Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Nine out of 10 UK exporting manufacturers are facing challenges trading with the EU nearly three years after the post-Brexit trade deal came into force, according to a survey of British manufacturers. Make UK, a trade body, said “little improvement” had been made since it conducted its first post-Brexit survey in mid-2021, with business still struggling with the effects of customs bureaucracy and logistics issues.Make UK chief executive Stephen Phipson said British manufacturers had fought to reach other international markets but faced a “minefield of challenges” when dealing with the country’s largest trading partner. He urged the government to do more to assist trade.“What is needed is an exports council to deliver a joined-up policy to support trade which should be incorporated into the body delivering an overarching industrial strategy here in the UK,” he added.British trade has struggled since the introduction of the UK-EU Trade and Cooperation Agreement in January 2021, which removed the UK from the EU single market and significantly increased bureaucratic barriers to trade for exporters.However, the Make UK 2023 Trade Bulletin noted that the EU remained a vital market for the UK, with 74 per cent of companies surveyed still exporting to the bloc despite the new challenges. And while the monetary value of exports was up, driven by inflation, volumes of exports in 2022 were still below pre-Brexit levels. The survey found that a higher proportion, 40 per cent, of surveyed manufacturers reported that export volumes to the EU were falling, compared with about one-third who said they were rising.  Businesses also expressed concern about the impact of new border controls on imports from the bloc that the UK government is introducing from January 2024, as well as new EU requirements for its own importers, such as carbon border taxes.Make UK warned that the new measures were likely to create “additional friction between EU suppliers and supply chain customers” with 36 per cent of UK companies saying that EU companies were less willing to work with them, making it harder to win contracts.Adrian Hanrahan, managing director of Robinson Brothers, a medium-sized chemicals producer in West Bromwich in the West Midlands that has continued to export to the EU, said that while it had been possible to preserve existing client relationships, forging new ones had become much harder.At a recent chemical and pharmaceutical industry trade conference in Milan, Hanrahan said several companies had said the UK was “in the box marked ‘too difficult” when it came to finding suppliers and trade partners.“We’ve had it straight from the horse’s mouth. Two German and a Belgian customer have both said to us directly: ‘Sorry Adrian, we know you do a great job, but dealing with the UK is just too much trouble now.’” A government spokesperson said the overwhelming majority of UK companies were continuing to export to the EU.“We are listening to businesses and working closely with the EU to make it even easier for UK businesses to trade.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist for the Asia-Pacific at Natixis and senior research fellow at the Bruegel InstituteIt has been an extraordinary year for the renminbi. On the one hand, it has clearly disappointed investors, who were expecting the currency to appreciate as the Chinese economy moved out of zero-Covid policies at the end of 2022. Instead, after a short respite, it depreciated about 8.5 per cent against the US currency from January lows until it found a floor at about 7.30 renminbi per dollar. The trend reflected the stubborn weakness of the Chinese economy and the large capital outflows. More recently the renminbi has appreciated but that is in line with other currencies as the US Federal Reserve shifted to a less hawkish tone on interest rates.However, that very same weak renminbi has achieved something quite impressive in 2023: a fast increase in its cross-border use. Since China started to push for the internationalisation of its currency in 2004, its share in global payments largely remained stagnant. But this year its share went from 1.9 per cent in January 2023 to 3.6 per cent in October. Such a share remains low compared with the dollar (47.25 per cent) and the euro (23.36 per cent). But the growth could be pointing to a change. And the People’s Bank of China has reported a steep increase in renminbi-denominated current account transactions. Nearly 30 per cent of the trade in goods and services in and out of the country was settled in the currency.  