Economy

Investors retreated from European stocks funds this week, as Russia’s invasion of Ukraine threatens to crush growth in the region and pump up inflation.Net outflows from European equities hit $6.7bn in the week to March 2, the highest in five years, EPFR data collated by Bank of America show. “EU stagflation looks highly likely,” BofA’s chief investment strategist Michael Hartnett said in a note on Friday, referring to the combination of weak economic growth and high inflation that he expects to follow the outbreak of war between Russia and Ukraine. “Prolonged conflict means weaker growth, higher uncertainty and lower asset prices,” the bank said in a separate note. Europe’s Stoxx 600 index fell 7 per cent this week, while Germany’s Dax and France’s Cac 40 dropped 10 per cent.The US bank’s forecast comes as Russia’s invasion of neighbouring Ukraine enters its second week, with cities including Kyiv and Kharkiv under heavy fire and the civilian death toll mounting. Russia accounts for roughly 10 per cent of global oil production and supplies 40 per cent of the EU’s gas, meaning any future sanctions placed on the country’s largest fossil fuel groups could further inflate prices, which have already soared to record highs. A weaker euro accentuates that rise in prices still further.Prices for coal, aluminium and wheat, all of which are exported in vast quantities by Russia, have also soared in recent weeks. Rising prices, along with western sanctions on Moscow and the rising risk of “financial market accidents”, now threatened a global recession, Hartnett said. The US economy, despite being less exposed to the conflict than European markets, nonetheless remained vulnerable, Hartnett added, noting that Wall Street’s S&P 500 index fell 40 per cent from its peak in the months following the oil price shock induced by the Yom Kippur war of 1973. BofA’s sombre analysis stood in stark contrast to the outlook proffered by analysts at UBS, who on Friday said in a note that because global growth remained above trend, a recession was unlikely even if oil prices were to rise to $125 per barrel and stay at such levels for two quarters. The analysts acknowledged, however, that commodity markets were “ill prepared” to handle additional supply disruptions stemming from the conflict in Ukraine. More

Another exceptionally strong US jobs report has kept the Federal Reserve on track to deliver a series of interest rate increases this year even as moderating wage growth mitigates the immediate need for aggressive tightening, according to economists. Hiring accelerated more than expected in February as the world’s largest economy added 678,000 jobs, the most since July, pulling the unemployment rate down to 3.8 per cent. A bigger surprise was the lack of wage growth. Average hourly earnings flatlined last month, following a 0.6 per cent jump in January, but were up 5.1 per cent over the past 12 months.And the job gains were widespread with strong increases in leisure and hospitality, healthcare, professional and business services, retail and construction. “This is the Goldilocks employment report for the Fed and for the economy, because now we have a situation where growth is stronger than expected, and [wage] inflation is better than expected,” said Torsten Slok, chief economist at Apollo Global Management. He added: “It definitely takes some of the pressure off the Fed in terms of rate hikes.”“The wage data we got is good news for the Fed, but that doesn’t negate the fact that we should still be closer to neutral,” said Tiffany Wilding, US economist at Pimco, referring to the level of policy rates that neither supports nor constrains economic activity. The increase in the labour force participation rate to 62.3 per cent, the highest since March 2020, was also welcomed by economists given that labour supply growth has lagged demand for much of the pandemic. US president Joe Biden seized on the report to tout the labour market recovery during his presidency. “Since I took office, the economy has created 7.4mn jobs. That’s 7.4mn jobs providing families with dignity and a little more breathing room. We are building a better America,” he said.The combination of strong hiring, easing wage pressures and improving participation is exactly the kind of jobs report people should hope to see in the months ahead, said Eric Winograd, senior economist for fixed income at AllianceBernstein.“The strength of the labour market is attracting people back in,” he said. “If you think about what is bringing in people off the sidelines, it is wage gains and improved public health.”US businesses have offered heftier wages and improved benefits to attract workers in a labour market with 10.9mn vacant positions. Along with near-record turnover, that has helped create an “overheated” labour market that does not need the emergency support measures put in place at the start of the pandemic, according to Jay Powell, Fed chair. Powell said this week in testimony to US lawmakers that he supports a quarter-point interest rate increase this month as the first step in a “series” of adjustments in 2022, with the Fed potentially considering raising rates by larger increments at one or more meetings if inflation remains elevated.He said labour market strength alongside very elevated inflation justifies the US central bank proceeding with its plan to raise rates this month, despite the prospects of slower growth stemming from Russia’s invasion of Ukraine. “Commodity prices have moved up significantly, energy prices in particular. That’s going to work its way through our US economy,” Powell told members of the Senate banking committee on Thursday. “We’re going to see upward pressure on inflation, at least for awhile. We don’t know how long that will be sustained for.”

