Economy

Washington and Taipei unveiled the U.S.-Taiwan Initiative on 21st-Century Trade in June, just days after the Biden administration excluded the Chinese-claimed island from its Asia-focused economic plan designed to counter China’s growing influence.The office of the U.S. Trade Representative said the two sides had “reached consensus on the negotiating mandate” and it was expected that the first round of talks will take place early this autumn. “We plan to pursue an ambitious schedule for achieving high-standard commitments and meaningful outcomes covering the eleven trade areas in the negotiating mandate that will help build a fairer, more prosperous and resilient 21st-century economy,” Deputy United States Trade Representative Sarah Bianchi said in a statement. The negotiating mandate released along with the announcement said the United States and Taiwan have set a robust agenda for talks on issues like trade facilitation, good regulatory practices, and removing discriminatory barriers to trade.It said the start of the formal talks would be for the purpose of reaching agreements with “high standard commitments and economically meaningful outcomes”.It did not mention the possibility of a broad free trade deal, which is something Taiwan has been pressing for.Washington, despite the lack of formal diplomatic ties, has been keen to bolster support for Taiwan, especially as it faces stepped up political pressure from China to accept its sovereignty claims. More

The amount of credit available on credit cards has shot up to 96 trillion pesos, some $22.7 billion, from just 62 trillion pesos before the coronavirus pandemic, figures from the Superintendency of Finance show.The measure would ask banks to be liable for high credit limits which go unused by consumers, hitting their bottom lines.”Financial entities could do good management in terms of controlling the growth rate of consumer debt,” said the regulator’s superintendent Jorge Castano on the sidelines of a banking conference in Cartagena. “The portion of money families or debtors are using to pay their debts is beginning to grow and if we add the effect of inflation clearly there will be a greater pressure on payment capacity,” Castano added.The measure will go into effect depending on quarterly results for banks in the fourth quarter, he said.Castano also flagged as concerning longer loan terms, which are climbing above eight years even as payments are deteriorating.Consumer credit has grown as the economy has rebounded and is near 22%, much higher than the usual average of 8% or 9%, he said.”History tells us that when there is growth in consumer credit it’s natural that a portion of that debt begins to deteriorate,” he said. More

WELLINGTON (Reuters) – Reserve Bank of New Zealand Governor Adrian Orr said on Thursday the central bank was confident domestic inflation was now tracking lower.”We are at the low end globally and we are tracking in the right direction,” Orr said in response to questions from parliament’s Finance and Expenditure Committee.On Wednesday, the RBNZ increased the cash rate by 50 basis points to 3.0% as it seeks to get inflation under control. New Zealand inflation is currently at three-decade highs having hit 7.3% in the second quarter.He added that labour shortages were a key constraint on economic activity and that was a reason the central bank was working to consciously slow demand to better match capacity.”Our outlook ahead shows that as spending growth slows, labour is freed up,” he said. He added that the central bank is also projecting an increase in inbound migration.The central bank expects house prices will fall around 20% by mid-2023 from their peak at the end on December 2021.Orr said even with these falls, prices would be above pre-COVID levels.”But there will be and there is financial stress in many households because people have taken on significant mortgages, significant commitments,” he said.He said, however, New Zealand was in a very good place to manage through this period of higher mortgage rates. More

The KBC Bank Ireland consumer sentiment index fell a touch to 53.4 from 53.7 in July, its sixth decline in seven months, having stood at 81.9 in January. The slight weakening was driven by a softer outlook for the jobs market, for household finances over the next 12 months and a larger pullback in spending plans.While confidence is at its lowest point since the onset of the COVID-19 pandemic and with retail sales also falling, strong employment, tax returns and service sector data suggest parts of the economy are coping with near 40-year high inflation. Finance Minister Paschal Donohoe said last week that the economy is continuing to perform strongly and remains set to grow in line with expectations that were lowered in April. More

