Economy

NUSA DUA, Indonesia (Reuters) – U.S. Treasury Secretary Janet Yellen will seek clarity on China’s plans to ease its COVID-19 restrictions and deal with problems in its property sector when she meets on Monday with China’s central bank chief, Treasury officials said on Sunday.The officials told reporters in Bali, ahead of a summit of the Group of 20 big economies, that it was important for top economic officials from the world’s two largest economies to discuss global challenges face to face and learn more about each other’s policy plans.Yellen is prepared to discuss with Peoples Bank of China Governor Yi Gang the outlook for U.S. inflation and growth, but will likely leave monetary policy plans to the Federal Reserve, the officials said.The administration of President Joe Biden has long raised concerns about the resilience of supply chains in China that have been hit by repeated COVID-19 lockdowns and growing national security restrictions. In India last week, Yellen made a case for closer ties between the world’s two largest democracies, with India taking on a “friend-shoring” role as a trusted supplier and counterweight to China.Yellen’s meeting with Yi, first reported by Reuters, comes on the same day that Biden will meet with Chinese President Xi Jinping in an effort to limit a recent downward spiral of the superpowers’ relations.The Treasury officials said they do not plan to offer advice to China on its COVID restrictions or its property sector woes, but to understand Chinese officials’ approach so they can better interpret the impact of policy changes.Yellen also will also meet with French Finance Minister Bruno Le Maire and new Italian Minister of Economy and Finance Giancarlo Giorgetti. Among key discussion topics for these meetings will be their outlook for energy challenges during what is expected to be a difficult winter for Europe, the officials said.Yellen also will urge her European counterparts to keep up strong fiscal support for Ukraine in a transparent and predictable way, the officials said. More

The comments were made in a meeting with International Monetary Fund (IMF) Managing Director Kristalina Georgieva on Saturday during the ASEAN summit in Cambodia, according to a statement released by the Chinese foreign ministry on Sunday.Premier Li also said China was working hard to keep market operations, employment and prices stable, the statement said.”We will continue to promote the comprehensive implementation of a package of policies and measures for stabilising the economy with full effect …and strive to achieve better results throughout the year,” Li said.While the government has sought to support the world’s second-largest economy with more than 50 measures since late May, the latest figures out of China have pointed to a slowdown. Recent data showed exports and imports unexpectedly contracting, inflation slowing and new bank lending tumbling.China on Friday also eased some of its strict pandemic restrictions, offering some respite from the zero-COVID strategy that has curbed economic and industrial activity in the country. China has created more than 10 million new urban jobs in the first 10 months of the year, Li said. China aims to keep the urban jobless rate below 5.5% and to create more than 11 million new urban jobs this year. “Countries should strengthen cooperation and macroeconomic policy coordination, so as to form synergy to maintain the stability of the world economy and prevent recession,” Li said. More