Markets are pricing in at least five interest rate increases this year, down from six before Russia’s invasion of Ukraine.Shorter-dated US Treasury yields, which move with interest rate expectations, fell slightly on Friday following the jobs report, as traders bet that stalled wages would keep the Fed on track for a quarter-point increase in rates later this month. Vincent Reinhart, who worked at the US central bank for more than 20 years, expects the Fed to proceed “gradually” this year in light of geopolitical uncertainties and the dovish composition of the its monetary policy setting committee. He also worries that will amount to a policy error.“They’re not going to be able to tighten enough in 2022,” he predicted. “They’ll have to go a bit more in 2023 and inflation is going to be well above their goal this year and next.” More

BEIJING (Reuters) -China on Saturday targeted slower economic growth of around 5.5% this year as headwinds including an uncertain global recovery and a downturn in the country’s vast property sector cast a pall on the world’s second-largest economy. As economic conditions soften, the central bank has started cutting interest rates, local governments have expedited infrastructure spending and the finance ministry has pledged more tax cuts. There were few surprises in Premier Li Keqiang’s annual work report to the annual session of parliament, as China puts a premium on stability in a politically sensitive year during which President Xi Jinping is expected to secure a precedent-breaking third leadership term in the autumn.”We must make economic stability our top priority,” Li told delegates gathered at the cavernous Great Hall of the People on the west side of Tiananmen Square.Amid coronavirus curbs, this year’s parliamentary meeting will be the shortest ever at 6-1/2 days. “The world economic recovery lacks drive, and commodity prices remain high and are prone to fluctuation. All of this is making our external environment increasingly volatile, grave and uncertain,” Li said. While the government vowed to ensure supply of key agricultural products including grains, the agriculture minister said on the sidelines of parliament China’s current wheat crop-growing condition could be the worst in history.Li said that maintaining steady export growth is getting harder, and supply of energy and raw materials remains inadequate.Also weighing on the economy is a property downturn triggered by a government campaign to control borrowing among highly indebted developers. An ensuing tightening in liquidity squeezed the sector and chilled buyer sentiment. Still, China left its consumer price index target unchanged at around 3%.Last year, China’s gross domestic product grew 8.1%, beating the government’s target of over 6%, helped by robust exports to economies hit by COVID-19 and a low statistical base in 2020, when the pandemic began to spread worldwide. Some analysts said this year’s goal is tougher to reach.”It may be a bit difficult to achieve the target, and we need to take some measures to achieve it,” said Zong Liang, chief researcher at Bank of China.’OVERSEAS RISKS’While investing abroad under China’s Belt and Road initiative, China must guard against “overseas risks”, Li said, in contrast to his push last year for outbound investment and cooperation.He did not mention the war in Ukraine, in which China has refused to condemn Russia’s attack or call it an invasion. As usual, Li’s report was primarily focused on economic issues.Apart from the pandemic, implications from the Russia-Ukraine conflict for supply chains and price volatility also cloud China’s near-term outlook. Zhiwei Zhang, chief economist at Pinpoint Asset Management, said Li’s caution reflects potential geopolitical risks. “The Ukraine crisis and the sanctions imposed by many countries on Russia have made such risks clear,” he said.China faces defence challenges on several fronts, from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea, and a separate budget report on Saturday said defence spending will rise 7.1% this year, more than last year’s increase.China remains committed to the Communist Party’s policy of “resolving the Taiwan question in the new era”, Li said. JOB TARGETSGuo Tianyong, an influential economist at the Central University of Finance and Economics in Beijing, told Reuters that hitting 5% growth is crucial. “If growth is lower than 5%, it could affect job creation,” he said. The government set a target to create at least 11 million urban jobs, unchanged from last year’s goal.China targeted a budget deficit around 2.8% of gross domestic product, narrowing from last year’s goal of around 3.2%, while the quota for local government special bond issuance was set at 3.65 trillion yuan ($578 billion), flat from last year. The budget deficit ratio was lowered to boost fiscal sustainability, Finance Minister Liu Kun said on the sidelines of parliament. [L2N2V805Z]($1 = 6.3188 Chinese yuan renminbi) More