SHANGHAI (Reuters) -China’s surprise cut in key policy rates this week highlights a dilemma facing Beijing as authorities try to revive an economy awash with cash in the financial system but still lacking in consumer demand.Monday’s 10 basis point cuts in the People’s Bank of China’s (PBOC) 7-day and one-year lending rates isn’t much of a spur for banks to boost lending – they already lend to each other at much lower rates – and analysts say more fundamental measures are needed to revive confidence in an economy ravaged by a property crisis and ongoing COVID lockdowns.The PBOC is facing the challenge of a “partial liquidity trap”, says Alicia García Herrero, chief economist for Asia Pacific at Natixis, as interest rates are not low enough to be defined as a Japan-style liquidity trap, but “cash remains trapped in the largest banks” due to growing systemic risks.Beijing needs more “heterodox measures” to lift growth, for example, injecting liquidity into smaller banks that lend to small businesses, albeit creating a moral hazard, García Herrero said.Other analysts say China requires measures beyond monetary easing to revive its economy, such as less severe COVID policies, and government bailout of failing companies.Rocky Fan, economist at Guolian Securities, said the property market downturn is affecting confidence, as people dare not buy houses amid a debt crisis and boycotts to pay mortgages for unfinished homes.”You need to address the property woes to revive the economy, but it’s a thorny issue,” Fan said. “I don’t see a solution unless the government bails out all the troubled developers, at the risk of moral hazards.”TRAPPED CASH Official data on Monday showed China’s economy slowed across the board in July, dashing hopes for a post-lockdown economic boom. Bucking a global trend of rate hikes to combat red-hot inflation, China has been easing monetary policies, and repeatedly prodding banks to lend more. Still, new bank lending in China tumbled in July while broad credit growth slowed, reflecting anaemic demand.The banking system, however, is bursting with cash. China’s broadest measure of money supply M2, that includes cash and deposits, jumped 12% last month, the fastest pace in six years. Chinese households added 10.3 trillion yuan ($1.52 trillion) in deposits in the first half.”Chinese banks are amassing deposits at an alarming rate as both corporates and households over-save,” Jefferies analysts said in a note. Monday’s rate cuts are “a response to a dearth of spending, which has resulted in a flood of deposits,” the brokerage said, adding the move is “unlikely to move the economic needle”.David Chao, global market strategist, Asia Pacific ex-Japan at Invesco says cutting rates “is a good start, though more policy support is needed, especially to put a floor in the property market and to boost household and corporate sentiment”.Concrete measures could include cutting mortgage rates, relaxing payment requirements, reducing bureaucratic red tape, and easing leverage limits for developers, he suggests. BALANCE SHEET RECESSIONKaiwen Wang, China strategist at Clocktower Group, said that, with short-term interbank rates already near record low, “it is unclear whether PBOC will feel comfortable with a much lower rate environment given its concern over financial bubbles.”Even before Monday’s rate cuts, China’s interbank market rates were already much lower than policy rates, making PBOC’s move look superfluous.Balances at money market funds (MMF) ballooned to a record 11 trillion yuan in May, overtaking Europe as the world’s second-biggest MMF market, after only the United States, according to Fitch.There are already signs of froth in some corners of the financial markets, as some investors seek higher yields.Trading in the domestic money market jumped 44% from a year earlier in June, according to latest official data, while average daily turnover of exchange-traded bonds more than doubled from a year earlier, amid signs of more leveraged trading.In the stock market, outstanding margin loans have climbed to a four-month high of 1.64 trillion yuan, while the small-cap CSI1000 index – more vulnerable to speculative trading – has jumped more than 40% from an April low, to a five-month high. “The rate cuts can only trigger a carnival in the bond market,” said Xia Chun, chief economist at wealth manager Yintech Investment Holdings, referring to a jump in bonds after the policy move that saw China’s 10-year treasury futures hitting two-year highs.”The problem is there’s not a shortage of liquidity, but households and companies have gloomy expectations and weak confidence. It’s a typical balance sheet recession.” ($1 = 6.7928 Chinese yuan renminbi) More