The US central bank is entering a new phase of policy tightening that will be harder to navigate, a top official has warned, as pressure builds on the Federal Reserve to temper what has become one of its most aggressive campaigns to raise interest rates in decades.“This next phase of policymaking is much more difficult, because you have to be mindful of so many things,” Mary Daly, president of the San Francisco branch told the Financial Times.“You have to be mindful of the cumulative tightening that’s already in the system. You have to be mindful of the lags in monetary policy. You have to be mindful of the risks that are all throughout the global economy and the tremendous uncertainty that we have even about what the evolution of inflation is going to be.”Daly is among a growing cohort of officials to back a slower pace of rate rises. This is partly due to the tightening already in train, but also because it takes months for the full effect of policy adjustments to be felt and even more time to show up in the economic data. Interest-rate sensitive sectors like housing are already teetering under the weight of higher borrowing costs, but broader price pressures remain elevated and the labour market tight.In less than a year, the Fed has raised the federal funds rate by 3.75 percentage points, relying on swingeing 0.75 percentage point increases to make up ground against inflation that has consistently surprised in its intensity.With the benchmark policy rate now hovering at a level considered to be “moderately restrictive” on economic activity — between 3.75 per cent and 4 per cent — Daly said the challenge the Fed now faces is determining what level of rates will be “sufficiently restrictive” to bring inflation back down to the central bank’s 2 per cent target. “If I can do one thing for the public, I would say: stop thinking about pace and start thinking about level.”Jay Powell, the chair, said this month that the Fed could moderate the pace of tightening as soon as the next gathering in December, but stubbornly-high inflation likely means the level at which the fed funds rate tops out will be higher than previously expected. Daly said a “terminal” rate of “at least 5 [per cent] is probably likely”.Of equal importance is how long to keep the policy rate at a sufficiently restrictive level. “If I can hold it there [at an elevated level] for a year and really think that inflation is coming down, then that’s probably a reasonable rate to stop at,” the San Francisco chief said. “Overnight to 2 per cent is not my goal . . . but we can’t be so patient that inflation continues to erode the real purchasing power of Americans.”Moving too slowly to root out inflation also risks expectations of future inflation becoming unmoored to a degree that necessitates the Fed taking more stringent action, warned Daly, who maintains the Fed will be able to avoid job losses akin to a “severe recession”.Citing sweeping lay-offs at technology companies, which have included Meta, Stripe and Lyft, she argued that the “rebalancing” there appeared specific to the tech sector as opposed to a sign of something more broad-based. “They were very excited about the growth rates they saw in the pandemic and they hired as if those growth rates would go forever, and then those growth rates came back down to more traditional levels.”Beyond economic pain, another concern is financial distress that forces the Fed to intervene even as it ploughs ahead with its efforts to tackle inflation — something the Bank of England was recently forced to do after the UK’s government bond market seized up. The lesson there, according to Daly, is that drawing distinctions between monetary and financial stability tools “can be done, but it makes for some very challenging communications”.Asked about the turmoil that has gripped cryptocurrencies, Daly said the central bank is paying attention to where “cross-contaminations” can emerge between companies and retail and institutional investors, but right now does not see a “big risk” to financial stability, with people continuing to reduce their exposure.“Each time that this happens, hopefully the impact on the general financial system and retail and wholesale investors will be smaller.” More

When Joe Biden and Xi Jinping meet in Bali on Monday, it will be the most significant test yet of whether the two leaders can reverse what has been a dramatic decline in US-China relations.After a rocky four years under Donald Trump, China hoped Biden would ease the turbulence. But relations have plummeted to their lowest point since the countries normalised relations in 1979 as they forged a new path in the face of a common rival in the Soviet Union.“More than four decades later, in the absence of a similar common strategic rival, the growing competition and intensifying set of security, technological and ideological differences are overwhelming the relationship and risk moving the US and China on to a long, frigid course,” said Paul Haenle of the Carnegie Endowment for International Peace, who was a China adviser to George W Bush and Barack Obama.The US is concerned about issues including China’s military activity around Taiwan, its rapidly expanding nuclear arsenal and its refusal to condemn the Russian invasion of Ukraine. Beijing accuses the US of emboldening pro-independence forces in Taiwan, creating quasi-alliances such as the “Quad” to counter China, and trying to contain China with advanced chip-related export controls.

Biden said the leaders would outline their “red lines” to see if there was room to resolve differences. The two men have talked five times since Biden became president, but the efforts have been largely fruitless. US officials hope that their first in-person meeting as leaders will change that.“There just is no substitute for this kind of leader-to-leader communication in navigating and managing such a consequential relationship,” said Jake Sullivan, national security adviser. Yet the hurdles remain high. US officials say Xi has not followed through on his comments to Biden a year ago that China would engage in talks about nuclear weapons. It is also hard to imagine how both sides could reach any compromise on Taiwan, which has emerged as the most contentious issue in US-China relations.Asked this week if he intended to tell Xi that the US would defend Taiwan against an unprovoked attack from China — a statement he has made four times — Biden said: I’m going to have that conversation with him.”Evan Medeiros, a China expert at Georgetown University, said Biden wanted to stabilise relations and particularly “prevent a downward spiral” over Taiwan. He said Biden would try to reassure Xi that he was not changing the “One China” policy, under which the US recognises Beijing as the sole government of China but acknowledges — without endorsing — the Chinese position that Taiwan is part of China.