If you’re thinking of traveling and you’ve got points or miles sitting in airline and credit card accounts, the time to cash in may have arrived. Here’s what you need to know.Frances Meredith of Raleigh, N.C. used a branded American Airlines credit card for everything from groceries to medical expenses during the pandemic, piling up points with nowhere to spend them. That meant she had plenty to redeem when her family of four decided it was time for a winter getaway to Miami. Although the seats were pricey at 50,000 points each, Dr. Meredith, an internist, was excited to save money by using her rewards balance. “It was easy. There were lots of seats,” she said.As travelers return to the skies, many, like Dr. Meredith, have amassed larger than usual totals in airline and credit card rewards programs. And they are starting to spend them. United Airlines’ Mileage Plus program has had multiple record-breaking days over the past few weeks as customers have flocked to redeem miles, said Michael Covey, the managing director of the United program. “The demand is hitting the books in ways we’ve never seen before,” he said.Several factors make now the time to cash in points.More flexibilityFlights booked with points on the major U.S. carriers are fully refundable. That means if you need to cancel the trip, all your points and any associated fees will be returned without any penalties. Tickets bought for cash, in contrast, typically offer a credit for a future flight rather than a refund and may charge fees, so your money is tied up with the airline. Refundable tickets can be purchased, but they are more expensive.This difference, between ending up with a credit or a refund, can loom large for expensive trips like a family vacation overseas. Some travelers are “still uncomfortable with international travel,” while conditions remain in flux because of the pandemic, so using points to book a flight to a foreign country can offer more peace of mind, said Jamie Larounis, who writes about loyalty programs on his travel website, the Forward Cabin. He is now also seeing some worry about flights near Eastern Europe because of the Russian invasion of Ukraine.Better now than laterMany travelers are sitting on larger than ever point balances, both because they haven’t been redeeming their points and because they’ve been adding to the pile over the last two years with credit card purchases tied to airline loyalty accounts. According to a study by ValuePenguin and OnPoint Loyalty, the five largest airline loyalty programs — Delta Air Lines’ SkyMiles, American Airlines’ AAdvantage, United Airlines’ MileagePlus, Southwest Airlines’ Rapid Rewards and JetBlue’s TrueBlue — ended 2020 with $27.5 billion in liabilities, up $2.9 billion from 2019. Customers earned about half as many points in 2020 as they did the previous year, and redeemed just 10 percent of their available points compared to 30 percent the previous year.The most important reason to use points now is that they may have less buying power over the coming years, Mr. Larounis said. Airline and hotel points are like currencies owned by companies, and those companies can value their currencies however they like by changing the cost of redemption. Helane Becker, an airline analyst at the investment bank, Cowen, said airlines have devalued points multiple times over the past few years and she expects that practice to continue.This is already evident in both the airline and hotel sectors. Alaska Airlines recently upped the cost to book some of its first class tickets. Hyatt Hotels recently increased the points necessary for some hotel stays when it implemented a new peak and off-peak pricing program.Companies know that “people are sitting on big piles of miles and have a lot of pent-up demand for travel,” said Mr. Larounis of the Forward Cabin website. “There is no downside to them raising the cost of award travel.” That is especially true of airplane seats in the premiere cabin, he said. Some leisure travelers, who may have been content in economy class seats, are now purchasing seats in the front of the plane where passengers are a little more spread out. “They see it as safer in regards to Covid,” Mr. Larounis said.Still, the airlines are mindful of those with fewer miles. “We have more seats available for less than 10,000 miles than ever,” said United’s Mr. Covey.Nudges from the airlinesAirlines are encouraging customers to use their points. Rewards tickets booked on Delta airlines through the end of this year will count toward elevating the customer’s loyalty program status. Previously, only flights paid with cash counted toward program status. United Airlines recently joined the list of airlines that allow customers to combine “money plus miles” to buy tickets, so “members can redeem miles sooner and not wait until they have a large total,” Mr. Covey said. United also had flash sales in February for tickets to London and Australia purchased with points, and now allows members to use points to buy food and beverages on flights.More places to goTravel itself is less daunting now with more countries eliminating Covid testing for vaccinated passengers. London, one of the most popular destinations for U.S. travelers, dropped its testing requirement on Feb. 11. Thailand, Vietnam, Australia, and other countries are opening up to tourists.Alison Carpentier, the director of guest loyalty at Alaska Airlines, which is part of the Oneworld alliance of 14 global airlines including Cathay Pacific and Qantas, said the availability of tickets purchased with points “has been good as international travel starts to open back up.”More seats availableAirlines want to fill as many seats as possible so many now make almost all of their seats available for purchase with points, instead of just a subset. The prices set by most airlines fluctuate, so it pays to check back periodically before the flight to see if the number of points needed has come down.Travel Trends That Will Define 2022Card 1 of 7Looking ahead. More