When looking at the main drivers for this change, several issues stand out. Firstly, China seems increasingly keen to settle its trade in renminbi. The reasons behind this seem to go beyond reducing hedging costs, which have always existed. It is also, of course, driven by geopolitical concerns. Reducing the dependence on the US dollar or other G7 currencies has become more important for China, given the step-up in western sanctions on Russia after it invaded Ukraine in 2022 and tensions with the US over Taiwan. These sanctions also seem to have been a catalyst for other countries to accept the renminbi for trade settlements. The fact that China had its own international payment system (Cips) ready to be used when western sanctions hit Russia has undoubtedly helped. Some renminbi international payments settled through Cips, do not use the Swift interbank messaging system, which makes them very difficult to be traced. This also means that the share of renminbi for global cross-border transactions might be underestimated.Beyond the establishment of Cips, Chinese authorities have introduced other important instruments to support renminbi internationalisation, such as bilateral currency swaps between the PBoC and more than 30 central banks. These swap lines used to sit idle in host central banks but they are now starting to be withdrawn given some emerging countries’ growing financial needs. A notable example is Argentina, which has already withdrawn the equivalent of $1bn in renminbi from its swap line to cover repayments to the IMF. Chinese authorities have also stepped up efforts to increase renminbi liquidity offshore by setting up clearing centres for the currency.While all of these institutional arrangements can certainly increase offshore renminbi liquidity, this will remain limited given the currency is not convertible. In other words, companies will find it hard to use the renminbi they earned from their exports to China for anything else but the purchase of goods with the Chinese currency or the payment of debt with it. In other words, by accepting payments — or funding — in renminbi, countries are effectively increasing their dependence on China.On this latter point, Chinese banks are also using the renminbi for their lending overseas. This has increased to 28 per cent of total cross-border lending in October 2023 from 17 per cent at the end of 2021. Much higher funding costs in the dollar than in renminbi are making it easier for host countries to accept funding in the Chinese currency. Large capital outflows from China also add to the country’s reluctance to lend in dollars.At the same time though, the renminbi is not making the same strides as an investment currency. The share of foreign investment in China’s onshore markets has been shrinking for 18 months. This is especially true for foreign fixed-income investors. Their share on onshore bond holdings has dropped from 3.5 per cent at the peak to 2.5 per cent in June 2023.This growing dichotomy can be explained by China’s special characteristics. On the one hand, China’s economic dominance is translated into leverage to impose its currencies. At the same time, the lack of convertibility of the Chinese currency makes it very difficult for investors keen to buy up renminbi assets. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.While South Korea has a reputation for innovation, its economic development over the past half-century has been driven in large part by its ability to “absorb” and develop technologies — whether in the chip, battery, auto or shipbuilding sectors — that were invented elsewhere.This was achieved principally through officially sanctioned “technical co-operation” with US and Japanese companies long since replaced as market leaders by their former partners. But it was sometimes supplemented by sharper practices. In one famous case dating back to the late 2000s, South Korea’s Kolon Industries paid $360mn in penalties and compensation over a conspiracy to convert trade secrets relating to the production of Kevlar body armour fibre from US chemicals giant DuPont.Now South Korea finds itself potentially being subjected to similar practices from China — a problem illustrated by a legal battle being waged in the US between Samsung Display and Chinese state-owned rival BOE Technology, formerly Beijing Oriental Economics.In 2018, several senior employees of Toptec, one of Samsung Display’s Korean subsidiaries, were charged with leaking intellectual property to the Chinese company. Five former and current Toptec employees, including the chief executive, and three intermediaries have since been handed prison sentences by the Korean courts. Last week, Toptec’s former head of sales received three years for violating the country’s Unfair Competition Protection Act and laws concerning the theft of trade secrets.