Gapping up
- CYAD +17.63% (Still checking, thinly traded)
- ADMP +8.57% (Submits New Drug Application to the FDA for its fast-dissolving sublingual tadalafil tablet)
- GOOS +7.73% (Opening of first Chinese store is well-received by 'eager crowds')
- CLLS +5.64% (Jumped 5% in Paris)
- GLPG +4.17% (Jumped 5% in Amsterdam)
- AMRN +3.10% (Rebounding in final session of 2018 with shares down 36% since October; name is frequently speculated as an imminent takeover target)
- IIVI +2.95% (Upgraded to Outperform from Market Perform at Northland Capital)
- STAR +2.93% (Upgraded to Mkt Outperform from Mkt Perform at JMP Securities)
- SBGL +2.65% (Gold futures up $3)
- Technology broadly higher with Nasdaq futures +1%
- MFGP +3.28%, STM +2.38%, AMZN +2.35%, AMD +2.24%, BABA +2.08% (Settled 2015 class action lawsuit), NFLX +2.12% (Strong debut for Bird Box original horror film), etc..
- Oil & Gas names moving higher with WTI Crude Oil futures +2%
- CPE +8%, RIG +3%, etc..
Huawei Rivals Nokia and Ericsson Struggle to Capitalize on U.S. Scrutiny
Nokia and Ericsson have been slow to release telecom equipment as advanced as Huawei’s, major wireless providers say
U.S.-led scrutiny of Huawei Technologies Co. should have been good news for its two biggest competitors in the telecommunications-equipment business, Finland’s Nokia Corp. NOK 3.20% and Ericsson ERIC 2.59% AB of Sweden.
It isn’t turning out to be so simple.
Major European wireless providers—big customers of all three—say Nokia and Ericsson have been slow to release equipment that is as advanced as Huawei’s.
Nokia and Ericsson also face a new, deep-pocketed challenger in Samsung Electronics Co . , the South Korean smartphone giant that is aiming to quickly grow its nascent cellular-infrastructure business.
And there is another big pitfall for the two: Both Nokia and Ericsson fear that if they are seen trying to take advantage, Beijing could retaliate by cutting off access to the massive Chinese market, people familiar with the matter said.
In recent years, Huawei has surpassed the Nordic companies to become the world’s biggest maker of cellular-tower hardware, internet routers and related telecom equipment. For the first three quarters of 2018, Huawei had a 28% share of the global telecom-equipment market, Nokia had 17% and Ericsson 13.4%, according to research-firm Dell’Oro Group. That compares with market shares in 2017 of 27.1% for Huawei, 16.8% for Nokia and 13.2% for Ericsson.
Huawei has dominated the world-wide industry despite being essentially barred from the U.S. over concerns that Beijing could order Huawei to spy on or disable communications networks. Recently, the U.S. has been urging allies to enact similar bans.
Governments and wireless providers in Australia, France, New Zealand and other countries are avoiding Huawei after saying the concerns are legitimate. Huawei says it is employee-owned and has never done espionage or sabotage on behalf of any government.
Major European wireless carriers that already use Huawei say switching to a different company would add both costs and complexity, since it would require training people to deal with different technology.
Executives at one major British wireless carrier say Huawei can deliver products nearly a year before Nokia and Ericsson can offer hardware with comparable technology. They said they were telling U.K. officials, who plan to decide by spring 2019 whether to exclude major Huawei equipment from the country, that blacklisting Huawei could delay by nine months the U.K.’s launch of 5G, the coming generation of superfast wireless technology.
A Nokia spokesman said the Finnish company is already selling cutting-edge technology in leading 5G markets, including the U.S., and has the advantage of being able to sell its products “to the entire global market.”
An Ericsson spokesman said the company is focused on providing the best products and that “the competitiveness of our technology is what matters.”
The two Nordic providers, though, come with something Huawei now lacks—a seal of approval from much of the West’s national-security establishment. Nokia and Ericsson representatives have advised the U.S., Canadian and British governments over cybersecurity issues, according to people familiar with the matter, who say the talks are part of normal government relations. In the U.S., conversations have involved giving technical advice to authorities, including congressional intelligence committees and the National Security Agency, people familiar with the matter said.
Nokia has long had a relationship with U.S. national-security officials, which in 2015 formally reviewed the Finnish company during its acquisition of French rival Alcatel-Lucent. As part of that merger, Nokia bought Bell Labs, the famous New Jersey research center that does sensitive U.S. government work.