Investing.com — Federal Reserve chairman Jerome Powell confirmed plans this week to back a 25-basis point rate increase at the March meeting, but a quarter-point hike risks the Fed falling even further behind in its efforts to curb inflation.“A 25 basis points rate hike at the March meeting would be a no decision as opposed to a decision … and it’s not going pull the handbrake on the inflation momentum that arguably is being further fueled [by the Russia-Ukraine conflict], Johan Grahn, head of ETF Strategy at Allianz told Investing.com in an interview on Monday, ahead of Fed chairman Jerome Powell’s remarks earlier this week.In testimony before Congress, Powell said he would support a 25-basis point, or 0.25%, rate hike in March, though added that he was “prepared to raise by more than that in a meeting or meetings” if inflation doesn’t subside later this year as expected.Powell also flagged the “highly uncertain” impact to the economic outlook from the fallout of the Russia-Ukraine conflict.But while uncertainty appears to be the only certainty concerning the outcome of the Ukraine crisis, the Fed still has a job to do. That job, the dual mandate job, is to maximize employment and ensure stable prices.In 2020, the Fed tweaked the framework it used to react to changes in inflation and labor market trends.Under this new framework, “employment is an important driver of policy decisions when there’s excess slack in the labor market, but it drops out completely once the unemployment rate dips below 4%…,” Jefferies said in a report earlier this year.With the unemployment rate running below 4%, the Fed’s dual mandate has arguably become a one-dual mandate to curb the pace of inflation now running at a 40-year high of 7.5%.Fresh inflation data due next week ahead of the Fed’s March 15-16 meeting, is expected to show that inflation rose to nearly 8% last month, and is likely to remain elevated as “Russia’s invasion of Ukraine has caused significant swings in commodity prices, which will no doubt exert upward pressure on inflation in the coming months,” according to Jefferies.Earlier this week, Powell confirmed what the market has known for a while: the Fed is well behind the curve on inflation, and it’s pretty much an inside job as the central bank was too slow to react to signs of elevated price pressures.   “We would have engaged our tools earlier,” Powell said earlier this week after conceded that the central bank’s expectations for supply-side problems to dissipate at a faster pace failed to materialize. In the wake of the Ukraine crisis that threatens global growth and is set to ramp up the pace of inflation, the Fed unfortunately finds itself between a rock and hard a place.Hike rates too aggressively slowing an economy that is already expected to decelerate amid red-hot inflation, increases the risk of stagflation ahead. But hike cautiously, and there’s little room for flexibility to save the economy in the event of a significant slowdown.  “If you don’t have a way to treat the patient down the road … this could be in two, three, or maybe five years, it becomes really dangerous, and now we’re talking about a much longer secular type of [stagflation] problem.“In my view, it’s so critical that the Fed stay on point as we are off an already delayed rate hike cycle,” Grahn added. More

China calls for heavy government spending and lending, as its leaders seek to project confidence in the face of global uncertainty over the pandemic and war in Ukraine.BEIJING — Plowing past global anxieties over the war engulfing Ukraine, China set its economy on a course of steady expansion for 2022, prioritizing growth, job creation and increased social welfare in a year when the national leader, Xi Jinping, is poised to claim a new term in power.The annual government work report delivered to China’s National People’s Congress by Premier Li Keqiang on Saturday did not even mention Russia’s invasion of Ukraine, and it took an implacably steady-as-it-goes tone on China’s economic outlook.The implicit message appeared to be that China could weather the turbulence in Europe, and would focus on trying to keep the Chinese population at home contented and employed before an all-important Communist Party meeting in the fall, when Mr. Xi is increasingly certain to extend his time in power.“In our work this year, we must make economic stability our top priority and pursue progress while ensuring stability,” Mr. Li said.By announcing a target for China’s economy to expand “around 5.5 percent” this year, Mr. Li reinforced the government’s emphasis on shoring up growth in the face of global uncertainty from the coronavirus pandemic and the war in Ukraine. That goal is slower than the 8.1 percent rebound in the economy that China reported last year, but higher than many economists believe the country can achieve without big government spending programs.Mr. Li disappointed anyone who might have thought he would have anything to say about Ukraine. The Chinese government’s annual work reports generally avoid new announcements on foreign policy, and this year’s was no exception. Beijing has sought to maintain its partnership with Russia while trying to distance China from President Vladimir V. Putin’s decision to go to war.