“This act not only made [Samsung’s] efforts obsolete, it could also hugely damage the nation’s industrial competitiveness,” the judge declared.In October, Samsung Display filed a complaint against BOE with the US International Trade Commission to stop the Chinese company from selling displays in the US that Samsung alleges contain its stolen technology. On Friday, the ITC confirmed it was opening an investigation into BOE on the basis of Samsung’s complaint. BOE did not immediately respond to a request for comment on the allegations.The display industry features much less prominently than chips or batteries in debates on economic security and supply chain resilience. But its importance goes beyond how sharp an image you can enjoy on your smartphone, laptop or TV. In the coming age of autonomous vehicles and weapons and virtual and augmented reality, cutting-edge display technologies will be vital components in next-generation military systems.That helps explain why South Korea and China both take it so seriously. Display is the only technology other than semiconductors to feature on all four of the South Korean government’s lists of core technologies. According to South Korean government figures, between 2016 and 2023 Chinese entities successfully stole more technology from the South Korean display sector than from any other industry apart from the chip sector.Samsung and fellow South Korean display maker LG still enjoy a technological edge in top-end organic light-emitting diode displays, but this may not last for long. Last week BOE, which has already squeezed its South Korean rivals out of the lower end LCD market, announced it was building a $9bn advanced OLED production facility in the Chinese city of Chengdu. The Chinese company’s advance illustrates how South Korea’s technological superiority over its east Asian neighbour is slowly slipping away. But as Ben Forney, a researcher at Seoul National University notes, the story of BOE and South Korea goes back much further than the Toptec scandal.In 2003, the Chinese company acquired Hyundai Display Technology, then a subsidiary of the Korean SK Group conglomerate. BOE sent 132 Chinese staff to South Korea to integrate the two companies’ systems — a process the South Korean company did not survive. “By 2008, HDT had gone bankrupt, while BOE has since emerged as one of the largest display companies in the world,” says Forney. “HDT was left for dead, and it was all entirely legal.”In short, BOE is now threatening Samsung’s position at the high end of the global display market because Korea Inc did so much to help the Chinese company get off the ground in the first place. While Seoul is now making serious efforts to clamp down the “tech leakage” to China in a wide range of sectors, the mystery is how a country so adept at “absorbing” technologies from overseas should have left it so late. [email protected] More

SHANGHAI/BEIJING (Reuters) – Gold buyers in China are getting younger, as a property market downturn, weakening stocks and currency and low bank deposit interest rates have left them with dwindling options to save for rainy days in a sputtering economy. The trend underscores heightening uncertainty about growth prospects in the world’s second-largest economy, which has not recovered from COVID-19 lockdowns as fast as consumers and job hunters had expected.”The employment market has not been very good,” said Linda Liu, 26, who works for a pharmaceuticals company in Beijing, but worries about job stability. “Buying gold makes me feel better.” “I want gold jewellery instead of diamonds for my wedding.”China is the world’s top buyer of physical gold and analysts say this year it has been an increasingly important driver behind a rally in global spot gold prices, which hit all-time highs on Monday.Analysts expect Chinese demand for the safe haven metal to remain high as economic growth grinds lower in coming years and foreign investment outflows weigh on the yuan, while the property market is still looking for a bottom.”Incomes are not really appreciating, real estate is not really appreciating, the stock market is not really appreciating,” said Jacques Roizen, managing director of consulting at Digital Luxury Group in Shanghai. “Gold is a little bit of a unicorn in this environment.”Gold and silver jewellery have been among the best performing consumer goods in China this year, with a 12% rise in value year-on-year in January-October, outpaced only by garments, according to the latest retail sales data.A Chinese consumer survey released by jewellery firm Chow Tai Fook in late October found 70% of consumers aged between 18 and 40 intend to purchase pure gold jewellery. While China has long been a top global consumer of gold jewellery, Chow Tai Fook Jewellery Group (OTC:CJEWF) managing director Kent Wong said that traditionally, customers in China have been older.”We’ve found people aged 18 to 24 have started to buy gold jewellery, and we were very surprised by this,” Wong said.Chinese social media discussions about steady gold accumulation abound, with users recommending small jewellery and marble-like gold “beans” as small as one gram that could be purchased even by those with low incomes for 450 to 550 yuan ($63 to $77). Beijing