Leaders at both companies have been careful not to publicly pile on against Huawei, according to people familiar with the matter. Nokia and Ericsson are competing to be the top supplier in their industry in China, which promised about 30% of its telecom-equipment market to European companies as part of a 2014 settlement with the European Union, according to people familiar with the matter.
About 12% of Nokia’s 2017 telecom-equipment revenue of 20.5 billion euros ($23.5 billion) came from its Greater China region, which includes Hong Kong, Macau and Taiwan. An Ericsson spokesman said 7% of Ericsson’s 2017 revenue of 201.3 billion Swedish kronor ($22.3 billion) came from China.
Nokia’s telecom-equipment business now has six research-and-development centers in China and more than 50 offices spread over megacities and provinces in the country. As of the end of 2017, Nokia and Ericsson each had an equipment-manufacturing site in China.
In 2017, Nokia’s telecom-equipment business had about 15,000 employees in its China region—about double its Finnish head count. Ericsson has 12,000 employees spread across its northeast Asia region, which includes China, Japan, South Korea and Taiwan.
Lawyers for Huawei, in a challenge to U.S. anti-Huawei measures, said in an August filing with the Federal Communications Commission that Western telecom-equipment giants all had major operations in China, too.
Nokia responded in an FCC filing that amounts to its only public criticism of Huawei. Brian Hendricks, a former congressional staffer who heads Nokia’s U.S. government-relations office, wrote that Nokia had never been suspected of participating in cyber espionage, intellectual-property theft or evading major international sanctions. “The same cannot be said of Huawei,” Mr. Hendricks wrote.
Europe’s Right Wing Woos a New Audience: Jewish Voters
Parties that oppose immigration are reaching out to a community concerned about anti-Semitism among Muslim extremists
BERLIN—Emanuel Bernhard Krauskopf’s trips to his synagogue in the German capital have become an awkward affair.
The reason: Mr. Krauskopf and about 30 others recently founded a Jewish chapter of the Alternative for Germany, or AfD, an anti-immigrant party that is the largest opposition group in parliament—one whose members include people accused of anti-Semitism, right-wing extremists and others on the political fringe.
“I’m 69 and tired of being polite,” said Mr. Krauskopf, a retired engineer and entrepreneur. “I support a party that calls a spade a spade and really stands up for the Jews.”
Across Europe, anti-immigration parties with ties to far-right movements have stepped up efforts to recruit supporters in the continent’s small Jewish community, often drawing on perceptions in that community about anti-Semitism among Muslims.
Such concerns are widespread. A recent European Union survey found that 41% of Jews in Germany who had experienced anti-Semitic harassment blamed Muslim extremists, while 20% saw the perpetrators as having right-wing political views and 16% saw them as having left-wing views.
Muslim leaders in Germany say they work to counter anti-Semitism in their communities. “Our imams are trained and aware of the issue and they work together with schools and other religious communities to combat anti-Semitism,” said Mohamad Hajjaj, chairman of the Berlin chapter of the Central Council of Muslims in Germany. He added, “The Middle East conflict is used to spread animosity against the Jews.”
The Swedish parliament includes Jewish legislators who belong to the Sweden Democrats, a party with roots in neo-Nazism that it has since renounced. Austria’s parliament includes Jewish lawmakers who are members of the Freedom Party, which was founded by former members of Adolf Hitler’s SS.
The party of Geert Wilders, the Dutch politician and strident critic of Islam, has a Jewish legislator. And in France, which has Europe’s largest Jewish community, the pollster IFOP estimated that 10% of Jewish voters supported the National Front—whose founder once called the gas chambers a “detail of World War II history”—in the 2017 presidential election. The party has since been renamed National Rally.
To be sure, Jews in Europe have traditionally supported mainstream parties, and many Jewish leaders in Europe have condemned efforts to draw their followers to right-wing parties.
Marine Le Pen, the current National Rally leader, recently reached out to Jewish leaders to offer her support and assure them she wouldn’t tolerate anti-Semitism in her party, according to Shimon Samuels, the head of the Simon Wiesenthal Center in Paris, who attended the meeting.
During the 2017 election campaign, Ms. Le Pen faced criticism after claiming the French state wasn’t responsible for the 1942 roundup of Jews to be sent to Nazi concentration camps.