“China will continue to pursue an independent foreign policy of peace, stay on the path of peaceful development, work for a new type of international relations,” Mr. Li said in his report — the closest he came to a comment on international developments.Still, leaders in Beijing also signaled — in numbers, rather than words — that they were preparing for an increasingly dangerous world. China’s military budget will grow by 7.1 percent this year to about $229 billion, according to the government’s budget report, also released Saturday. Mr. Li indicated that there would be no slowing in China’s efforts to modernize and overhaul its military, which includes expanding the navy and developing an array of advanced missiles.Chinese military planes at an aviation expo in Zhuhai, China, last year.Ng Han Guan/Associated Press“While economic development provides a foundation for a possible defense budget increase, the security threats China is facing and the demands for national defense capability enhancement caused by those threats are the driving factors,” Global Times, a Communist Party-run newspaper, wrote in a report this week that predicted China’s rise in military spending. “Over the past year, the U.S. also rallied its allies and partners around the world to provoke and confront China militarily.”In December, the United States Congress approved a budget of $768 billion for the American military. But salaries and equipment manufacturing costs are far higher in the United States, which has prompted some analysts to suggest that China’s military budget is rapidly catching up in actual purchasing power.The plan Mr. Li outlined suggests that China values economic growth more than trying to make potentially painful adjustments to shift the economy toward greater reliance on domestic consumer spending. Beijing has been trying, with limited success, to move the economy away from dependence on debt-fueled infrastructure and housing construction.China had managed to reduce slightly last year its debt relative to economic output. It needed to do so because this ratio had climbed, during the first year of the pandemic, to a level that economists regarded as unsustainable.But meeting this year’s growth target would require more borrowing, undoing most or all of the progress made last year in reducing the debt burden, said Michael Pettis, an economist with Peking University. He said that it was hard to see how China could break its dependence on achieving high growth targets at least partly through heavy borrowing.Mr. Li acknowledged that the Chinese economy would face challenges this year, pointing to the sluggish recovery of consumption and investment, flagging growth in exports and a shortage of resources and raw materials. By the last three months of last year, the economy was growing only 4 percent.Part of that economic slowdown reflected a series of government policy shifts aimed at reining in unsustainable expansion in some sectors. Housing speculation was discouraged. Stringent limits were imposed on the after-school tutoring industry. And national security agencies imposed tighter scrutiny on the tech sector.China’s huge construction industry is stalling as home buyers turn wary, with developers beginning to default on debts. Dwindling revenues from land sales have made some local governments more cautious about building additional roads and bridges. Continued lockdowns and travel restrictions to prevent the coronavirus from spreading have caused a downturn in spending at hotels and restaurants.A shopping district in Shanghai in January.Aly Song/ReutersMr. Li gave few clues to whether China might shift away from its stringent “zero Covid” pandemic strategy, which has relied on mass testing and occasional lockdowns. He urged officials to handle local outbreaks in a “scientific and targeted manner.”The Latest on China: Key Things to KnowCard 1 of 3National People’s Congress. More

BEIJING (Reuters) -The condition of China’s winter wheat crop could be the “worst in history”, the agriculture minister said on Saturday, raising concerns about grain supplies in the world’s biggest wheat consumer.Speaking to reporters on the sidelines of the country’s annual parliament meeting, Minister of Agriculture and Rural Affairs Tang Renjian said that rare heavy rainfall last year delayed the planting of about one-third of the normal wheat acreage.A survey of the winter wheat crop taken before the start of winter found that the amount of first- and second-grade crop was down by more than 20 percentage points, Tang said.”Not long ago we went to the grassroots to do a survey and many farming experts and technicians told us that crop conditions this year could be the worst in history,” he said. “This year’s grain production indeed faces huge difficulties.”The minister’s comments underscore concerns about China’s grain supply at the same time as the war between Russia and Ukraine, which together account for about 29% of global wheat exports, has disrupted supplies causing wheat prices to surge to 14-year highs.However, Tang is confident China can ensure a bumper harvest of summer grain thanks to strong policy and technical support and the improving crop condition for the grain.Fuelled by the Ukraine crisis, wheat prices in China soared to a record this week on existing domestic supply worries.Tang’s comments also come as Beijing has refocused on food security, a long-standing priority for the central leadership that has become increasingly prominent in policy