US warns Europe against embracing China’s 5G technology
Western allies vent tension at Munich security conference
Top US officials have threatened and cajoled European allies as cracks in the western alliance were laid bare at the Munich transatlantic security conference.
Nancy Pelosi, Democrat House of Representatives speaker, issued a rebuke to European countries which are using China’s Huawei to build 5G mobile communications networks, saying they had taken a “very dangerous” path.
“It's about putting the state police in the pocket of every consumer,” she said on Sunday. “The debate on 5G is about security, it's about economy, it's about values.”
Her remarks came after Mark Esper, US defence secretary, and Mike Pompeo, secretary of state, also spoke out, and illustrated how Washington’s mounting pressure on Europe over its relations with Beijing cuts across the political divide.
Mr Esper warned that a European embrace of Chinese 5G mobile communications technology could compromise the Nato military pact, while Mr Pompeo urged an end to European talk of political clashes with Washington, insisting “the west is winning” in a world of great-power competition.
The broadsides highlight how the gathering of top politicians, military officers and spies in Munich set up more than 50 years ago to consolidate the Cold War era transatlantic alliance has become a place to vent its modern-day tension.
Mr Esper urged international partners to “wake up” to the “nefarious strategy” being pursued by Beijing to undermine the “international rules-based order”, including its drive to control the potentially revolutionary 5G technology.
“If we don’t understand the threat and we don’t do something about it, at the end of the day it could compromise what is the most successful military alliance in history — Nato,” he said.
Mr Esper’s latest warning on the impact of 5G on Nato opens up a new front in the war of words between Washington and Europe on the dangers posed by Chinese involvement in infrastructure, from telecoms to transport and energy.
The US — which sent a bipartisan delegation of over 40 congressional members to the security conference this year — emphasises that it will keep up the pressure, despite European leaders taking a more nuanced view of the balance between security threat and economic gain.
The UK defied White House advice by allowing Huawei into its 5G networks last month, but the message in Munich is that the failure to take the perceived risks seriously will have consequences.
The UK has also risked raising tension with Washington by holding talks with China about a role in building the HS2 high-speed railway.
When asked about London’s exploration of a new infrastructure contract with the Chinese, Mr Esper said he would want to look further at the plan — and specifically whether there would be a possible crossover between civilian and military technology.
“I would scrutinise these things so for sure,” Mr Esper said.
British officials note that Washington has dialled down its threats on the Huawei decision affecting intelligence-sharing with London, but fear this disagreement could have an impact on a post-Brexit US trade deal.
China’s foreign minister Wang Yi hit back at US criticisms, denouncing them as smears.
“All these accusations against China are lies, not based on facts,” Mr Wang said. “But if we replace the subject of the lie from China to America, maybe those lies become facts.”
The Chinese foreign minister suggested that US attempts to block Chinese equipment and infrastructure being used within Europe were a means of preventing China’s “redevelopment and rejuvenation”.
“We hope the US superpower in the world will not give up its confidence or its sense of reason,” he said.
Ms Pelosi warned European countries they will “choose autocracy over democracy” if they let China’s Huawei take part in rolling out 5G technology.
Jens Stoltenberg, Nato secretary-general, warned on Saturday that countries shouldn’t be tempted to trade short-term economic benefits for “long-term security challenges”.
Mr Pompeo batted away European fears over the transatlantic relationship and said there was more to unite the two sides than to divide them, given their shared interests in combating China’s attempts to establish an “empire”.
He played down differences in areas such as President Donald Trump’s 2018 decision to pull out of the Iran nuclear deal as “tactical”, although European diplomats list fundamental disagreements in areas such as climate and trade.
“I’m happy to report that the death of the transatlantic alliance is grossly exaggerated,” Mr Pompeo said, pointing to US efforts on boosting its military presence and cyber security in Europe. “The west is winning, and we’re winning together.”
“Don’t be fooled by those who say otherwise,” he said, adding that history showed the “weak and the meek” never won.
But speaking after Mr Pompeo, Emmanuel Macron, France’s president, warned of a “weakening” of the west, echoing wider European worries. Many European officials see an increasingly unilateral US as not just a Trump-era phenomenon, but part of a geopolitical structural change driven by forces including the rise of China, Russian’ military resurgence and the assertiveness of regional powers in the Middle East and elsewhere.