But Medeiros cautioned that the deep animosity between the two countries reduced the odds of success. “This one summit will neither rescue nor redefine relations. At best, it may slow the deterioration.”Bonnie Glaser, a China expert at the German Marshall Fund, said Beijing had signalled that it did not want relations to worsen. “Perhaps that has given Biden hope that, given our language about wanting to put a floor under this relationship, our objectives overlap,” she said. “So, maybe we’ll be able to make progress. But there’s also a real possibility that this meeting has pretty similar outcomes to prior meetings.”One Chinese diplomat said there was a chance the meeting would help relations because “both sides are making an effort” and that some issues could be resolved. He said China hoped the US would issue long-delayed visas for Chinese students and that Beijing could make it easier for foreign academics and business people to visit China.Chinese analysts said some exchanges between officials, which Beijing halted after US House Speaker Nancy Pelosi visited Taiwan in August, could be restarted. “China doesn’t want a new cold war, but we have a lot of requests for the US,” said Zhu Feng, an international relations expert at Nanjing University.But beyond some low-hanging fruit, Chinese experts were deeply pessimistic. “In the past, security and economic issues were separate pillars in the bilateral relationship,” said Wu Xinbo, dean of the Institute of International Studies at Fudan University, who said economic issues were now subordinate to political and security concerns.Dennis Wilder, a former top CIA China analyst now at Georgetown University, said Biden had “gone overboard” in terms of balancing China and needed to intensify efforts to boost engagement. “I’m not saying that they haven’t done good things, like Aukus [the US, UK and Australia defence pact], the strengthening of relations with Japan and South Korea and with countries in the Pacific,” Wilder said. “But you have to have engagement with balancing. Otherwise, you’re just headed down a road to mutually assured destruction”

Wang Chong, a US expert at Zhejiang International Studies University, said the meeting could help stabilise ties, coming after the US midterm elections and Xi securing a third five-year term as Chinese Communist party leader.“The Chinese party congress and US midterms are over. Both countries have more certainty about domestic issues. A meeting would have a positive effect on easing tensions,” Wong said.While Democrats did better than expected in the midterm elections, Republicans are still likely to take control of the House, which will give more power to GOP lawmakers who want Washington to be tougher on China. It also remains unclear if Xi has confidence that Biden has the ability to reduce tensions, even if that is his goal.“The Chinese don’t see Biden as an extremely strong president. They think he’s overly concerned about the Republicans and being seen as soft on China,” said one US-China expert. “There’s also no certainty he will be in power for more than two years, so it’s a question mark as to whether Beijing will continue to invest in him.”Follow Demetri Sevastopulo on Twitter More

LONDON (Reuters) -British finance minister Jeremy Hunt said he will have to raise taxes in next week’s budget plan in order to fix the public finances and soften a potentially long recession, a newspaper quoted him as saying on Saturday.Hunt is trying to restore Britain’s credibility among investors in the first budget plan since Rishi Sunak replaced Liz Truss as prime minister last month with a vow to undo her economic policy mistakes, chiefly a series of unfunded tax cuts.Truss’s “mini-budget” in September set off a bond market slump that sent borrowing costs soaring and ultimately forced her to step down.”This is going to be a big moment of choice for the country and we will put people ahead of ideology,” Hunt told the Sunday Times in an interview.”You’re going to have a Conservative chancellor who is putting up taxes that, you know, go against the very reason that he went into politics,” he said, adding: “you have to do what is right for the country and the situation that we’re in and unfortunately that does mean tax rises.”As well as more spending cuts, Hunt and Sunak are trying to prepare their Conservative Party for the tax increases which could reignite tensions in the party that forced out Truss and allowed Sunak to become Britain’s fourth Conservative prime minister since 2016.The newspaper said Hunt planned to tackle a 55 billion-pound ($65.1 billion) hole in Britain’s budget by freezing thresholds and allowances on income tax, national insurance, inheritance tax and pensions for a further two years.’I WILL BE HONEST’He also intended to halve a tax-free allowance for capital gains tax and lower the threshold for paying the additional rate of income tax to 125,000 pounds a year from 150,000 pounds, the Sunday Times said.“What I can promise people is that I will be honest about the scale of the problem, and fair in the way that I address those problems, and yes, that does mean that people with the broadest shoulders will bear the heaviest burden,” he said.Thursday’s budget plan will include forecasts similar to those of the Bank of England (BoE) which earlier this month warned of a long recession ahead.”I think it’s very likely … the question is not really whether we’re in recession, but what we can do to make it shorter and shallower,” Hunt said in the interview.Hunt said he would seek to work in cooperation with the BoE to control inflation and the global rise in interest rates, which is adding to the strains on Britain’s economy.”The number one thing that I can do is help the Bank of England bring down inflation,” he said, adding he wanted to give confidence to businesses and households to invest and spend.”If I can give them certainty that we have a plan to tackle inflation, to bring back stability to the economy then…that will be job done, as far as Thursday is concerned.” The Times said Hunt was likely to commit only 20 billion pounds to extend the government’s energy bills cap for six more months after April, a third of its estimated 60 billion-pound cost in its first six months, meaning bills were likely to rise.But Hunt was also considering a multi-billion-pound package of support to shield pensioners and benefit claimants from higher power bills, the newspaper said.($1 = 0.8450 pounds) More