Nearly 60,000 French Jews have left France in the past decade, many blaming frequent assaults against Jews—including high-profile murders and terrorist attacks—by Islamist extremists, Mr. Samuels said.
Safety concerns have also prompted Jews elsewhere in Europe to emigrate or consider doing so in recent years. The Jewish population in Europe is estimated to be more than one million people, a fraction of the Muslim population.
“The Muslim constituency is much bigger than the Jewish one,” Mr. Samuels said. “When it comes to the ballot box, everyone is vying for the Muslim vote,” he said of mainstream parties.
Right-wing political leaders such Ms. Le Pen, Italian Interior Minister Matteo Salvini and Hungarian Prime Minister Viktor Orban have all traveled to Israel to build ties not just with its government but also with local Jewish constituencies, said Michael Wolffsohn, a historian and commentator who has written extensively about anti-Semitism in Germany.
“The alienation of Jews from mainstream parties in Germany and Europe will no doubt continue as anti-Israel rhetoric and the lack of engagement regarding the danger coming from parts of the Muslim community continues,” Mr. Wolffsohn said.
While Jewish voters may represent a relatively small portion of the electorate in many European countries, winning their support could help improve the public image of far-right parties, which often face criticism for their stances against immigration.
“I don’t mind being used as a fig leaf by the AfD as long as they do the right thing,” said Mr. Krauskopf.
Jewish lawmakers who belong to far-right parties in Europe say their countries haven’t done enough to address anti-Semitism among new arrivals.
“We have failed to explain to immigrants from Muslim countries that anti-Semitism is not acceptable here,” said David Lasar, a descendant of Holocaust survivors and a legislator for Austria’s Freedom Party, who has accompanied his party’s leader on trips to Israel as part of its bid to shake off allegations of anti-Semitism.
In Sweden, Paula Bieler is one of three legislators of Jewish background for the Sweden Democrats, which won 17.5% of the vote in September elections.
“Jews feel insecure in our country and talk about leaving because it’s not a safe place for them anymore. Much of the anti-Semitism comes from the immigrant community who bring the Middle East conflict here,” Ms. Bieler said.
The recent EU survey found that 34% of Jews in a dozen European countries avoid attending Jewish events for fear for their safety, with well over a third considering emigrating because they don’t feel safe as Jews in Europe. Over 70% saw government measures against anti-Semitism as ineffective and 90% reported that hatred of Jews was on the rise.
“Decades after the Holocaust, shocking and mounting levels of anti-Semitism continue to plague the EU,” said Michael O’Flaherty, director of the EU agency that conducted the survey.
Initiatives like Mr. Krauskopf’s are particularly controversial in Germany, where far-right groups have struggled to shake off historical associations with Nazism and anti-Semitism.
In January, a court ruled against Wolfgang Gedeon, an AfD member and lawmaker from the state of Baden-Wurttemberg, in a libel case after a Jewish community leader accused him of being a Holocaust denier for challenging the number of the Nazis’ victims. The party’s co-chairman called the Third Reich “mere birdshit” in 1,000 years of German history.
Mr. Krauskopf, a former supporter of the left-leaning Social Democrats, says the AfD is the only party that isn’t shy about calling out Muslim migrants as what he considers the main source of violent anti-Semitic acts in today’s Germany.
When the Jewish chapter of AfD was established, Petr Bystron, a legislator with the party, said it was “a slap in the face” of people who try to link AfD with anti-Semitism.
Established Jewish leaders in Germany dismiss Mr. Krauskopf’s efforts. Josef Schuster, head of the Central Council of Jews in Germany, the country’s biggest Jewish body, said “a party that tolerates people playing down the Holocaust cannot possibly stand for the rights of Jews.”
Sigmount Königsberg, who is appointed by the Jewish community in Berlin to monitor anti-Semitic acts, said Mr. Krauskopf’s campaign was damaging.
“There is anti-Semitism among Muslims. But if we want to fight it, we can only do it together with the Islamic community,” Mr. Königsberg said. “Parties like the AfD are part of the problem, not the solution.”
Nouailhac - Macron peut-il encore réformer ?
La crise des Gilets jaunes, avec son dénouement provisoire mais payé au prix fort, peut-elle empêcher le président de s'attaquer aux réformes structurelles ?