since the COVID-19 pandemic began in early 2020. China’s state planner said in its own report at the parliament meeting that grain supply remains tight, despite consecutive good harvests in recent years.To address the issue, the National Development and Reform Commission’s (NDRC) report said China will ensure that grain acreage for the year stays above 117.33 million hectares (289.93 million acres).China will also increase the production of soybeans and other oilseed crops, the NDRC said, reiterating top policy priorities in the farm sector. The country will also build up momentum to increase corn output, it said.China’s corn imports surged to a record last year, amid soaring domestic prices and low inventories.China will guarantee the supply-demand balance of grain, edible oil, cotton, sugar and fertilisers through the effective use of reserves and imports, the NDRC said. China will allocate 41.639 billion yuan ($6.59 billion) in subsidies in 2022 for agricultural insurance premiums, up 30.8% from a year earlier, the finance ministry said in another report. At the start of the parliament meeting, Premier Li Keqiang said China will ensure key agricultural product supplies this year, including grains.Everyone must work together to ensure that the country’s “rice bag” and “vegetable basket” are well-filled, and that we have a secure food supply for the people, Li said.China will stop any attempts to use cropland for any purpose other than agriculture and specifically grain production, to safeguard the area of farmland, and revitalise the seed industry at a faster pace, Li said in the government work report.Li also said China will see that hog production is better regulated and ensure the production and supply of livestock, poultry and aquatic products and vegetables. China’s massive pig herd was decimated by the deadly African swine fever disease, sending pork prices to record highs and increasing consumer prices. China quickly rebuilt its pig herd to normal levels since then, according to official data, but stabilizing production and prices has become a major focus for the government. ($1 = 6.3188 Chinese yuan renminbi) More

BEIJING (Reuters) -China will spend 7.1% more on defence this year, outpacing last year’s hike and the government’s modest economic growth forecast as Premier Li Keqiang seeks to safeguard the country’s sovereignty, security and development interests.Li pledged to enhance military training and combat readiness for the People’s Liberation Army, which is developing an array of weapons from stealth fighters to aircraft carriers.The spending figure, set at 1.45 trillion yuan ($229.47 billion) in the national budget released on Saturday, is closely watched by China’s neighbours and in Washington as a barometer of how aggressively the country will beef up its military.This year’s 7.1% hike marks the seventh consecutive single-digit increase, but is the fastest pace since the 7.5% proposed for 2019.It also comes in above targeted slower economic growth of around 5.5% amid domestic headwinds for the world’s second largest economy, including a downturn in the country’s vast real estate sector and lacklustre consumption.China is nervous about challenges on several fronts, ranging from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea near Chinese-occupied islands and a festering border dispute with India.Li, in his state-of-the-nation address to the largely rubber-stamp legislature, said this year the government would move faster to modernise the military’s logistics and asset management systems, and build a modern weaponry and equipment management system. “We will continue the reform of national defence and the military and step up innovations in defence science and technology,” he added. “Government at all levels must give strong support to the development of national defence and the armed forces, so unity between the military and government and between the military and the people will remain rock solid.”The budget gives only a raw figure for military expenditure, with no breakdown. Many diplomats and foreign experts believe Beijing under-reports the real number.China’s reported defence budget in 2022 is less than a third of proposed U.S. spending.ARMS RACE?Takashi Kawakami, a professor at Japan’s Takushoku University, said the spending increase was “significant.””We will see how the U.S. responds to the increase in the defence budget, and how much China will increase its defence budget next year, but it looks like it will result in an arms race.”President Joe Biden is expected to ask Congress for a U.S. defence budget exceeding $770 billion for the next fiscal year as the Pentagon seeks to modernize the military, sources told Reuters last month.China has long argued that it needs to close the gap with the United States. China, for example, has two aircraft carriers, compared with 11 in active service for the United States.Beijing routinely says that spending for defensive purposes is a comparatively low percentage of its GDP and that critics want to demonize it as a threat to world peace.Kuo Yu-jen, a security expert at Taiwan’s National Sun Yat-sen University’s Institute of China and Asia-Pacific Studies, said Beijing was being forced to spend more on research and development in light of the China-U.S. technology war.”Costs for China’s third and fourth aircraft carriers are going up, too,” he added.($1 = 6.3188 Chinese yuan renminbi) More