WASHINGTON (Reuters) – Debt levels among low- and middle-income countries rose sharply in 2021, with China accounting for 66% of lending by official bilateral creditors, World Bank President David Malpass said, underscoring the need to reduce the debt of poorer countries.The World Bank’s annual report on global debt statistics, due out next month, makes clear that private sector creditors also needed to participate in debt reductions, Malpass told Reuters in an interview on Friday.The Group of 20 major economies and the Paris Club of official creditors created a common framework for debt treatments in late 2020 to help countries weather the fallout of the COVID-19 pandemic, but its implementation has been halting.The creditors of Chad reached the first agreement negotiated under the framework this week, but it leaves the country’s longer-term debt sustainability in question because it does not include actual debt reduction, Malpass warned on Friday.The World Bank, the International Monetary Fund and Western officials have become increasingly vocal about their frustration with China, now the world’s biggest official bilateral creditor, and private sector lenders for not moving forward more quickly.Preliminary data released by the World Bank in June showed the external debt stock of low- and middle-income countries rose, on average, 6.9% in 2021 to $9.3 trillion, outpacing the 5.3% growth seen in 2020.Malpass said the bank’s forthcoming International Debt Statistics report was troubling, but gave no specific numbers.”It shows that the amount of debt grew substantially … and the amount owed to China is some 66% of the total for the official bilateral creditors,” he said, adding that Chinese entities were also big commercial creditors.”The report makes clear that debt reduction needs to extend broadly to include the private sector and China,” Malpass said, adding that the overall debt issue would be a big topic at the upcoming meeting of G20 leaders.”There will be a recognition of the severity of the problem,” Malpass said, although he said there had been “little uptake” of his push for an immediate freeze in debt payments when countries sought relief under the G20 common framework and other reforms aimed at speeding up debt restructuring efforts.IMF and World Bank officials say 25% of emerging market and developing economies are in or near debt distress, and the number rises to 60% for low- and middle-income countries. Climate shocks, interest rate increases and inflation had heightened pressures on economies still recovering from COVID.Malpass said China had been a reluctant player in the slow-moving process to date. “They’re mostly an observer,” he said.Malpass also called for faster work on a debt restructuring for Zambia, which first requested help under the common framework in early 2021.”There’s an urgency to getting it done so that the debt reduction can occur and Zambia can begin attracting the new investment that’s needed,” he said. For both Chad and Zambia, it was critical to speed up the process and enact real debt reductions, he said. “The longer the process goes on, the harder it is for the for the country and the people in the country to get back on their feet.” More

SHARM EL-SHEIKH, Egypt (Reuters) – Strengthening trade ties and regional security will be priorities in an upcoming visit by Chinese leader Xi Jinping to Saudi Arabia, Saudi minister of state for foreign affairs Adel Al-Jubeir said on Saturday.The visit, which two sources said was expected to take place in December, comes at a time when relations between Saudi Arabia and the United States have been strained by a spat over oil supplies, and amid U.S. concerns over growing cooperation between Gulf Arab states and China. Jubeir did not give details of the trip but said visits between Chinese and Saudi leaders were “natural”.”China is Saudi Arabia’s largest trading partner, we have huge investments in China and the Chinese have huge investments in Saudi Arabia,” he told Reuters on the sidelines of the COP27 climate summit in Egypt.”We have huge equities at stake and these visits are not uncommon,” Jubeir said. “The same with our other trading partners and strategic partners whether it is the United States, the UK, France, Germany, this is what countries do.”Two sources familiar with discussions ahead of Xi’s trip said the Chinese leader was expected to visit in the second half of December and to attend a China-Gulf summit alongside leaders of the six-nation Gulf Cooperation Council (GCC), as well as a second planned summit with other Arab leaders.Asked about the priorities for the trip, Jubeir, who is also the kingdom’s climate envoy, said:”We look at the things we care about: stability and security in the region and in the world, how you increase further trade and investment between both countries, and of course the issue of climate is one that is now at the top of the agenda in terms of international relations.” Jubeir said Saudi Arabia, the world’s top oil exporter, was sincere in its efforts to tackle climate change and limit greenhouse gas emissions.On Thursday, oil giant Saudi Aramco (TADAWUL:2222) signed a deal to establish a carbon capture and storage hub at the COP27 climate talks, one of dozens of initiatives that Jubeir said the kingdom was working on. Environmental campaigners tend to be wary of carbon capture on the grounds industry can use it to justify the continued use of fossil fuels.”We believe in Saudi Arabia there is no contradiction between improving climate and producing oil,” Jubeir said. More

