Aurelia Butler

LONDON (Reuters) – Capital rules imposed on Britain’s high street banks after bailouts during the global financial crisis have not harmed competition but may need simplifying, a government-sponsored review said on Wednesday.Since January 2019, banks like HSBC, Lloyds (LON:LLOY), NatWest and Barclays (LON:BARC) with deposits of 25 billion pounds ($34 billion) or more have been required to hold extra capital around their retail divisions to insulate them from any blow-ups in separate trading and investment operations.The so-called ring-fencing regime was introduced after Britain’s taxpayers had to bail out several undercapitalised banks during the 2007-09 financial crisis.”The ring-fencing regime has had no significant impact on competition in retail banking or its submarkets,” the review, commissioned by the finance ministry, said in an interim statement.”The current rules have resulted in unintended consequences that create unnecessary rigidity for customers, banks, and regulators.” Banking lobby UK Finance said last year that Britain should consider dismantling the regime or risk harming post-Brexit competitiveness.”The ring-fencing regime has the potential to constrain the competitiveness of UK banks, but to date this impact has not been substantial,” the review statement said.The review, chaired by finance industry veteran Keith Skeoch, signalled in its statement that later this year it would recommend increasing flexibility in the rules to reduce unnecessary complexity, rather than any radical surgery.The Bank of England’s head of banking supervision, Deputy Governor Sam Woods, has vowed to defend the ring-fencing rules to his last drop of blood as banks lobbied for the 25 billion pound threshold to be raised.Goldman Sachs (NYSE:GS) closed its easy access saving business in 2020 to new customers in Britain after deposits surged close to the 25 billion threshold that would force it to comply with the ring-fencing rules.Banks have warned that ring-fencing has triggered unfair competition in mortgages as banks inside the ring-fence use deposits to fight for more market share.The evidence suggests that ring-fencing has not damaged competition in consumer credit, small business lending or mortgages, the review said.The review said the ring-fencing rules have helped to bolster financial stability, though these benefits have not been observed for smaller and less complex banks which don’t have investment banking operations.Woods has already flagged plans for simpler rules for smaller lenders.Banks have separate rules on resolution, or procedures for winding themselves up in a crisis without needing taxpayer bailouts, and the review said these rules coupled with ring-fencing added complexity to regulation.($1 = 0.7350 pounds) More

HONG KONG (Reuters) – Chinese telecoms equipment giant Huawei Technologies Co Ltd has obtained a licence in China that allows it to seek external capital, as it works to shore up its supply of silicon chips in the face of U.S. pressure. The United States, which alleges that Huawei’s equipment could be used by Beijing for spying, has imposed sanctions on the company that have cut off its supplies of many overseas chips and effectively barred it from building its own. Huawei has repeatedly denied these allegations. It did not immediately respond to a Reuters request for comment on Wednesday.Habo Investments, set up by Huawei in April 2019, registered with the Asset Management Association of China as a private fund manager on Jan. 14, according to an official record, enabling it to seek investors from outside the company.The newly-registered fund platform has yet to roll out any products. But with three billion yuan ($472.29 million) in registered capital, Habo has closed at least 20 deals for stakes in Chinese tech companies since its establishment, public records showed.Its latest investment target is Shenzhen-based Kaihong, which specialises in offering operating systems for the Internet of Things. Last week, Habo invested 100 million yuan in Kaihong for a 20% stake.Habo was established in response to what Huawei’s rotating chairman, Guo Ping, in 2020 described as “suppression” by the United States. Most of Habo Investment’s deals have been in chip-related Chinese start-ups, a few of which have become part of Huawei’s supply chain. In December, Huawei’s rotating chairman Guo Ping told employees that the company expects 2021 revenue to decline nearly 30% to 634 billion yuan ($99.48 billion). ($1 = 6.3520 Chinese yuan renminbi) More

HONG KONG (Reuters) -China is drafting nationwide rules to make it easier for property developers to access funds from sales still held in escrow accounts in its latest move to ease a severe cash crunch in the sector, four people with knowledge of the matter said.Regulatory curbs on borrowing have driven the sector into crisis, highlighted by China Evergrande Group which was once China’s top-selling developer but is now the world’s most indebted property firm with liabilities of $300 billion.The new rules would help developers meet debt obligations, pay suppliers and finance operations by letting them use the funds in escrow that are currently controlled by municipal governments with no central oversight, the people said on condition of anonymity due to sensitivity of the matter.”An abrupt clampdown on escrow accounts by local authorities after Evergrande’s crash choked liquidity for some good quality names. A correction by the central government is much needed,” said Nan Li, associate professor of finance at Shanghai Jiao Tong University. Chinese developers are allowed to sell residential projects before completing them but are required to put those funds in escrow accounts. The cash held in escrow typically accounts for 50% to 70% of developers’ pre-sale funds, one of the people said, without giving an estimate on the amount held.Guided by the cabinet-level Financial stability and Development Committee, the sector’s main regulator the Ministry of Housing and Urban-Rural Development and other authorities are drafting the new rules, three of the people said. Beijing aims to roll them out as early as end of January in a push to prevent a wider crisis, the people said.The Hang Seng Mainland Properties index rose 1.6% in afternoon trading after the Reuters report and ended nearly 6% higher on Wednesday. Chinese property developers Shimao Group Holdings, Sunac China Holdings and Country Garden Holdings led the sector’s gains, closing up 11.3%, 7.6% and 8.3%, respectively.U.S. dollar bonds issued by developers including Sunac and Country Garden also rose following the report.The property sector accounts for about a quarter of China’s economy, the world’s second-largest after the United States. The State Council Information Office and the Ministry of Housing and Urban-Rural Development did not immediately respond to requests for comment.CASH CRUNCHMany local governments curbed withdrawals from the escrow accounts in 2021 amid fears of contagion after news of Evergrande’s debt problems, leaving several projects across the country unfinished and worsening cash flow for developers.While some municipalities have eased withdrawal restrictions since late last year, one of the sources said that due to lack of nationwide rules on this front, local enforcement had already gone too far in several cities.The proposed new rules are aimed at allowing developers to use escrow funds to first complete unfinished buildings and then for other purposes, three of the sources said.The rules would also prioritise the repayment of onshore debt of developers with better credit profiles, the fourth source said.Nomura estimates that Chinese developers would need to meet onshore and offshore maturities of about 210 billion yuan ($33 billion) each in the first two quarters of 2022, compared with 191 billion yuan in the last quarter of 2021. In recent weeks, Beijing has taken steps to restore stability in the property sector including making it easier for state-backed developers to buy up distressed assets https://www.reuters.com/business/shimao-group-unit-talks-with-lender-missed-trust-loan-payment-2022-01-07/#:~:text=SHANGHAI%2FHONG%20KONG%2C%20Jan%207,liquidity%20crisis%20in%20the%20sector of indebted private firms, a source told Reuters this month.On Tuesday, a senior official at the People’s Bank of China (PBOC) said the central bank would maintain “continuity, consistency and stability” of property financial policies.Property sales and financing are gradually returning to normal, and market expectations are improving, Zou Lan, head of financial markets at the PBOC said. ($1 = 6.3510 Chinese yuan) More