Il y a quelques mois, à la fin des vacances d'été, trois économistes renommés avaient lancé chacun de leur côté un même SOS à Emmanuel Macron, le conjurant de procéder d'urgence à la mère de toutes les réformes : la réduction des dépenses publiques, avant d'ouvrir les dossiers de l'assurance chômage et des retraites. Philippe Dessertine lui avait reproché de « tergiverser » et de « reculer devant l'obstacle ». Jean-Marc Daniel avait écrit : « Le budget 2019 sera le moment de vérité. Après, ce sera trop tard. » Et Jean Peyrelevade, très pessimiste, avait enfoncé le clou : « Ayant désormais consommé, souvent à mauvais escient, les marges de manœuvre dont il disposait, il est condamné à l'immobilisme. […] Le quinquennat est malheureusement clos : l'économie française va continuer pendant quatre ans à se débattre péniblement pour essayer de sortir de la mer des Sargasses où elle rame depuis des décennies. »
On connaît la suite. Dans le budget 2019, on ne pouvait que constater une nouvelle et sévère augmentation des dépenses publiques, avec son cortège habituel de taxes et d'impôts, nouveaux ou en augmentation, le matraquage fiscal poursuivant son œuvre de démolition de la classe moyenne, de démotivation des entrepreneurs et de désintégration du tissu social national.
Puis le tsunami des Gilets jaunes s'est abattu sur l'Hexagone, aggravant encore les très mauvais chiffres de ce qu'il faut bien appeler un désastre français, conséquence de près de quarante ans de gâchis, de gabegies et d'erreurs. L'échec monumental d'une classe politique, gauche et droite confondues, étatiste, incompétente, irresponsable et pour tout dire démagogique, qui aura réussi à ruiner l'un des pays les plus riches et les plus talentueux du monde civilisé.
Cavalerie
Le résultat, le voici en quelques chiffres : une valse folle de milliards dépensés en pure perte, et toujours à la hausse. La dette publique va passer en début d'année les 100 % du PIB, pour atteindre 2 300 milliards d'euros. Les dépenses publiques vont monter à un sommet de 1 300 milliards en 2019 et le déficit direct de l'État sera de 100 milliards d'euros – un nouveau record –, sur son budget de près de 400 milliards. Résultat immédiat : la France va devoir emprunter 200 milliards d'euros pendant l'année, la moitié pour combler le déficit du budget et l'autre moitié, comme chaque année, pour payer les intérêts de la dette générale, certains emprunts du passé arrivant à échéance et devant être remplacés par de nouveaux emprunts.
Dans le privé, cela s'appelle de la cavalerie. Dans nos gouvernements, on ne parle que de « gestion adaptée »… Encore heureux que les taux d'intérêt soient au plus bas, sinon les pompiers du FMI et de la troïka européenne seraient déjà installés à Matignon et à Bercy pour passer à l'émeri les dépenses du pays, comme ils l'ont fait dernièrement avec la Grèce.
Pour le reste, nous sommes toujours les champions du monde des prélèvements obligatoires, c'est-à-dire des ponctions fiscales (taxes et impôts) et sociales (cotisations et prestations), qui totalisent, selon Eurostat, 48 % de notre PIB, soit 8 % de plus que la moyenne européenne. Or, ces 8 % représentent pour nous un montant inouï de 180 milliards d'euros par an, soit 900 milliards sur un quinquennat ! Largement de quoi rêver à un monde meilleur, à condition bien entendu d'être capables de revenir dans la moyenne européenne !
Les Français plus égaux mais plus pauvres
Ajoutons encore qu'une large majorité de Français (57 %) ne paient plus d'impôt sur le revenu et que c'est de la pure démagogie politicienne. Combien de nos concitoyens profitent de niches fiscales, et lesquelles ? ou d'avantages sociaux, et lesquels ? Ce sont sans doute les mêmes qui réclament toujours plus de social ! Impossible de connaître la vérité. Les ménages qui gagnent plus de 2 750 euros par mois, qui paient des impôts sur le revenu, qui sont propriétaires d'une maison chauffée au fuel et qui roulent au diesel pour aller travailler doivent se demander dans quel monde ils sont tombés et comment ils vont réussir à élever convenablement leurs enfants.
Dans un pays d'Histoire et d'orgueil comme la France, le nivellement par le bas est la pire des solutions. C'est pourtant celle que nos hauts fonctionnaires nous appliquent sans vergogne et depuis très longtemps. Les Français sont peut-être plus égaux aujourd'hui, mais ils sont aussi plus pauvres : le dernier revenu médian connu, celui de 2015 (20 300 euros), est inférieur à celui de 2008 (20 400). La réalité est sans doute pire, car il nous manque des statistiques sur les revenus disponibles calculés en net fiscal, c'est-à-dire après les passages de la tondeuse de l'État. Mais c'est apparemment un secret-défense !