BEIJING (Reuters) -China’s central bank is set to take more easing steps, pressured by a shaky economy that is undercutting jobs, but it faces limited room to manoeuvre due to worries over rising inflation and capital flight, policy insiders and analysts said.Analysts now expect cuts in the country’s benchmark lending rates as early as Monday, after the People’s Bank of China (PBOC) unexpectedly lowered two key rates this week as data showed the economy unexpectedly slowed in July. But the PBOC is walking a tightrope — seeking to support the COVID-ravaged economy while avoiding massive stimulus that could add to inflationary pressures and risk outflows from China’s struggling stock and bond markets, as the U.S. Federal Reserve, and other economies, aggressively raise interest rates. China’s economy narrowly avoided contracting in the second quarter amid widespread lockdowns and a deepening property crisis, which have badly damaged consumer and business confidence, and COVID cases have rebounded again in recent weeks. Nomura estimates 22 cities are currently in full or partial lockdowns, making up 8.8% of GDP.”Currently, the main problem that China faces is slowing economic growth, safeguarding growth is the top priority,” Yu Yongding, an influential government economist who previously advised the PBOC, told Reuters.”What we should do is to continue to adopt expansionary fiscal and monetary policy, including cutting interest rates,” he said.China is likely to cut its benchmark lending rate for companies and home buyers, known as the loan prime rate (LPR), at its next setting on Aug. 22, policy insiders and analysts said.Shortly before weak data was released on Monday, the PBOC unexpectedly cut the rate on its medium-term lending facility (MLF) for the second time this year, by 10 basis points. It also cut its reverse repo rate by the same margin. Both were already at record lows.”The rate cut is not enough – we should step up easing,” said a government adviser who spoke on condition of anonymity.However, the central bank is unlikely to cut banks’ reserve requirement ratio (RRR), a traditional tool to boost liquidity, any time soon, given the financial system is already awash with cash, China watchers said.The central bank already has slashed the average RRR level to 8.1% from 14.9% in early 2018, pumping a staggering 9 trillion yuan ($1.33 trillion) into the economy.  The PBOC may instead use structural policy tools, such as low-cost loans, to give targeted support to ailing small firms and sectors favoured by state policies, they said.The sputtering of the world’s second-largest economy comes at an inopportune moment for President Xi Jinping, who is poised to secure a precedent-breaking third leadership term at a once-in-five-years congress of the Communist Party later this year.Of particular concern, youth unemployment has remained stubbornly high, reaching a record 19.9% in July, while the nationwide survey-based jobless rate has eased slightly but remains elevated at 5.4%.On Tuesday, Premier Li Keqiang said that Beijing will step up policy support for the economy and take more steps to spur consumption and investment.Even then, some analysts said modest rate cuts may only help at the margin if companies and consumers remain wary of taking on more debt. New bank lending in China in July fell more than expected and was less than a quarter of the level in June. SHAKY RECOVERYChina’s leaders have recently downplayed the necessity of hitting the government’s annual growth target of “around” 5.5%, which was widely seen as out of reach.With no sign that the government is easing its tough “zero-COVID” policy, some private economists expect the economy to grow by about 3% this year, which would be the slowest since 1976 excluding the 2.2% expansion in 2020, during the initial COVID outbreak. But while Chinese policymakers may quietly accept lower growth without publicly revising the target, they have stressed they still want to achieve the “best possible results”, counting on fiscal policy measures — particularly infrastructure spending — to spur activity in a politically sensitive year, policy insiders said.”Monetary policy will be relatively loose to support growth, but the room will be limited,” Xu Hongcai, deputy director of the economic policy commission at the state-backed China Association of Policy Science, told Reuters.INFLATION WORRIESMeanwhile, signs of consumer inflation pressures – long benign in China – are beginning to emerge. The July consumer price index (CPI) increased 2.7% from a year earlier, the fastest pace since July 2020, even as activity cooled. While CPI is still within the official comfort zone, the central bank has recently forecast that price rises may breach the official threshold of 3% in coming months and warned against complacency.In its second-quarter policy implementation report published last week, the PBOC said China should learn a lesson from the “misjudgment” of Western central banks on soaring inflation.”In the short term, China’s structural inflation pressure may increase, import inflation pressure still exists, and the price rise may rebound in stages due to multiple factors. We should not take it lightly,” the central bank said.Still, most economists don’t believe inflation is creating a big headache for policymakers for now, given weak demand.”Although we face rising inflation due to internal and external factors, this is not the main danger,” Yu said.($1 = 6.7745 Chinese yuan renminbi) More