student Nadia Qi, 21, has spent as little as she could of her pocket money on daily necessities while spending more than $2,000 on gold bars and jewellery so far this year. “The only thing that I can trust and makes me feel relatively safe now is investing in gold,” said Qi, who plans to buy at least 20 grams a year for rainy days. “The deposit rate is way too low, and investing in the stock market is too risky.”The one-year deposit rate at major Chinese banks ranges from about 1.5% to 1.8% and has declined in recent months.China and India, the world’s two biggest gold buyers, together account for more than half of total global demand.In China, gold trades at a premium to the global spot price. That spread has been $25 to $35 per ounce in the past week, down from a record high of $121 in mid-September, but still above its usual $5 to $15 range. Office worker Yang, 38, from the central Hunan province, is not discouraged by the rise in gold prices, arguing “the yuan has been depreciating, financial investment is too risky … and the property market remains disappointing.” “There are not many choices left,” said Yang, who only gave her surname for privacy reasons. “Gold is like hard currency, and this is especially true in the face of mounting geopolitical uncertainties for the moment.”($1 = 7.1424 Chinese yuan renminbi) More

TOKYO (Reuters) – Sentiment at big Japanese manufacturers surged, improving for a second straight month as the auto sector continued to recover from last year’s semiconductor shortage and supply chain woes, a monthly Reuters Tankan survey found.The sentiment index for manufacturers stood at plus 12 in December compared with plus 6 the previous month, according to the survey which was conducted Nov. 21-Dec. 1.”As chip shortages eased, car production grew. But on the other hand, the worsening state of China’s economy and sluggish sales of Japanese vehicles in the Chinese market remain sources of concern,” a manager at a textile manufacturer wrote in the comment section of the survey.The result is likely to reinforce expectations that Japan’s economy is bottoming out after contracting by a preliminary annualised rate of 2.1% in the July-September quarter. Economists believe the economy will show moderate growth in the current quarter, also helped by a pick-up in capital expenditure.The poll also showed the service sector index at plus 26, down from plus 27 in November.The index readings are calculated by subtracting the percentage of pessimistic respondents from optimistic ones, with a positive figure indicating optimists outnumber pessimists.Reuters’ monthly poll serves as a leading indicator for the Bank of Japan’s closely watched quarterly tankan survey due next at 2350 GMT Dec. 12.Compared with three months earlier, the manufacturers’ index was 8 points higher and the service sector index was up 3 points, the Reuters poll showed.But looking ahead to the next quarter, the mood was not as upbeat and the manufacturers’ index for March was seen falling to plus 8 while the service sector index was seen at plus 24.Some 240 firms responded to the survey of 501 large companies on condition of anonymity. More

WASHINGTON (Reuters) -Ukrainian President Volodymyr Zelenskiy canceled plans to appeal directly to U.S. lawmakers for new aid on Tuesday, as a partisan battle over immigration policy threatened to derail President Joe Biden’s request for billions of dollars for Kyiv’s fight against Russia. Republicans and Biden’s fellow Democrats in the Senate and House of Representatives have been debating for weeks over Biden’s October request that Congress approve $106 billion for Ukraine, Israel, security at the U.S. border with Mexico and U.S. interests in the Indo-Pacific.House Speaker Mike Johnson, a Republican, said funds for Ukraine, which has been fighting a full-scale invasion by Russia since February 2022, must be tied to “transformative change” in U.S. immigration policy.On Tuesday, Senate Democrats unveiled their $110.5 billion bill addressing Biden’s request, and Senate Majority Leader Chuck Schumer said he would try to break the impasse by offering Republicans the chance to add an amendment on border policy on legislation including aid to Ukraine and Israel.”Let’s remember here: It was the Republicans who put border on the table. We did not. They have a responsibility if they believe border should be part of Ukraine, which is so vital to our country, let them propose an amendment that can get 60 votes,” Schumer told a weekly press conference.Senate rules dictate that most legislation requires 60 votes to advance in the 100-member chamber.The Senate’s top Republican, Mitch McConnell, who spoke right after Schumer made his amendment offer, said he would nonetheless urge Senate Republicans to vote against the Democratic-backed legislation.”We’re serious about having some significant changes in how we protect our southern