An express underpass road under construction in Tabatinga, Brazil. The country’s economy grew more than 6% a year from 1951-80 © Dado Galdieri/Bloomberg

It may seem hard to believe today but Brazil and Mexico were once the envy of the world. Their economies grew more than 6 per cent a year from 1951-80, almost as fast as postwar growth paragons South Korea and Japan. Since the debt crisis of the 1980s, Latin America has fallen badly behind. In recent years it has sunk to the bottom of the emerging market class, underperforming the Middle East or sub-Saharan Africa.Latin America’s inability to grow generates much hand-wringing and many theories. Low productivity, poor infrastructure, corruption and political instability are recurrent themes. Criticisms are levelled at the leftwing governments of the early 2000s for not investing enough wealth from the commodity boom in building competitive infrastructure or delivering high-quality education and health. The right is faulted for doing too little to tackle entrenched inequality, promote effective competition or make taxation fairer.Coronavirus cruelly exposed Latin America’s limitations; the combined health and economic impact from the pandemic was the worst in the world. Now change is in the air. In a series of important elections, voters in the region have turned on incumbents and picked radical newcomers. Peru and Chile have swung far to the left, Ecuador, Uruguay and Argentina have tilted back to the right. Brazil and Colombia vote this year.Fortunately, Latin America’s plentiful natural resources mean that opportunities abound. The region is rich in two key metals for electrification: copper and lithium. Home to some of the world’s sunniest and windiest areas, it could generate gigawatts of ultra-low-cost electricity to produce and export green hydrogen. The region is in the middle of a tech boom so big that it attracted more private capital in the first half of last year than south-east Asia. The world’s biggest standalone digital bank, Nubank, is Brazilian. Tiny Uruguay is a leading software exporter.A push by the US to bring production closer to its shores could give manufacturing in Mexico and Central America a fillip. Brazil has fostered the development of globally competitive high-tech agriculture.To exploit these opportunities to the full, Latin America needs to adopt pragmatic solutions that leave behind ideological debate. This should begin with the axiom that wealth must first be created to be shared. A flourishing private sector, a fully functioning state, quality public services, the rule of law and foreign investment are all essential ingredients.Taxation in some nations is too low but raising it will only help if the proceeds deliver healthier, better educated and more productive citizens, and competitive economies. Too often in Latin America, higher government spending has meant padded payrolls and increased corruption, rather than better outcomes.Citizens across Latin America are growing restive. Tolerance for governments of any stripe that fail to deliver is minimal. Their faith in elected presidents is being sorely tested. During the last growth spurt, Mexico was a one-party state and Brazil mostly a military dictatorship. If the region is to avoid sliding back into populist authoritarianism, its new leaders urgently need to show that democracy can deliver strong, sustainable growth and shared prosperity. That means abandoning dogma and seeking consensus around long-term policies to build effective states, strengthen the rule of law and create globally competitive economies. Time is running out. More

Takeshi Niinami, head of beverage group Suntory Holdings, said global inflationary trends and currency moves could affect the way prices change in Japan, according to minutes of a meeting of the Council on Economic and Fiscal Policy published on Wednesday.”If so, there’s a chance Japan may need to think about an exit from quantitative easing and zero interest rates down the road,” Niinami was quoted as saying at the meeting, which took place on Friday.The Bank of Japan (BOJ) nudged up its inflation forecasts on Tuesday but said it was in no rush to exit its ultra-loose policy, arguing that cost-push inflation would not be sustained unless accompanied by steady wage hikes.In a report released on Wednesday, the central bank said that, while the pass-through of rising raw material costs had so far been focused on food products “there is also a possibility that (these)… cost increases will be passed on to the consumer price index (CPI) more than expected.”The set of comments highlight the growing attention that rising inflation is drawing among policymakers and business leaders in Japan, a country that had long been mired in deflation.While consumer inflation is well still below 1%, some analysts expect rising global commodity costs and the boost to import prices from a weak yen to push up inflation near the BOJ’s 2% target in coming months.Niinami also warned that any rise in borrowing costs would hit small and midsize firms saddled with excess debt, and affect the government’s debt management plan, according to Wednesday’s minutes.He is one of several private-sector members of the policy panel, which also includes cabinet ministers and the BOJ governor. More