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen has directed the head of the Internal Revenue Service to produce a detailed plan for deploying $80 billion in newly enacted enforcement funding within six months, an internal Treasury memo showed on Wednesday.Yellen wrote in the memo to IRS Commissioner Charles Rettig, reviewed by Reuters, that the operational plan “should include details on how resources will be spent over the ten-year horizon on technology, service improvement, and personnel.””This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements,” she wrote, adding that it must include metrics for areas of focus and targets for the agency to achieve in coming years.The $80 billion in new resources is a key revenue-raising provision in President Joe Biden’s $430 billion tax, climate and prescription drugs law signed on Tuesday. The Congressional Budget Office has estimated that the new resources would result in collection of an additional $204 billion in tax revenues over 10 years through improved tax compliance. An earlier version of the bill would have statutorily required a detailed IRS spending plan within six months but that provision was later stricken. Yellen’s memo administratively restored the deadline.Yellen told Rettig that she was prepared to approve the near-term use of funds for improvements to next year’s tax filing season, but the IRS plan was a “pre-requisite” for any broader use of funds by the agency.Yellen also repeated her directive last week that she does not want the IRS investments to result in an increased chance of audits for households earning less than $400,000 or for small businesses, compared to “historical levels.”But it is unclear which historical audit rates Yellen is targeting. The Tax Policy Center, a Washington think tank run by the Brookings Institution and the Urban Institute, says a decade of budget cuts slashed overall audit rates in 2019 to 0.4% of individual tax returns from 1.1% in 2010 and the COVID-19 pandemic cut those rates further. More

(Reuters) -Cisco Systems Inc gave a positive forecast for first-quarter sales as a COVID-19 recovery in China eases supply chain shortages and helps it meet demand for networking hardware, sending the company’s shares 5% higher in extended trading.The results announced on Wednesday suggest networking equipment makers have started overcoming the component crunch that had kept them from tapping a post-pandemic revival in digital infrastructure spending.”After a challenging April due to the COVID-related shutdowns in Shanghai … overall supply constraints began to ease slightly at the back half of the fourth quarter and continuing into the start of Q1,” Chief Executive Chuck Robbins said on a post-earnings call.The networking major expects current-quarter revenue to rise between 2% and 4%, while analysts predicted it would remain flat, according to Refinitiv IBES data. Annual revenue is forecast to jump 4% to 6%.”The guide was good enough because they start lapping stronger year-ago numbers. So the guide for the year and quarter are seen as a sign of confidence by the company,” Elazar Advisors analyst Chaim Siegel said.Still, rising costs are a cause of concern for the maker of routers, switches and communication tools as it spends more on freight and logistics to ensure a steady supply of components.After a drop in gross margins in the April-June quarter to 61.3% from 63.6%, CEO Robbins said higher costs would continue in the short term.That was reflected in its first-quarter adjusted profit forecast of 82 to 84 cents, whose midpoint was below estimates of 84 cents. Fourth-quarter adjusted profit was 83 cents per share, one cent above estimates. Revenue came in at $13.1 billion, beating expectations of $12.73 billion. More