Alstom Reaches Preliminary Deal to Buy Bombardier Train Unit
French train giant enters pact that values the unit at more than $7 billion; Deal could be announced as early as Monday
French train giant Alstom SA ALO -1.00% has reached a preliminary pact to acquire Bombardier Inc.’s BDRBF -3.23% train business in a deal that values the unit at more than $7 billion, according to people familiar with the matter, the latest effort by Alstom to gain scale amid the prospect of increased competition from China’s state-owned CRRC, the world’s largest rail supplier.
The deal is also the latest move by Canada’s Bombardier to dramatically shrink its business after production problems and order delays in its core train unit and rising costs in some of its aviation units threatened its ability to pay more than $1.5 billion debt coming due next year.
If terms are completed, the deal could be announced as early as Monday, according to these people.
Paris-based Alstom is expected to acquire the business from Montreal-based Bombardier using mostly cash and some stock, according to these people.
Quebec pension giant Caisse de dépôt et placement, which owns a 32.5% stake in Bombardier’s train unit, has agreed to sell its stake to Alstom and acquire a minority stake in the combined train company, according to people familiar with the matter.
In 2017, Alstom unsuccessfully tried to merge with the train-making business of German industrial giant Siemens AG SIEGY -0.54% . But the European Commission, the European Union’s antitrust authority, blocked that proposed tie-up in 2019, arguing that it would lead to higher prices for signaling systems and the next generation of very high-speed trains in the bloc.
The Alstom-Bombardier deal would also likely face intense scrutiny from the EU among other antitrust regulators. Bombardier’s train business has a big presence in Europe with headquarters in Germany. Siemens could have reason to oppose the deal following Bombardier’s opposition to the German company’s previous deal with Alstom.
The planned sale would more than halve Bombardier’s current debt of $9 billion and reduce the once-sprawling global transportation manufacturer to a business jet manufacturer of such brands as the Challenger, Learjet and Global aircraft.
In the past year it has agreed to sell a variety of divisions including its commercial airline, turboprop and aerostructure units.
Several weeks ago it initiated talks to sell its business jet division to Textron Inc. because of concerns that negotiations to sell the train division to Alstom were bogged down. The talks with Textron are expected to be terminated once the agreement with Alstom is completed, the people familiar with the matter said.
How High Should Government Debt Go? Economists Can’t Agree
Economists warned a decade ago that pushing public debt above about 90% of GDP could hurt the economy. Now some aren’t so sure.
FRANKFURT—Governments around the world are loading up on debt, taking advantage of record-low borrowing costs to extend a long economic expansion and invest for future challenges.
Economists warned a decade ago that pushing public debt above about 90% of gross domestic product could hurt growth and increase the risk of crises.
Now they aren’t so sure.
In a world of ultralow interest rates, some say higher public debt levels are feasible, even desirable. If sovereign-bond yields remain below economic growth rates, governments should be able to issue debt without having to pay for it later, argue economists including Olivier Blanchard, former chief economist of the International Monetary Fund.
Seizing the opportunity, governments in France, Italy, Spain and the U.K. are penciling in large budget deficits for the coming years that will push their national debts close to 100% of GDP or much higher. Japan recently announced a $120 billion fiscal stimulus to shore up growth, even though public debt is more than double the nation’s annual economic output.
The U.S. has embarked on a borrowing boom, driving the annual budget gap above $1 trillion and total government debt above 105% of GDP.
But the shift is drawing censure from some regulators and international officials, who warn that high public debt still carries risks.
France’s growing public debt “is a cause for concern, since it does reduce the room for fiscal maneuver in the event of a downturn in the economy,” European Central Bank President Christine Lagarde told a French newspaper last month.
The European Commission, the European Union’s executive arm, warned eight member countries in November that they risked breaching the bloc’s rules, which require countries with debt above 60% of GDP to gradually reduce it.
Traditionally, economists worried high public debt would soak up funds that would otherwise be used for private investment, thereby lowering a nation’s capital stock and productive capacity while driving up interest rates.
Today though, very low interest rates globally suggest ample capital relative to demand.
“These low interest rates are telling us that the funds available for private investment aren’t especially scarce, so the costs we traditionally associate with high government debt aren’t as high as previously thought,” said Karen Dynan, former chief economist at the U.S. Treasury.
Higher public debt could have advantages, some economists say. It could satisfy a growing demand among investors for safe assets. It could substitute for a lack of policy ammunition among central banks, which have already cut interest rates close to zero or below. It could finance public investment in infrastructure, education, research and development, and climate-change mitigation, which could elevate potential growth.
