the campaign focus on China, Hannah Ryder, chief executive of Development Reimagined, an Africa-focused consultancy with headquarters in Beijing, said there had as yet been no signs of anti-China sentiment in Kenya. “China remains a potential source of finance and Kenya still needs financing. So, China is going to be really important,” she added. Beijing has recently cut back on lending to Africa, having grown more sceptical of the ability of some countries to repay. However, Chinese banks still make up about one-fifth of all lending to the continent, concentrated in a few strategically important or resource-rich countries that include Angola, Djibouti, Ethiopia and Zambia. “I would be surprised, very surprised, if whoever is elected does not quickly try to engage China,” said Ryder. Ruto and Odinga have travelled to London and Washington, where they met officials and addressed think-tanks, but not to Beijing due to pandemic-related restrictions in the country.Kenya’s elections have in the past been marred by deadly violence and allegations of fraud that have destabilised a regional power. Opinion polls put the candidates in a dead heat, and analysts expect a runoff following the election. To win outright, a presidential candidate must win 50 per cent plus one vote while securing 25 per cent of the votes in the majority of Kenya’s 47 counties. As the election nears, candidates have sought to make clear their differences. While they may agree on China being a key issue, Odinga suggested he would opt for dialogue over deporting workers if he becomes the country’s next president. “If the Chinese offer better terms and also better prices for the goods and services that we want, we will continue to deal with the Chinese,” he said. “We don’t see that China is a threat.” More

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China has blocked imports from hundreds of Taiwanese food producers and temporarily suspended exports of natural sand to the country in what Taipei perceives as the opening shot in a campaign to punish it economically for a visit by US House Speaker Nancy Pelosi.Since Monday night, when US and Taiwanese officials confirmed that Pelosi would travel to Taiwan to meet President Tsai Ing-wen on Wednesday, the China Customs Administration has suspended imports of more than 2,000 of about 3,200 food products from Taiwan.Beijing has a long history of punishing other countries for behaviour it dislikes by cutting them off from its market and has made extensive use of such levers against Taiwan. But analysts and government officials said the move was a huge expansion of such economic warfare.“In the past, China hit single products from the primary sector such as specific fruit or fish — that way, they kept the overall macroeconomic impact on Taiwan limited but could target regions where the Democratic Progressive party is strong,” said Chiu Chui-cheng, deputy chair of the Mainland Affairs Council, Taiwan’s cabinet-level China policy body.“But now they are broadening this immensely as they are targeting processed foods, that gives them enormous extortion powers,” Chiu said. “This is probably only the beginning. We are certain that they will further step up their economic coercion measures.”The imports Beijing has suspended now cover 35 categories including fish and seafood, edible oils, citrus fruits and biscuits and cakes, hitting publicly listed companies such as instant noodle and soy sauce producer Ve Wong and Chi Mei, which makes frozen foods.China’s customs administration made the import suspension public on its website by displaying “imports suspended” for those Taiwanese companies it said had failed to complete registration under new rules. In early 2021 China banned Taiwanese pineapples, a move that the Tsai government tackled with a viral campaign marketing the fruit as “freedom pineapples” and “democracy pineapples”, helping to open alternative export markets.Beijing has also blocked imports of wax apples and custard apples, and this year added grouper to the blacklist. While China has long been an important export market for agricultural and fisheries products from Taiwan, those shipments total just $200mn a year — a fraction of Taiwan’s overall exports to China. Taiwan imported 5.7mn metric tons of sand and gravel in 2020, with more than 90 per cent coming from China. Natural sand made up 8 per cent of the total, according to government statistics. The country has endured sand shortages in times of brisk economic growth, as it has sought to limit sand mining in its rivers to limit damage to the fragile environment.

Taiwanese officials said they were still evaluating the potential damage of the Chinese trade suspensions, but agreed that it would be sizeable.The Chinese Communist party is extremely hostile towards Tsai’s DPP, which it describes as “Taiwan independence elements” despite the fact that the party supports keeping the status quo in the Taiwan Strait.The ban could weaken the DPP in local elections due in November, when voters typically focus on local economic, social and environmental issues.The Taiwanese government said it would help companies complete the registration, but added that it was not hopeful that this would lead to the ban being lifted.