Réduire la fonction publique
Pour donner de l'air et des marges de manœuvre à notre économie, et pour diminuer ces satanés prélèvements obligatoires, il nous faut coûte que coûte baisser nos dépenses structurelles. La priorité des priorités dès lors consiste à réformer le statut et à réduire le nombre des fonctionnaires : ils étaient 5,5 millions au 31 décembre 2017, après avoir augmenté de 45 000 unités pendant la même année 2017. Une pure folie ! Nos agents publics de plus ont le double défaut d'être à la fois les plus coûteux d'Europe (12,7 % du PIB en France, contre 9 % au Royaume-Uni et 7,6 % en Allemagne) et les plus momifiés, avec leur statut unique au monde. Comme l'écrit le magazine Capital dans son dernier numéro : « Engoncée jusqu'à la caricature dans ses “cadres d'emploi”, ses grades, ses corps et ses échelons picrocholins, amidonnée par un système d'augmentation automatique à l'ancienneté qui interdit de récompenser l'initiative, rétive à toute forme de mobilité, ramollie par l'emploi à vie, affaiblie par un système de retraite hors de prix, verrouillée par un pouvoir syndical omniprésent, bloquée par des grilles de salaire inadaptées et, de surcroît, incapable de se défaire de sa culture de la dépense […], la fonction publique made in France affiche des performances à faire sourire même un gardien de musée de l'ex-Union soviétique. »
Face à un système aussi sclérosant, il faut absolument réserver ce statut à vie aux seuls bataillons qui se consacrent aux problèmes régaliens, et surtout commencer à tailler d'urgence dans le gras pour réduire les effectifs. Puisque Emmanuel Macron, paraît-il, revoit régulièrement Nicolas Sarkozy, pourquoi ne pas lui demander comment il s'y est pris, bien ou mal, pour réduire massivement – 150 000 équivalents temps plein – le nombre des fonctionnaires d'État pendant son quinquennat ? En ne remplaçant pas un agent sur deux partant à la retraite, il avait choisi une méthode facile mais brutale et n'avait pas su éviter les coups de rabot indifférenciés en supprimant des postes de policiers et d'infirmières.
Quoi qu'il en soit, cette manière d'opérer, à condition d'y mettre un peu d'intelligence et de liant, a de nombreux avantages, à commencer par une symbolique puissante : elle montre clairement la volonté irrévocable de l'État de se réformer en profondeur. Elle est simple à mettre en œuvre, si on n'en profite pas pour créer de nouvelles usines à gaz. Elle ne gêne personne et ne met en cause aucun des avantages distribués aux Français. Et surtout, elle peut rapporter gros. Avec 193 milliards d'euros en 2017, la masse salariale de la fonction publique constitue un gisement majeur d'économies. 150 000 fonctionnaires de moins à payer parmi ceux qui partent à la retraite, cela peut représenter au bas mot une économie de 6 à 7 milliards d'euros par an. Resterait alors à s'occuper de la masse considérable des agents territoriaux (1,9 million), une armée plantureuse occupant tous les recoins d'un mille-feuille obsolète et vermoulu, mais c'est une autre histoire…
Early premarket gappers
- Gapping up:
- CYAD +10.89%, AUPH +6.15%, GOOS +5.91%, NVAX +4.89%, AMRN +4.76%, CLLS +3.98%, GLPG +3.41%, RIG +2.71%, SBGL +2.65%, AMZN +1.69%
- Gapping down:
- WATT -2.90%, PCG -0.88%
The Federal Reserve versus the markets: who has it wrong?
Central bank optimism about the global economy stands in contrast to investor outlook
The message sent by investors in stormy financial markets is clear: the global economic expansion could be in trouble. But the Federal Reserve remains optimistic, publishing strong growth forecasts for the US and plotting out more interest rate rises.
So are investors right to be worried? World output growth for this year was projected at a healthy 3.7 per cent by the IMF in October, but the fund’s outgoing chief economist Maurice Obstfeld acknowledged more recently that there is now “some air coming out of the balloon”.