However, some economists warn that low interest rates reflect slow growth, which makes it harder for countries to escape from under a mountain of debt. Countries with high debt are also less able to respond forcefully to economic shocks by increasing spending or cutting taxes.
“Over history, if high debt was not problematic, countries would be increasing their debts, because that’s the easiest thing in the world for politicians,” said William Gale, senior fellow at the Brookings Institution in Washington, D.C.
An IMF study published last month found that advanced economies face a substantially higher risk of entering a crisis if sovereign debt owed to foreign creditors exceeds 70% of GDP. For emerging-market economies, the threshold is 30%, according to the report, which examined more than 400 crisis episodes in 188 countries between 1980 and 2016.
Crucially, the researchers found that government bond yields often remain low for long stretches before shooting up at the onset of a crisis. That suggests governments shouldn’t rely too heavily on current low borrowing costs.
“Governments should be wary of high public debt even when borrowing costs seem low,” the researchers wrote.
The two European economies with the slowest economic growth rates over the past decade, Italy and Greece, started out with the highest public debts, notes Carmen Reinhart, a Harvard University economist. Ireland, which entered the crisis with low government debt, was quick to bounce back, she said.
Ms. Reinhart and Harvard economist Kenneth Rogoff co-wrote an influential 2010 paper that found countries with public debt above roughly 90% of GDP typically had slower economic growth.
The paper, which was used to justify austerity policies in Europe, examined data from 44 countries over about 200 years. It found that median growth rates were 1% lower than otherwise for advanced economies with public debt over roughly 90% of GDP.
Ms. Reinhart and Mr. Rogoff say their paper didn’t forecast an immediate impact once government debt rises above a certain tipping point.
“Having debt rise from 89% to 90% is no more discrete an event than having your cholesterol level rise from 199 to 200, or driving your car at 56 miles an hour in 55 mph speed limit,” said Mr. Rogoff. “There is no sharp discontinuity, and we never stated otherwise.”
Trump Administration Considers Halting GE Venture’s Engine Deliveries to China
CFM, a joint venture between GE and France’s Safran, is asking for a license to export more LEAP 1C jet engines to China
The Trump administration is considering a proposal to halt deliveries of jet engines co-produced by General Electric Co. for a new airliner being developed in China, a potential escalation of protective trade measures that could have steep repercussions for the major American manufacturer.
The administration may decline to issue a license allowing CFM International, a joint venture of GE and France’s Safran SA, to export more of its LEAP 1C jet engines to China, people familiar with the discussions said. The engines are being used in the development of that country’s Comac C919 jetliner, the latest in a planned family of new jets that is years behind schedule.
Some within the administration are concerned that the Chinese could reverse-engineer the CFM engines, allowing China to break into the global jet-engine market, undermining U.S. business interests.
People familiar with the deliberations said one goal of the push to halt the engine shipments was to cripple the development of the Comac airliner, which China hopes to build into a global competitor of the dominant narrow-body airliner models made by Boeing Co. and Airbus SE. The LEAP 1C engine is the sole engine designed for use with the new Comac C919, so interrupting the supply of engines could produce an indefinite delay in the production of the C919.
If put in place, the proposal wouldn’t bar all engines made by GE or its CFM joint venture from flying in China. Engines sold to airplane makers such as Boeing or Airbus, rather than to China’s Comac, are Federal Aviation Administration certified and don’t require the license that some in the administration want to use to hold up engines for the Comac aircraft.
GE is arguing against the move, according to a person familiar with the talks, saying that mimicking the advanced manufacturing techniques that have produced the engine is far harder than some administration officials believe. As a practical matter, GE has argued, the CFM engines have been on the ground in China for years, meaning that Chinese manufacturers could have already begun the reverse-engineering.
The potential denial of a new license for the engines is on the agenda for a meeting of administration officials scheduled for Thursday. A meeting of cabinet officials on this and other China trade policies is scheduled for Feb. 28, the person familiar said.
The administration is also considering whether to restrict exports of the avionics systems GE supplies for the C919.
GE has assured investors for years that it can sell its industrial products, which also include power turbines and medical scanners, while protecting against piracy. The conundrum for GE and other industrial companies: how to grab a share of the growing market for their products in China while protecting their intellectual property. That is especially true in the case of jet engines, for which manufacturing processes and materials are closely guarded secrets and development of new models costs billions.