Video: Will China and the US go to war over Taiwan? More

BOGOTA (Reuters) – Colombia will continue to reduce its fiscal deficit but may need another year to reach the target laid out for 2023 in order to finance social needs, incoming Finance Minister Jose Antonio Ocampo said on Tuesday.The raft of social programs promised by President-elect Gustavo Petro, who will take office on Sunday, are also supposed to be financed with tax reforms, including an initial 25 trillion peso ($5.8 billion) bill the incoming government will propose on Monday.The country’s current fiscal deficit plans – overseen by its fiscal rule committee in an effort to prevent deterioration of public finances – include a 3.6% of gross domestic product target for 2023 and a 5.6% of GDP target for this year.”If we need another year, that’s all I think we would need, depending on the magnitude of the resources we manage to obtain in the tax reform,” Ocampo told Reuters in an interview.”Not the current (fiscal deficit) levels, with a downward trend but closing in during one more year … something a bit more gradual so basically we can respond to social demands,” said 69-year-old Ocampo, who has a Phd in economics from Yale.Petro has promised to tackle deep inequality with pension redistributions, free university education and other programs. Some of his proposals – especially a freeze on new development of oil, Colombia’s top export – have caused market jitters.The appointment of Ocampo – one of Colombia’s most celebrated economists who previously served as agriculture minister, finance minister and director of national planning – may assuage some of those worries.”I’m not going to do crazy things or allow crazy things,” he said.Petro’s policies are “impossible” to carry out without the tax reform, Ocampo said.”We are going for perhaps, I would say around 25 trillion (pesos) initially and a gradual increase. A big part of the gradual increase is through the fight against evasion, which is enormous in Colombia,” he said.The new government plans to increase the proposed $91 billion budget for next year to fund social investment, he added.The Andean country will not seek international market financing in the short term because of high debt costs, Ocampo said, looking instead to the local market and multilateral organizations. More

WELLINGTON (Reuters) – New Zealand’s jobless rate held just above historic lows while wage inflation hit a 14-year high, raising the prospect that the central bank might have to increase rates more aggressively than economists expect.The unemployment rate rose to 3.3% in the June quarter, Statistics New Zealand data showed on Wednesday, slightly higher than a forecast 3.1% by economists but just above the historic low of 3.2% in the previous quarter.Wage growth was strong in the quarter with the private sector labour cost index (LCI) recording a 3.4% lift on year, above a forecast 3.3% increase. This was its biggest increase since 2008.”Nearly two-thirds of roles surveyed in the LCI saw an increase in ordinary time wage rates in the year ended June 2022 – the highest level since the series began in 1993,” business employment insights manager Sue Chapman added in a statement.Most economists expect the Reserve Bank of New Zealand (RBNZ) to raise rates by 50 basis points later this month and hotter than expected wage inflation to feed into expectations of more rate hikes than initially expected.ANZ Bank said in a note the labour market is likely to remain a driver of persistently high inflation over the next year.”The risk of a wage price spiral is certainly not abating. That should keep the RBNZ on track to hike the OCR (official cash rate) to 4% by the end of the year as per our forecasts,” it added.The RBNZ in July raised its official cash rate to 2.50%, the latest in a series of hikes that has taken the benchmark from a record low 0.25% in October last year.The bank has also signalled plans to increase the rate to 4.0% by the middle of 2023. However, economists are mixed on whether the RBNZ will need to go that far.”The risk for the RBNZ is that wage pressures provide an avenue for the recent bout of price shocks to turn into sustained inflation over time,” said Westpac acting chief economist Michael Gordon.He said Westpac will be reviewing its OCR forecasts later on Wednesday but the risks are clearly towards a higher peak than the 3.50% it had been forecasting. More

TOKYO (Reuters) – The U.S. dollar remained elevated on Wednesday following its biggest surge in three weeks against major peers overnight, with Federal Reserve officials talking up the potential for further, aggressive interest rate hikes.The greenback continued its rise versus the safe-haven yen, extending its best gain for six weeks, as U.S. Treasury yields also rebounded after House Speaker Nancy Pelosi’s arrival in Taiwan was met with a strong, but not off-the-scale response by China.New Zealand’s dollar dropped following a surprise rise in the unemployment rate. Australia’s currency also tumbled.The U.S. dollar index, which gauges the currency against six major peers including the yen, was 0.05% higher at 106.50, after rebounding 1% overnight following its slide to a nearly one-month low at 105.03.The dollar rose 0.51% to 133.84 yen, after jumping 1.2% on Tuesday. Earlier in the day it had sunk to a nearly two-month low of 130.40. Benchmark long-term Treasury yields, which the dollar-yen pair tends to track closely, were around 2.75% in Tokyo, holding close to overnight highs following a 14 basis point surge.On Tuesday, San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans signalled that they and their colleagues remain resolute and “completely united” over getting rates up to a level that will more significantly curb economic activity.The comments by “the normally very dovish Daly” and “the equally very dovish Evans” helped yields and the dollar higher, and the dollar index could top 108 “in the next few weeks,” according to Kristina Clifton, a strategist at Commonwealth Bank of Australia (OTC:CMWAY), writing in a note to clients.Traders now see a chance of about 44% that the Fed will hike by another 75 basis points at its next meeting in September.Pelosi’s safe arrival in Taiwan, which China considers a breakaway province, prompted anger in Beijing, with warplanes buzzing the Taiwan Strait and the announcement of live-fire military drills.”In the lead up to the event there was some geopolitical risk premium being priced,” Tapas Strickland, an analyst at National Australia Bank (OTC:NABZY), wrote in a note. But ultimately “with China making a strong, but importantly not an ‘unhinged’ response,” that risk premium was removed, lifting yields and the dollar-yen pair, Strickland wrote.The euro slipped 0.1% to $1.01555, while sterling lost 0.12% to $1.2144.The Australian dollar sank 0.44% to $0.689, extending a 1.52% slide from Tuesday, when the nation’s Reserve Bank hiked the key rate by another half point, as expected, but opened the door to slowing the pace of tightening.New Zealand’s dollar dropped 0.58% to $0.62185 after a surprise rise in the unemployment rate to 3.3% in the second quarter, when economists had predicted it would ease to 3.1%. More

