#95 Free-Trade Agreement between EU and Japan

The EU and Japan reached the free-trade deal as reported on 6 July and between them they account for 19% of the global gross domestic product. Shinzo Abe, the Japanese prime minister and Jean-Claude Juncker, the president of the European Commission welcome this move. It is the most important bilateral trade agreement as ever conducted by EU after four years of negotiation.

For the EU, many of the agricultural products will have zero tariff entering into the Japanese market and can boost exports to Japan from €80 to more than €100 per year. This will mean €1 billion in customs duty per year can be saved.

For Japan, this is the end of EU’s import duties on its auto export.

With the deal comes into effect, some tariffs will become zero and others will phase out up to 15 years.

For Japan this is 10% of its export to EU, and more than double the portion of EU goods import into Japan.

#94 More statistics on China’s Belt and Road

First-quarter statistic showed that from China’s side the customs cleared 62 trains, 2,850 containers with 35,027 tons of goods. Empty containers accounted only 11.4%. The number of containers almost double and the empty ones almost halve.

The goods in the containers are the rubber products, tyres, engines, gearboxes, robots and steel belts. This has increased the trade with countries along the railway.

It was since March 2011 China Railway Express trains have made 3,000 trips between Europe and China. This has linked up 27 Chinese cities in 21 provinces and 28 cities in 11 European countries. By 2020 it is expected to make 5,000 trips every year.

From 2014 to 2016, total trade between China and countries along the routes had exceeded $3 trillion. China’s investments in these countries have reached $50 billion. There are more than 50 trade and economic co-operation zones in more than 30 countries and the further investment of $14.5 billion has been planned.

This information was given by China’s ambassador in UK.

#93 Too Hot to Fly

Phoenix just recorded 40 degrees C (104 degree F) and the small planes are grounded. Basically there is a rule that when the temperature exceeds 118 degree F then it is unable to takeoff or land, because of the hot air, which also means thinner air, can’t let the plane generate enough lift.

For the bigger commercial planes, Boeing 737 and A320, the maximum temperatures are 126 degree F and 127 degree F.

There are also other factors to verify, for instance the aircraft design, airport location, and the global warming is also the factor.

Or the payload of the aircraft will have to recalculate and reduce.

More knowledge about this:

  • Lower temperature means denser air molecules, gives more lift and needs shorter runway
  • Higher temperature means sparser air molecules, gives less lift and needs longer runway

Who said that the global warming is a hoax?

 

Acknowledgement:

The New York Times – Thursday 22 2017

#92 The Day the China Stocks Slide

  • Wanda Group, Wanda Film Golding, Wang Jianlin, one of the rich men in China said to a fortune of $31 billion slided 9.9% and was suspended.
  • Fosan International, a consumer conglomerate, headed by Guo Guangchang, stock fell 5.8% and 6.2% from the Shanghai and Hong Kong Stock Exchange.
  • HNA, the aviation company, fell 10% and it is under a lot of speculations about its owners.
  • Anbang, the insurer, with its chairman Wu Xiaohui under custody.

All these have to do with the heavy corporate borrowing and they have been curbed by the banking regulator for checking their corporate system risk.

 

Acknowledgement: Financial Times – Friday 23 June 2017

#91 A Softer Brexit is Expected

On June 8 Theresa May was expected a landslide victory for the election for her Conservative Party, the result was that Conservative Party gained 42.4% vote that was its highest since 1983. But the opposition, Jeremy Corbyn from the Labor Party surged with 40% of the vote. That made the Conservative Party lose seats in the Parliament. Theresa May was expecting to win a parliament majority. She ended up seeking support of Northern Ireland’s Democratic Unionist party.

In the past four years there were four elections, the last two, first it was David Cameron staged an unnecessary referendum on EU membership and destroyed his political career, Theresa May called for the election for her party, the Conservative Party, and expected a landslide victory so that she could have a free hand for the negotiation with the EU for the hard Brexit. The result was that she lost her majority and the authority. She earned the name Theresa May, and maybe not.

First of all, the Brexit-voters are those from Middle England and not the international-minded Londoners. Already in Middle England they said that, “if you are a citizen of the world, you are a citizen of nowhere.”

Theresa May can also be considered as the populist.

Both polls, the referendum and the snap vote for Britain were unnecessary and proved to be irresponsible that have put Britain into crisis.

Jeremy Corbyn from the Labor Party is too far left. He has been talking about the nationalized industries, state subsidies and protection to free trade. Now he is lurking in the back and can post a threat to the Conservative Party.

The negotiation of Brexit with Brussels started on 19 June and already the “soft” Brexit is expected.

Harold Macmillan, the former Prime Minister of Britain and also was the British Conservative politician and statement who led Britain and joined the then European Economic Community in 1961 for good economic and political reasons. It was for UK’s strategic interest to be part of the strong Europe.

In the latter days Britain has long wanted to split EU but because of the Brexit now has found that EU is more united.