GE and other American aviation businesses have received permission for years to export various systems that are being incorporated into Chinese aircraft. As recently as March 2019, the Commerce Department issued a license permitting CFM to ship LEAP 1C engines to China.
The C919 is currently being flight-tested and is slated to enter passenger service in 2021.
GE is bullish generally on the LEAP engine family, of which the 1C engine is just one variant.
“Going forward, I think we have real conviction in the LEAP engine,” GE Chief Executive Larry Culp told investors in an earnings call in January, when the company was warning that the delays in getting Boeing Co. ’s grounded 737 MAX airliner could dent the short-term profits from the engine.
Any interruption in deliveries could also weigh heavily on Safran. It would likely also trigger objections from the French government.
The Bond Market Might Finally Be Nearing Its Limit
In the next recession, bonds might stop providing investors with the protection they crave against falling stock prices
For two decades bonds have offered a form of free insurance for investors, tending to move in the opposite direction to stocks over short periods while making good money over the longer run.
But investors counting on the ballast of bonds should take note: There is reason to believe this win-win might be ending. And thus when the next recession hits, bonds may be less useful than they were in the last.
Observe what’s been happening in places with negative interest rates. Shares briefly dropped last month out of fright over the new coronavirus. Government bonds in most places did what they were supposed to do—they rose (and their yields fell). Yet in countries like Germany and Switzerland, they rose far less.
There is some sense to this: In theory, there must be some limit to how negative yields can go. As yields fall (and so prices rise), potential future gains are capped by that boundary, while potential losses from higher yields remain the same. This skew in future returns ought to make bonds progressively less attractive as they approach the lower limit on yields, restricting the gains they can make to offset stock-price falls in bad times.
The U.S. 10-year Treasury price gained almost 3% in the two weeks after human-to-human transmission of the virus was announced. In Germany, though, 10-year bonds offered less protection, with the price rising only 2.3%, even though German stocks fell further than the S&P 500. In Switzerland—which has the lowest interest rates and bond yields in the world—the 10-year benchmark made a paltry 1.2%. (The income from the U.S. bond and lack of income from the German and Swiss bonds accentuates the difference, although it is small over such a short period.)
A couple of weeks of trading doesn’t constitute proof, but this pattern seems to have started only as German yields fell toward zero in early 2015. Before that, the tendency for German stocks and bond prices to move in opposite directions was typically about the same or even stronger than for U.S. stocks and Treasurys. Since then, the correlation has been consistently weaker, suggesting investors are becoming reluctant to use German bonds—which currently guarantee a loss of 0.39% a year for 10 years if held to maturity—as an alternative to stocks.
The trouble with the theory is writ large in the example of Japan. For two decades after the Bank of Japan took interest rates to 0.5% in 1995, it seemed obvious to many that bond yields had finally hit a floor and could only go up. Yet, yields kept making new lows, with the 10-year falling from 2.8% then to slightly below zero now. Investors betting on higher yields mostly lost money.
Dhaval Joshi, chief European investment strategist at BCA Research, thinks the Japan experience won’t be repeated, because there is a hard floor for yields at around minus 1%. Beyond that, it makes sense to store bank notes in a vault instead, so central banks can’t cut the policy rate much below that without the politically explosive move of abolishing physical cash.
Bond investors might accept an even lower yield for two reasons: because they were betting on being repaid in a new strong German currency after a euro breakup, or because they value the ease of trading that bonds offer compared with physical cash. Even then, there is a limit somewhere.
Most bonds still offer some upside in a recession. If Germany’s 10-year yield fell from the current minus 0.39% to minus 1% because the economy worsened even further, the bond price would rise about 6%. But compare that to the gains in the 2008 crash, when the yield plunged from 4.6% to 2.9% in a little under six months as stocks plummeted. Bondholders made 16%, including the coupon payment, a handy offset to the 25% loss, including dividends, on Germany’s DAX index. The yield on Treasurys, at 1.62%, can fall a lot further, meaning more potential upside for the price.
There is no way to be sure that minus 1% is the right limit; after all, everyone used to think zero was the lower bound, before rates went negative. Still, as government yields have collapsed many big investors have already shifted to other assets, in part because they worry that bonds might not provide the protection they crave in the next downturn.