The country’s foreign exchange reserves, measured in U.S. dollars, increased in July by $0.33 billion to reach $438.61 billion at the end of the month, the Bank of Korea said in a statement.It was the first monthly increase after a combined $23.49 billion decrease over the last four months and only a second one since October 2021. The BOK said the increase resulted from foreign asset investment returns and an increase in financial institutions’ foreign currency deposits that offset a decrease in converted value of non-dollar assets. The won weakened less than 0.1% against U.S. dollar in July, following a 4.7% slump in the previous month. (The story corrects to add ‘billion’ to dollar amount in 3rd paragraph.) More

Samsung Electronics and SK Hynix are re-evaluating their investments in China, as the leading Korean chipmakers respond to incoming US restrictions on the production of advanced semiconductors. The Chips and Science Act passed by congress last week, which envisages $52bn in grants to support advanced chip manufacturing in the US, also contains qualified “guardrails” prohibiting recipients of US federal funds from expanding or upgrading their advanced chip capacity in China for 10 years.The provisions have led Samsung and SK Hynix to rethink their exposure to China, according to people familiar with the views of both companies. A senior Korean official added that over time, several Korean investments in chip manufacturing in China were likely to be “abandoned”. “If China is unhappy, they will have to take it up with the US,” said the official.The moves suggest Washington’s efforts to encourage the world’s leading chipmakers to pivot away from China and towards the US are bearing fruit.“The guardrails against China will accelerate Korean chipmakers’ shift to the US from China,” said Kim Young-woo, head of research at SK Securities in Seoul and an adviser to the Korean government on semiconductor policy. A SK Hynix semiconductor plant in Icheon, South Korea. The company said in reference to the US Chips and Science Act that it was ‘closely monitoring the situation’ © SeongJoon Cho/Bloomberg“They have been rethinking their strategies because of the US-China technology war and they are now tilting further towards the US because of geopolitical risks.”Kim added that Korean groups such as Samsung and SK Hynix “will build more US plants because they cannot mass-produce cutting-edge chips without US equipment and technology. If they have to make a choice between the US and China, they have no choice but to opt for the US”.The Biden administration has used export controls, investment screening and generous subsidies for non-Chinese companies in an effort to increase domestic chip production and make it harder for China to obtain advanced semiconductor technology.The measures are part of a wider campaign to secure US supply chains and slow down Beijing’s military modernisation efforts.Yeo Han-koo, a former Korean economic official who served as South Korea’s trade minister until May this year, said that the “recalibration” of Korean chipmakers’ strategy vis-à-vis the US and China had already begun.Samsung Electronics, the world’s largest memory chipmaker, announced last year it was investing $17bn in a new plant in Texas in a bid to catch up with Taiwanese rival TSMC in the foundry sector. Joe Biden visited the Korean conglomerate’s Pyeongtaek facility during a visit to South Korea in May.Last month Chey Tae-won, chair of SK Hynix parent SK Group, held a virtual meeting with the US president to announce $22bn in new chip, EV battery and green technology investments in the US, including a new advanced chip packaging plant.SK Hynix’s Dram memory chip plant in Wuxi in eastern China is widely regarded as the Korean-owned facility most vulnerable to the effects of US restrictions.“This new economic order is still being formulated, and the companies are re-evaluating and recalibrating their strategy accordingly,” said Yeo.Lee Jae-min, a law professor at Seoul National University and an expert in international trade disputes, said the US was using subsidies to “lure” Korean chipmakers into its regulatory orbit.“Once they receive US subsidies, they will come under stronger US control for their decision-making and business activities, which will restrict their investment and production in China,” said Lee.“Chipmakers like Samsung and SK Hynix have to constantly upgrade their plants to produce cutting-edge chips, but it is difficult to upgrade their Chinese facilities without introducing high-tech equipment.”In a statement, SK Hynix said of the Chips and Science Act: “As the legislation was recently passed in the House and some details remain publicly undisclosed, we are closely monitoring the situation.” Samsung declined to comment. More