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Growth doubles to 0.4pc as economy bounces back from cold snap

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Trade War Update: China Old Economy Debt Burdened As New Economy Faces Tariffs

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Customers with Xiaomi Corp. branded shopping bags look at smartphones on display inside a Xiaomi store in Hong Kong, China, on Friday, July 6, 2018. The tussle over Xiaomi’s high valuation and concern over a U.S.-China trade war have overshadowed what had been one of the world’s most highly-anticipated initial public offerings of the year. Photographer: Anthony Kwan/Bloomberg

China is starting the second half of 2018 in easing mode. It’s not just to inoculate itself against U.S. trade tariffs.

The Chinese government has been embarking on a deleveraging craze, going after shadow banking and investing in provincially owned companies and real estate development. To better understand the recent easing and pro-growth policies out of Beijing, investors need to consider how credit tightening over the last two years has hurt mid-market China. Barclays Capital analysts led by Jian Chang said in a global economics report recently that policy over-tightening designed to curb shadow lending led to rising defaults. It was those rising defaults in old sectors of the economy that led China to do an about-face on fiscal and monetary policy.

Chang is forecasting “significant downward pressure on the credit-intensive old economy to persist into the second half unless there is even more loosening.

Meanwhile, as Beijing relaxes lending of Chinese widget makers and heavy industry in old industries (think coal and chemicals), the U.S. government is going after China’s new economy. New tariffs specifically have China tech and biochem in the crosshairs, making it more costly for China to import materials needed to develop its high tech industry and human sciences field.

As Trump targets China’s new economy, Beijing is moving now on protecting both.

Best frenemies. Xi Jinping has opted for a tit-for-tat strategy against Trump’s  tariffs. The end games is the remapping of the global supply chain, and ultimate pressure on the ruling Communist Party.  Photographer: Qilai Shen/Bloomberg

Trade War Results   

China is not expecting a quick resolution to the dispute with Washington. It seems Beijing is prepared for a long-term battle as recent Politburo and State Council

meetings both called for more concerted policy easing to boost domestic demand in the face of escalating external uncertainties.

“The government will likely gradually move from tit-for-tat retaliation to more controlled and selective retaliation while accelerating its open-up and reform agendas,” says BarCap’s Chang. The government-controlled People’s Daily released a twitter comment on August 6 actually welcoming Google back to mainland China. Google agreed to abide by the Communist Party’s censorship laws. Google will now compete directly with search engine powerhouse Google in search and online advertising.

The move came less than a week after China released its list of targeted U.S. goods worth $60 billion.  Everyone in the market is expecting Trump to impose tariffs on $200 billion worth of Chinese imports next month. Last month, Trump hit China with $34 billion in tariffs and last week announced that China will face another $16 billion, effective Aug. 23.  Assuming the proposed 25% tariff on $200 billion is announced by Sept 5, China’s GDP growth rate is expected to contract by half a percent, based on Barclays’ estimate. It is one of the more conservative estimates around. Other estimates, by fund firms like Matthews Asia, expect a 1% reduction to around 5.5% GDP growth if the $200 billion is thrown in on top of existing tariffs.

Even though China’s old economy — dependent on the government and municipal level leadership — has been facing a credit crunch of sorts, not to mention new, stringent, environmental regulations, China trade has been moving along at only a slightly slower pace.

Growth in China’s exports to the U.S. eased to 11.2% in July from 12.5% in June, while falling to the EU and Asian countries as well. On the other hand, China’s imports from its major trading partners increased in July, including from the U.S.

Market expectations are for easier monetary policies and other stimulus to help alleviate some pain from Trump’s tariffs. China debt watchers will likely not be too pleased to see debt junkies in China going to town once again, especially if the new tariff regime comes in worse than anticipated.

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Iranians vent anger at Trump as the wheels come off their economy