border as a part of the overall package,” McConnell said.”I hope all our members vote no,” McConnell said.Members of the House of Representatives and Senate attended classified briefings by top Biden administration officials, which Zelenskiy had been expected to address via videolink. But Schumer said the Ukrainian leader was unable to attend.”Something happened at the last minute,” Schumer told reporters.Senators said their briefing was acrimonious. Schumer said one lawmaker, whom he did not identify, had shouted at one of the top generals.HOUSE OBJECTIONSThe most serious objections to Ukraine aid came from the Republican-led House. On Tuesday, Johnson released a letter demanding more information from Biden’s administration about its strategy for Ukraine, and insisting that immigration policy changes be part of any funding bill.”I reiterate that President Biden must satisfy Congressional oversight inquiries about the Administration’s failure thus far to present clearly defined objectives, and its failure to provide essential weapons (for Ukraine) on a timely basis,” Johnson wrote.According to Johnson’s letter, he met with administration officials on Oct. 26 and said then “that supplemental Ukraine funding is dependent upon enactment of transformative change to our nation’s border security laws.”Johnson’s letter was a reply to one from White House budget director Shalanda Young on Monday in which she warned that Washington was running out of time and money to help Ukraine fight its war against Russia.Congress has approved about $113 billion for Ukraine since Russia’s invasion, but it has not backed any new funds since Republicans took control of the House from Biden’s fellow Democrats in January.Johnson himself voted against more security assistance for Kyiv as recently as September.Ukrainian officials have been making their own appeals for assistance. Zelenskiy’s chief of staff, Andriy Yermak, told a conference that the postponement of U.S. assistance for Kyiv being debated in Congress would create a “big risk” of Ukraine’s losing the war with Russia. More

WASHINGTON (Reuters) – Members of the U.S. Senate and U.S. House of Representatives are expected to begin bipartisan talks soon on fiscal 2024 spending, aiming to head off a partial government shutdown when funding begins to run out in mid-January, lawmakers said on Tuesday.Congress has twice in the last two months allowed the government to come close to partially shutting down for a lack of funding, which would leave up to 4 million federal workers without pay and close a vast swath of government operations.A senior Republican member of the House Appropriations Committee said there could be agreement this week between House and Senate leaders on a top-line spending number for the fiscal year that began on Oct. 1, saying such a deal would serve as a starting gun for bipartisan conference negotiations on spending bills.”You actually conference for the number you’ve got at that point,” said Representative Tom Cole, who chairs the House Appropriations subcommittee for transportation, housing and urban development.Cole said the top-line deal would come from the four top congressional leaders: House Speaker Mike Johnson, Senate Majority Leader Chuck Schumer, Senate Republican leader Mitch McConnell and House Democratic leader Hakeem Jeffries – who he said could reach agreement this week.He expected the amount to be close to the $1.59 trillion that President Joe Biden and former Speaker Kevin McCarthy set with their debt ceiling deal in May.Congress has just over a month to agree on bipartisan spending legislation if it is to avert a government shutdown on Jan. 19 when funding for some federal agencies is set to expire. Funding for other agencies will expire on Feb. 2. A government shutdown in January would coincide with the start of the presidential primary election season.Despite passing seven out of 12 partisan spending bills for 2024, House Republicans have been unable to reach agreement on the remaining five due to infighting over demands by hardliners for steep spending cuts and conservative policy riders that Democrats view as poison pills. Meanwhile, the Senate has been able to pass only three appropriations bills. House Republican disagreement over spending prompted hardliners to oust McCarthy from the speakership on Oct. 3. But hardline Republicans have since agreed to spending at or near the Biden-McCarthy spending level.Republican Representative Mike Simpson, chairman of the House Appropriations subcommittee on interior, environment and related agencies, said House and Senate lawmakers need a top line agreement to move forward on a plan to negotiate spending legislation during their upcoming three-week year-end break.”We better get one fairly soon, if we’re going to be negotiating over the holidays,” Simpson said. More

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