Five advanced economies — Japan, Germany, Italy, Sweden and Switzerland — all experienced contractions in the third quarter of this year.
While the declines were spurred in part by one-off factors, including more stringent car emissions standards in Europe, together the economies affected represent a hefty 15 per cent of world gross domestic product, according to Oxford Economics.
Many economists expect stronger growth in the fourth quarter, but worries remain significant enough for Mario Draghi, the president of the European Central Bank, to speak of “downside risks” to the eurozone at this month’s monetary policy meeting.
Leading indicators have turned downwards, with the OECD this month noting “easing momentum” across Europe, Canada and now the US.
Growth could be set to slow simultaneously in the US, China, Europe and Japan next year compared with this year.
In the US, where the economy is on course for a 3 per cent expansion in 2018, corporate executives are getting nervous.
A total of 48.6 per cent of US chief financial officers surveyed by Duke University now believe the US will be in recession by the end of 2019, and 82 per cent think a recession will have started by the end of 2020.
Erik Nielsen, chief economist at Italy’s UniCredit bank, said he was picking up signs of anxiety in Europe as well, as global trade tensions damaged companies’ willingness to invest. “I worry more and more every day,” he said.
According to data compiled by UniCredit, global trade has slowed sharply, down to 2.25 per cent growth compared with a long-term average of 4.5 per cent.
Mr Nielsen is particularly concerned by the slowdown in China, where retail sales grew at the slowest pace in 15 years in November and factory output was the weakest in nearly three years.
A renewed escalation of the trade battles between the US and Beijing would do further damage to growth and investment in China and elsewhere.
The IMF estimates that, if all of the tariffs threatened to date were actually imposed, as much as three-quarters of 1 per cent of global GDP would be lost by 2020.
“The uncertainties have reduced investment pace,” said Laurence Boone, chief economist at the OECD. “This transition is also coming at a time of political risks in many countries and at a time when the normalisation of US monetary policy is starting to have more significant impact.”
Whether the declining confidence in markets accelerates, feeding into economic outcomes, will depend in part on how deftly central banks respond.
Stephen King, economic adviser to HSBC, noted that the Fed was “not great at delivering soft landings” in the US economy. “Things have a habit of going wrong, particularly when the economic cycle looks relatively mature,” he said.
The Fed has lifted rates nine times in three years, and is set on a balance sheet reduction programme that will contract its asset holdings by hundreds of billions of dollars next year.
This will combine with a waning US fiscal stimulus in the second half of next year. Mark Zandi of Moody’s Analytics expects the stimulus from US tax cuts and public spending increases to have evaporated entirely by 2020.
But US inflation is quiescent despite unemployment hovering at half-century lows, meaning that the Fed can afford to be patient with policy — and that is a message the central bank is likely to hammer home in the coming weeks.
The US outlook also remains healthy overall, with the Atlanta Fed’s tracking estimate for fourth-quarter GDP hovering at 2.7 per cent, compared with 3.4 per cent growth in the third quarter.
While Fed policymakers are projecting slower growth in 2019 than this year, their latest median projection is for 2.3 per cent growth next year, stronger than the economy’s longer-term trend.
Unemployment could carry on falling, if they are right, to bottom out at just 3.5 per cent, down from 3.7 per cent now and the lowest in half a century.
Nevertheless, after the US central bank’s most recent meeting, John Williams, New York Fed chief, emphasised that the country’s policymakers were taking the market sell-off and threat of a global slowdown seriously.
The Fed could slow down or pause its rate-raising cycle early next year. In fact, some economists reckon that the cycle may now be close to its end. If the Fed turns dovish on monetary policy, some of the clouds in global markets could quickly start to lift.
China drafts law to ban forced tech transfer from foreign partners
New rules would prevent local authorities from acquiring IP through joint ventures
China plans to ban local governments from forcing foreign companies to transfer proprietary technology to their Chinese partners, to address a complaint at the heart of the US-China trade and technology dispute.
The government is considering a streamlined foreign investment law that would replace the regime governing which industries are open to foreigners and the conditions under which they can enter, according to the official Xinhua news agency.
Foreign companies complain that they are required to operate through Sino-foreign joint ventures in many industries, forcing them to transfer valuable technology to Chinese partners, who later go on to compete with the foreign investor through the partner’s parent company.
The Office of the US Trade Representative emphasised such complaints in its so-called “Section 301” report on Chinese trade and investment practices, named for a provision in a rarely invoked 1974 law.