For Britain it can be politically better but economically far worse as EU doesn’t have any trade deals with anyone except Korea and Canada. Britain will have to negotiate with US, China, India and EU for the trade agreements. Otherwise it will be depending on trade in goods and services all done through EU.

It will need a strong, stable and sensible government for negotiation but with limited time for achieving the result. That is why the post-exit trade agreement like the customs union and trade deal are important.

Theresa May was putting trade and economy ahead of the immigration issues that has now been compromised. Across Europe there are roughly 4 million migrants caught out by Brexit. This is just the tip of the iceberg and we will have to stay tune.

We can see that the Brexit is going to exhaust the efforts from Britain and Brussels but lately the terrorist attacks in Europe are alarming and the joint effort in detecting such terror acts should be prevented.

There can be a major financial crisis, the new Russian aggression and the accelerated Middle East situation like Qatar would need to be monitored closely.

 

Acknowledgement:

FT Tuesday 13, June 2017

FT Wednesday 14, June 2017

FT Tuesday 20 June, 2017

The New York Times Thursday 8, June 2017

#90 More on Paris Climate Agreement

China, also known as the coal country for its energy resource, where the legions of workers toiled in the coal mines and often died in the mining activities after exposed for a long time to the soot of the fossil mining. Very often, due to the exploitation of the coal that leads to the collapse of the mining shafts cause the mining accidents. The abandoned coal mines often would collapse due to the hollowed ground and lakes are created.

 

Lately, in Liulong in Nanjing (六家莊), a lake was created and China has begun to build the world’s largest floating solar project to provide electricity to the nearby city. By expanding this to a dozen sites can collectively produce the same kWh of electric power equivalent to a full-size nuclear reactor.

 

Already countries like Vietnam, Singapore, and Taiwan, have sent delegates to visit the site to learn more about this. China is also getting ready to offer this technology to help these countries to tap into the renewable energy.

 

Recently Beijing hosted the Clean Energy Ministerial and a gathering of two-dozen countries for the meeting. These countries also created the three-quarters of the world’s greenhouse gas emissions. The US was there and showed the deep split of the nation as Governor Jerry Brown from California was there acting as the supporter of renewable energy.

 

China is already dominating in the low-carbon energy technologies, for instance, it is producing two-thirds of the world’s solar panels and nearly half of the wind turbines. It is also known for its hydroelectric power and the nuclear reactors.

 

The US and the EU have been accusing Beijing of the unfair practice in subsidizing its green industries and have applied punitive tariffs on the solar panels for instance.

 

At the same time, China is angry with EU because of the refusal to recognize China as the “market economy”. China is still insisting the market economy status should be given automatically after being granted in the WTO for 15 years. Obviously, China has not lived up to its promises in the first place upon the joining. The western countries were expecting that the 15 years would have been adequate for China to have completely complied with the requirements. Taking the opportunity in the joint statement on the climate change, China has shown the unwillingness to cooperate and applied pressure to Germany and other EU countries to bid for the market economy status at the WTO.

 

For the renewable energy, Chinese local governments continue to provide free land, state-owned banks grant enormous loans at low interest, to encourage clean energy industry.

 

Currently, solar energy only accounts for 2% of the electricity need. It employs one million workers and by contrast, the coal is generating 70% of the country’s electricity and it is still employing four million coal miners. We can see that China has a long way to go.

 

US and Japan started the technology for the solar panels in the past half century but were careful not to build large factories fearing that they might have to undercut the price to sell the excessive production.

 

But China has been going the opposite, Jinko Solar and Trina Solar, the world’s largest solar panel producers are going ahead with automated factories in churning out solar panels with consistent quality and at reducing cost. With engaging the robots, quantity has doubled and cost of labor has halved.

 

This enables China to sell to new markets like India and Saudi Arabia which were unexpected before. All this is making it possible with the Paris Climate Accord.

 

The technology as developed can now deal with the extreme heat and extreme humidity because of the different conditions. And for instance, the panels made for the lake of Liulong are said to be waterproof.

 

This brings to the conclusion where the US retreats and China advances and this is a typical example.

 

 

Acknowledgement:

The New York Times Thursday 8, June 2017

FT Tuesday 13, June 2017

 

#89 Dispute over China’s steel export in again in the news

It was found out that export of steel from Vietnam to the US has surged more than tenfold in 2016. China’s export to Vietnam has also increased. This brought into the attention of the US Department of Commerce to investigate if Chinese trading companies have exported the cold-rolled steel, an intermediate product, to Vietnam for the further processing before export.

Both Washington and Brussels are investigating the alleged shipments of Chinese metals from Vietnam to avoid tariffs. This transshipment behavior was common in the old days when the garment and textile trade was governed by the Multi-Fiber Agreement (MFA) until it was abolished.