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“The price of an egg has doubled, and milk is about 40% more expensive,” he says, putting a half-empty bottle back into the chill. “Fruit and vegetables have gone up 100%.”
This is the everyday world of a Tehran taxi driver, caught up in the onslaught of the Trump administration’s policy toward Iran and the country’s economic slide.
Taraji has been particularly hard-hit as he drives a foreign car, a Toyota, and spare parts for these are under renewed American sanctions that kicked in a week earlier. This means mending the family business is now impossible to afford. The local currency has dropped to a third of its value in 2017, and their plush, yet tiny, two-room apartment feels it hard.
“It’s caused us to work longer days to make ends meet,” he says. Their home may soon be up for sale if these hardships continue. But he worries most about the education of his children, Artin, 7, who dutifully recites from his English textbook, and Asal, 13, who plays a gentle Siciliana riff on her acoustic guitar.
Iran's Supreme Leader: No war or talks with US over sanctions
It is a stark reversal in the US’s policy toward ordinary Iranians. Taraji was the kind of middle-class, outward-looking family man that the Obama administration felt might encourage moderation in Iran, were the economy to benefit from the lifting of western sanctions. That was the logic behind the nuclear deal signed in 2015, under which the US, several European countries, Russia and China agreed to lift an effective economic blockade in exchange for Iran submitting to checks on its nuclear facilities.
The agreement brought a string of billion dollar deals with Western firms for airplanes and oil exploration in Iran. But the benefits were largely stymied by a fall in global oil prices and the election of Donald Trump, which introduced uncertainty for investors. For the average Iranian, the results have been lackluster, and Iranian President Hassan Rouhani has been criticized for making concessions that extracted little in return.
Earlier this year, Trump pulled out of the deal against the advice of his closest European allies, setting in motion events that led to the reimposition of sanctions earlier this month. His administration believes that renewed economic pressure will turn ordinary Iranians against their leaders.
While economic hardships have led to sporadic protests across Iran over the past eight months, it is far from clear that this new US approach is undermining Rouhani’s comparatively moderate administration. In fact, many Iranians we spoke to — with a government-appointed translator sometimes present — said they blame Trump for Iran’s turmoil, rather than their own officials.
What impact will US sanctions on Iran actually have?What impact will US sanctions on Iran actually have?
This week, Iran’s supreme leader Ayatollah Khamenei indicated — in a rare admission of error — that it was a mistake to permit his diplomats to negotiate the nuclear deal in the first place, according to the semi-official Tasnim news agency. It is unclear if this was a bid to distance himself from a policy closely associated with Rouhani, or to draw a line under the affair as sanctions begin to bite and Iran looks elsewhere for economic assistance. Khamenei also stated that neither war nor talks with the US were an option.
We met Taraji at an unusual frontline for this geopolitical tussle: a Toyota repair shop in eastern Tehran. He is peering into his stricken taxi, covered in dust, its side panels missing, and its rear window sporting “plz wash me” graffiti in the dust.
The car was bought as a money-making machine, but now the income from passengers and tourists he used to collect from the airport has dried up. The spare parts to fix the Toyota are either unavailable or unaffordable, but the repayments on the car haven’t gone away.
The Toyota sits in a yard that should mostly be deserted as repaired cars are taken away by their owners. But instead, the lot is clogged. Out back, owner Nabiullah Sardashtani, 65, shows us why. Shelves in the spare-parts room, normally piled high with replacement sparkplugs, are instead mostly empty. He says they will be barren in less than a few months. It’s oddly also quite an expensive haul now — those remaining foreign auto spares in Iran have tripled in value.
US general criticizes leader of Iran's Quds ForceUS general criticizes leader of Iran's Quds Force
As a light bulb eerily blinks above Sardshtani, I ask whether this discomfort makes Iranians like him feel that they should rise up against the government.
“No,” he says bluntly. “Because the hungrier the people get, the more they are going to hate Trump. If he acted properly, people might have loved him. America is punishing the people of Iran. A mechanic who used to work on four or five cars a day can now only work on one car because there are no parts. So they are making less money.”
He explains that around a hundred people depend upon his repair shop: he has 20 staff, each with a family of about five.
“But look around,” he said. “Business is at a standstill.”
Worse is yet to come when US sanctions against the oil industry, which is behind about a fifth of Iran’s gross domestic product, kick in during early November. The question is whether the blunt instruments employed by the Trump administration change the political calculus in Iranian heads at all.

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Asian stocks slide as investors fret over China's economy

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TOKYO — Asian shares fell Thursday after deepening worries about global economic growth, particularly in China, set off a rout on Wall Street.

KEEPING SCORE: Japan’s Nikkei 225 index fell 0.1 per cent to 22,192.04 and the Hang Seng in Hong Kong lost 0.7 per cent to 27,144.46. The Shanghai Composite index sank 0.6 per cent to 2,706.01. South Korea’s Kospi reopened from a holiday and tumbled 0.8 per cent to 2,240.80. Australia’s S&P ASX 200 edged 0.1 per cent lower to 6,323.20. Shares fell in Taiwan and Southeast Asia.

WALL STREET’S SLIDE: Large technology companies such as Alibaba and Baidu of China and U.S. tech giants including Facebook and Microsoft fell. The S&P 500 declined 0.8 per cent to 2,818.37. Earlier it lost as much as 1.3 per cent. The Dow Jones Industrial Average shed 0.5 per cent to 25,162.41. The Nasdaq composite dropped 1.2 per cent to 7,774.12. The Russell 2000 index of smaller-company stocks sank 1.3 per cent to 1,670.67.

TENCENT SURPRISE: An unexpected drop in profits for Chinese tech giant Tencent rattled investors, adding to recent concerns about the health of China’s economy. Tencent, a gaming and messaging company, is the most valuable technology company in China. Jefferies & Co. analyst Karen Chan said Tencent’s revenue was also disappointing, mostly because of weak results from its mobile gaming business. Tencent’s stock fell 3.2 per cent in Hong Kong.

CHINA FACTOR: Earlier this week, reports on growth in factory output, consumer spending and retail sales in China were all slower than expected. But there was encouraging news in Beijing’s announcement that it is sending a trade envoy to Washington, renewing efforts to resolve the worsening tariff dispute with the Trump administration.

ANALYST’S VIEWPOINT: Emerging market shares are taking a pinch from weak commodities prices, Mizuho Bank said in a commentary. Apart from that, “China’s moderating growth also adds further concern given that its potential weaker import demand could ripple through the supply chain and hit export-oriented economies.”

TURKEY’S TROUBLES: Turkey’s currency fell 2.9 per cent to 5.79 to the U.S. dollar. The country has imposed $500 million in tariffs on U.S. goods as tensions between the countries increase. There is also no sign that Turkey’s president will let the central bank raise interest rates, which economists say it should do urgently to support the currency.

ENERGY: U.S. crude stabilized, adding 14 cents to $65.15 per barrel in electronic trading on the New York Mercantile Exchange. It sagged 3 per cent to $65.01 a barrel in New York. Brent crude, the standard for international oil prices, picked up 40 cents to $71.16 per barrel. It had lost 2.3 per cent to $70.76 a barrel in London.

CURRENCIES: The dollar rose to 110.82 yen from 110.72 yen. The euro rose to $1.1378 from $1.1346.

——–

AP Markets Writer Marley Jay contributed. He can be reached at http://twitter.com/MarleyJayAP His work can be found at https://apnews.com/search/marley%20jay

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