The law says that terms of technology “co-operation” should be determined by negotiation, while local governments and officials cannot use administrative methods to force technology transfers.
“The foreign investment law is meant to promote and protect foreign investment and ensure foreign businesses enjoy fair treatment, which will boost their confidence in the Chinese market,” Xinhua reported.
The draft law explicitly forbids local governments from adopting policies and practices that infringe on foreign investors’ “legal rights and interests” or erecting illegal market entry or exit barriers, according to the official Securities Times.
But foreign analysts caution that China often uses informal methods to pressure foreign groups into technology transfers. These include denying administrative approvals unless a foreign group agrees to include transfer provisions in joint-venture agreements, even when such provisions are not legally required.
“More needed than simple rule changes. Reducing coercive tech transfer would require banning and penalising informal demands and threats, [and] heavily constraining industrial policy that directs and constrains investment,” Scott Kennedy, director of the project on Chinese business and political economy at the Center for Strategic and International Studies in Washington, tweeted in response to the proposal.
The standing committee of the National People’s Congress, China’s parliament, began reviewing a draft of the law at a bimonthly session that began on Sunday. The standing committee typically conducts multiple rounds of deliberation before referring legislation to a plenary session of the NPC. That means final passage of the law could take anywhere from several months to over a year.
In addition to the provisions on tech transfer, the new law aims to streamline regulation of foreign investment. It would replace three separate laws that govern, respectively, equity joint ventures, contractual joint ventures and wholly-foreign-owned enterprises.
Separately on Monday, China’s finance ministry announced tariff cuts to 706 products, effective on January 1. Among the affected products were lithium-ion battery cells for electric vehicles and animal-feed meal used as alternatives to soyabean meal. China raised tariffs on US soyabeans as part of a tit-for-tat response to US tariffs.
China to end the year as worst performing stock market
Shadow banking crackdown and trade war wipe more than $2tn off Chinese equities
A trade dispute with the US and a crackdown on shadow banking made China the world’s worst-performing major stock market in 2018, shedding some $2.3tn in value.
Investors say that while China’s intensifying trade war with the US grabbed much of the attention, a government campaign against leverage in the financial system played a big role in slowing market demand and forcing some funds into liquidation.
China’s benchmark CSI 300 index will finish the year close to 3,000, down more than 25 per cent from where it started 2018, according to Bloomberg data. The staggering drop outpaced other poor performers: Japan’s Nikkei 225 dropped 14 per cent, the US S&P 500 was down 8 per cent and the UK’s FTSE 100 fell 13 per cent.
Worries surrounding the impact of the US trade war with China still loom large over markets ahead of the New Year. However, comments from both the US and Chinese presidents over the weekend praising “positive progress” in talks could boost markets that reopen on Monday after a choppy Christmas week.
Hong Kong’s Hang Seng climbed 1.3 per cent in Monday’s shortened session but still ended the year down 14 per cent, its worst year since 2011 when it fell by a fifth.
US President Donald Trump, who agreed to postpone his planned January increase of China tariffs at a G20 meeting early this month, said on Saturday that talks with Chinese counterpart Xi Jinping were “moving along very well”.
Arthur Kwong, head of Asia-Pacific equities at BNP Paribas Asset Management, said: “The Chinese stock market has experienced volatility over the year and seems to be pricing in an economic hard landing since June 2018 when the trade war concerns intensified.”
Liquidity in the Chinese market tightened this year, following a regulatory crackdown aimed at combating a years-long build up in leverage in the financial system. Those reforms have focused largely on so-called shadow banking, which before the clampdown saw lenders channel a significant sum of money to fund managers that then invested it in Chinese stocks.
“The banks cannot deploy funds to unqualified third parties including select asset managers and those funds have been forced to sell off to in order to get liquidity,” said Alexious Lee, head of China capital access at brokerage and investment group CLSA.
Regulators did not deploy a significant state-backed effort to stabilise Chinese stocks, however, in contrast to China’s market boom and bust in 2015.
“This time around the regulators have been very disciplined and allowed market mechanisms to play a bigger role in price determination, especially during the MSCI inclusion,” said Mr Lee.
China’s slowing economy is another factor to worry markets. Beijing reported its economy grew 6.5 per cent in the third quarter of the year, its slowest quarterly figure in almost a decade. The trade dispute is also expected to take a toll on Chinese manufacturing, one of the main growth engines.