This transshipment practice through Vietnam can avoid the punitive tariffs in the US while the exporter, in this case the state-own enterprise, can collect export rebate in China. In China there is the excessive capacity and with the use of the abundant hydropower and coal have cut down the energy cost in processing. It is accounting for half of the world’s production of steel and aluminum but the ores are coming from US, UK, Australia and Brazil.

The whole matter is in the tricky situation.

 

Acknowledgement: Financial Times, Tuesday, 15 November 2016

#88 Tough Talk Over WTO’s Ruling on China as the Market Economy

Brussels is trying to convince the EU member states to apply a higher duty rate as the penalty to China’s dumping of steels in the EU market. The deadline is here now to recognize China as a market economy under the World Trade Organization (WTO) rules.

EU Trade Commissioner, Cecilia Malmstrome, is facing the complains on one side from some member states for the collapsing steel price, and on the other side for too protectionist for s sharp rise in duties.

US slapped 266% tariff on some steel products from China since 2015, EU imposed a 21% duty.

Earlier on in a meeting called for the urgent and balances agreement was required for the safeguard of European jobs, ensure fair competition in open market and preserve free trade.

China will have to deal with its overcapacity or this situation will continue to remain as the dispute. The WTO protocols on China will expire in end December. It is going to become a hard call for the EU as China could retaliatory duties against European companies that sell to China.

 

Acknowledgement: Financial Times, Wednesday 9 November 2016

#87 “Our love will last till the end of time” as quoted by ……………..

 

This is a typical example of what had happened in Spring and Autumn and the Warring States (春秋戰國時代) in China, the former one was from 722 to 481 BC and the latter one was from 403 to 221 BC. The Chinese have been practicing this since then and have not stopped. They applied to warfare by then but it is now applying to the modern world and for the business they have been successful as well.

We can use this as the case study for what happened with Uber and its archenemy Didi, and both are car-hailing companies. The two rivals have poured billion of dollars into subsidies for their passengers and their drivers for the market share in China. Both raised money to fund the battle and Didi raised more than $7 billion in debt and equity and a month later $1 billion from Apple. Uber raised $3.5 billion from Saudi Arabia’s sovereign wealth at the same time and issued $1.15 billion in high-yield debt.

Uber’s strategy in China has relied on the heavy subsidy for the rides. Uber was losing more than $1 billion a year in this practice. Then both were under the pressure from their financial backers to do something to reduce the loss.

This was not new to Didi in making the deal with the competition and In February 2015 announced a $6 billion deal consolidated with Kuaidi Dache to form Didi Chuxing.

Uber has the presence in China in 60 cities and is doing 40 million rides per week, whilst Didi is in 400 cities and has 100 million rides per week.

Uber has agreed to sell its Chinese operations to rival Didi Chuxing. This deal marks the latest retreat by a US technology company from a market where most of the western Internet companies had “failed to crack the code” as acknowledged by Travis Kalanick, who is the Chief Executive of Uber.

Others like Google shut its China search engine in 2010 over censorship concerns and Facebook and Twitter are both blocked from the country.

With the deal Uber will receive a 5.89% direct stake in Didi including a share of the future profit equivalent to 17.7%. Didi will also invest $1 billion in an equity stake in Uber.

The battle had been going on for two years and collectively the two companies raised $25 billion between them. In this business the company with the most drivers and passengers win the battle. They came to realize the subsidies are unsustainable. Uber’s competitor in the US, Lyft who is a smaller competitor of Uber may follow by cutting the fare and Ola from India who is already locked in a heavily subsidized fight with Uber India.

The agreement not only effect a financial transaction but also a strategic alliance and both companies are taking seats on each other’s boards. Didi also took a stake in Uber’s competitor, Lyft last year would have created an awkard situation.

Uber has earned a reputation for its hard-scrapping business style, operating independently and aggressively as it is entering into a new market. It could be a delicate situation if Didi is deciding to expand outside China, which currently is its only market.

Uber has freed up its resource and will focus on new technology investments such as the driverless cars.

Uber may say that after the attempt to conquer the China market, Uber succeed to walk away with much less than first hoped for and win also a graceful exit from a battle in China.

Not only Google, Facebook and Twitter have fallen foul of Chinese censors and been blocked, eBay and Yahoo were also defected. We saw Apple ran into a series of setbacks this year and China is no longer their second largest market.

The exit of Uber could probably be the best exit from China than any US company has gotten. Didi’s president Jean Lau said that, “Uber has done better than any Silicon Valley company in China,” when she was announcing the deal. She continued to say that, “We raged an earth-shaking war and when we join hands, our love will last till the end of time.”

This was what we read from the newspaper on Tuesday, 2 August but on Wednesday, 3 August we read that before the deal Didi had been playing the key role and investments in a global anti-Uber coalition with Lyft in the US, Ola in India and Grab in Southeast Asia. Now with the deal with Uber they have all to see how the partnership relationship will happen.

The story goes on …….

 

Acknowledgment: FT Tuesday, 2 August and Wednesday, 3 August 2016