NUSA DUA, Indonesia (Reuters) – With odds of a split U.S. Congress rising, Treasury Secretary Janet Yellen warned that lawmakers’ failure to raise the statutory limit on U.S. debt posed a “huge threat” to America’s credit rating and functioning of U.S. financial markets.Yellen told Reuters in an interview in New Delhi on Friday that cooperation is still possible with Republicans on some issues, but lifting the debt ceiling is a non-negotiable item.Some Republicans have threatened to use the next hike in the $31.4 trillion debt ceiling as leverage to force concessions from U.S. President Joe Biden, a Democrat. U.S. public debt stood at $31.2 trillion on Wednesday and without an increase, analysts anticipate a potential default crisis by the third quarter of 2023.Republicans who took back control of Congress in 2010 elections brought the United States to the brink of default in a demand for spending cuts the next year, prompting a first-ever ratings cut on U.S. Treasury debt by Standard and Poor’s (NYSE:SPY).Asked whether Democrats should pass legislation in the post-election session, while they would still retain a majority until January, regardless of the election outcome Yellen said raising the debt ceiling was urgently needed.”I think it’s irresponsible not to raise the debt ceiling. It’s always been raised,” Yellen said. “It would be a huge threat to the country not to do it, and completely irresponsible to threaten the credit rating of America and the functioning of the single most important financial market.”A U.S. Treasury official said the department would be happy to see the measure passed before the newly elected Congress convenes in January, adding, “It needs to be done.” BIPARTISAN WORK STILL POSSIBLEYellen said she was not ready to concede that Biden’s legislative agenda would be stalled by gridlock, adding that she would defend recently passed measures against Republicans who want to gut some of his spending and tax policies.”We’re certainly going to try to protect the gains we’ve made over the last year and a half,” Yellen said.If Republicans can win both House and Senate control, some have vowed to pass legislation to make Trump-era tax cuts permanent and roll back parts of Biden’s $430 billion green energy and healthcare subsidy law passed by Democrats. Among the most frequently targeted measures is $80 billion in new funds for the Internal Revenue Service to boost tax compliance and customer service and a 15% domestic alternative minimum tax for large corporations — the measure’s key funding sources.Yellen, who is now participating in G20 summit meetings in Indonesia, spoke before Mark Kelly prevailed in a tight Arizona Senate race, leaving Democrats needing just one of two other undecided seats to retain control of the Senate.In the House, Republicans had won 211 seats, seven shy of a 218 majority.She said some Republicans backed last year’s infrastructure act and this year’s investments in semiconductors and research, and the administration would look for measures that could draw further bipartisan support.GLOBAL TAX DEAL Another problem Yellen faces with a potentially split Congress is failure to implement a global deal to erect a 15% corporate minimum tax after one Democratic senator objected.”I want to see it get done. I would have liked the United States to go first. That didn’t happen,” said Yellen, who helped broker last year’s deal aimed at ending a competitive downward spiral on corporate taxes by countries luring investment.She said she believed most European Union countries would proceed to implement the 15% corporate minimum, which means U.S. firms now paying overseas U.S. taxes of 10.5% may wind up paying the difference to those governments possibly starting in 2024.”And eventually, as they do, pressure will increase on the United States to come into compliance as well. Because countries that adopted the label will be able to put in place taxes on companies based in undertaxed countries like the United States.” More