Assets touted as alternative portfolio cushions are typically just riskier: Stocks with a reliable dividend are more likely to cut their payout than Germany or the U.S. are to default; gold is much more volatile; momentum or volatility-trading strategies come with the risk of sudden swings or trader error; cryptocurrencies bring big security and scam risks and massive volatility, quite apart from logical flaws.
Making it harder for investors to hide from a downturn fits the bigger central-bank plan. Central banks want investors to take more risk, pushing up the price of stocks and corporate bonds and so helping finance new projects.
Investors are right to worry that deeply negative yields will probably make it hard to hedge their portfolio, and will certainly stop bonds providing the free insurance they have offered for the past couple of decades. Exactly where the limit on yields is remains a matter of guesswork, but the more negative yields go, the less effective bonds should be as protection against stock losses.
Hubei Doctors Warn Of Even-Deadlier Coronavirus Reinfection Causing Sudden Heart Attacks
Doctors working on the front lines of the novel coronavirus (COVID-19) outbreak have told the Taiwan Times that it's possible to become reinfected by the virus, leading to death from sudden heart failure in some cases.
"It’s highly possible to get infected a second time. A few people recovered from the first time by their own immune system, but the meds they use are damaging their heart tissue, and when they get it the second time, the antibody doesn’t help but makes it worse, and they die a sudden death from heart failure," reads a message forwarded to Taiwan News from a relative of one of the doctors living in the United Kingdom.
The source also said the virus has “outsmarted all of us,” as it can hide symptoms for up to 24 days. This assertion has been made independently elsewhere, with Chinese pulmonologist Zhong Nanshan (鍾南山) saying the average incubation period is three days, but it can take as little as one day and up to 24 days to develop symptoms.Also, the source said that false negative tests for the virus are fairly common. “It can fool the test kit – there were cases that they found, the CT scan shows both lungs are fully infected but the test came back negative four times. The fifth test came back positive.” -Taiwan Times
Notably, one of the ways coronaviruses cripple the immune system is via an HIV-like attachment to white blood cells, which triggers a 'cytokine storm' - a term popularized during the avian H5N1 influenza outbreak - in which an uncontrolled release of inflammatory 'cytokines' target various organs, often leading to failure and in many cases death.
The cytokine storm is best exemplified by severe lung infections, in which local inflammation spills over into the systemic circulation, producing systemic sepsis, as defined by persistent hypotension, hyper- or hypothermia, leukocytosis or leukopenia, and often thrombocytopenia....In addition to lung infections, the cytokine storm is a consequence of severe infections in the gastrointestinal tract, urinary tract, central nervous system, skin, joint spaces, and other sites. (Tisoncik, et. al, Into the Eye of the Cytokine Storm)(2012)
According to the 2012 study, "Cytokine storms are associated with a wide variety of infectious and noninfectious diseases and have even been the unfortunate consequence of attempts at therapeutic intervention."
How do coronaviruses enter the body?
With SARS (sudden acute respiratory syndrome), another coronavirus, researchers discovered that one of the ways the disease attaches itself is through an enzyme known as ACE2, a 'functional receptor' produced in several organs (oral and nasal mucosa, nasopharynx, lung, stomach, small intestine, colon, skin, lymph nodes, thymus, bone marrow, spleen, liver, kidney, and brain).
ACE2 is also "abundantly present in humans in the epithelia of the lung and small intestine, which might provide possible routes of entry for the SARS-CoV," while it was also observed "in arterial and venous endothelial cells and arterial smooth muscle cells" - which would include the heart.
This has led some to speculate that Asians, who have higher concentrations of ACE2 (per the 1000 genome project) may be affected to a greater degree than those of European ancestry, who produce the least of it - and have largely been the asymptomatic 'super spreaders' such as Diamond Princess coronavirus victim Rebecca Frasure.
And so while more research on COVID-19 is urgently needed - we know that coronavirus can target ACE2 receptors, which are found in the cardiovascuar system. And we have seen evidence of both sudden collapses and neurological damage from footage pouring out of Wuhan, China.
If the virus can reinfect patients and cause cytokine storms and sudden death - possibly exacerbated by therapeutic intervention - treating the coronavirus which CDC director Dr. Robert Redfield says will become widespread throughout the United States 'this year or next,' it is vitally important to understand exactly how COVID-19 works, and how to treat it. That would require cooperation from China and a CDC team on the ground in the epicenter. For some unknown reason, however, China still refuses to grant US scientists access to ground zero.