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China wants to give its economy a big push as 2020 begins – Aljazeera.com

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The Chinese government is trying to set the economy up for a stronger start to 2020, with a multi-pronged policy push ranging from easier monetary settings to freer trade.

The latest pledge came late Monday, when Premier Li Keqiang signaled that further cuts in the amount of cash that banks have to park as reserves will be forthcoming. In theory, that will free up funds to lend to private-sector companies that have struggled to access loans this year.

The funding promise follows a wide-ranging set of initiatives to boost the non-state sector announced at the weekend, and a fresh round of tariff cuts designed to spur domestic demand released on Monday.

After a bruising year that’s seen economic output growth slow to the weakest pace in almost 30 years, modest signs of stabilization have begun to appear in incoming data. On top of that, trade negotiators this month succeeded in staving off another increase in tariffs on Chinese exports by U.S. President Donald Trump.

Speaking in the western city of Chengdu on Monday, Li said the government will continue to cut the reserve ratio for banks and look into increasing re-lending and re-discounting quotas, steps that can also help reduce overall borrowing costs for small firms.

“Beijing may cut the required-reserve ratio slightly earlier than we previously expected given an increasing risk of locally-based credit contraction in some regions, and upcoming liquidity shortage in January 2020,” said Lu Ting, chief China economist at Nomura International Ltd.. The moves would come “in the coming weeks before the lunar new year holiday, to stabilize liquidity conditions, credit supply and growth,” he said.

The private sector this year has faced difficulty accessing credit, amid a multi-year effort to reduce financial risk and rising defaults among corporate bond issuers. Despite an increase in overall credit growth, there’s evidence that not all lending is going to productive purposes.

Upgraded Outlook

Nevertheless, economists have upgraded their outlook for economic growth in 2020. Gross domestic product expansion will come in at 5.9% as easing trade tensions and the prospect of lower bank borrowing costs boost confidence, according to a survey of analysts and traders last week.

Survey respondents see policy makers maintaining a measured pace of easing into next year, trimming the price of central bank medium-term lending by 15 basis points with the first cut coming in the first quarter.

In the meantime, the leadership also stressed more opening-up of the economy, and is seeking to forge stronger partnerships with some trading members.

“To defend free trade is the only way to revitalize the economy,” Li said on Tuesday at a China-Japan-South Korea summit in Chengdu. He called for deeper cooperation between the three countries to counter the “downward economic pressure” posed by the changing global economic and political situation. He also urged the speeding up of negotiations toward a trilateral free trade agreement, which in his words, would allow China to further open its services sectors.

“China is willing to open up its finance, medical care, elderly care and other services sectors to foreign investors, including scrapping the caps on ownership requirements, step by step,” he reiterated.

Lower Tariffs

The Ministry of Finance on Monday published a list of 859 types of products that will enjoy tariffs lower than the standard rates for this year. It included frozen pork as a key item aimed at alleviating shortages of the meat due to the outbreak of African swine fever.

In 2018, imports of the listed items totaled some $389 billion, or about 18% of China’s total imports of $2.14 trillion, according to Bloomberg calculations.

Steps announced Sunday by the State Council, China’s cabinet, aim to help private firms gain better market access and equal regulatory treatment to their state-owned peers. Among actions to be taken are the further opening of key industries to non-state investors, including energy and finance, and also facilitating equity and bond sales by private-sector businesses.

The private sector, which accounts for 9 out of every 10 new jobs created in China, has been hardest hit thanks to what critics say is a regulatory regime that tilts business conditions in favor of state-owned companies.

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Economy

Canadian first quarter industry capacity use rises to 81.7%

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Canadian industries ran at 81.7% of capacity in the first quarter of 2021, up from a upwardly revised 79.7% in the fourth quarter of 2020, Statistic Canada said on Friday.

The increase in the first quarter was driven by gains in construction and in mining, quarrying, and oil and gas extraction.

Following are the rates in percent:

Q1 2021 Q4 2020 (rev) Q4 2020 (prev)

Cap. utilization 81.7 79.7 79.2

Manufacturing 76.5 76.7 76.2

NOTE: Economists surveyed by Reuters had forecast a first quarter rate of 80.6% capacity utilization.

(Reporting by Steve Scherer, editing by Dale Smith (steve.scherer@tr.com))

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UK, Canada agreed to redouble efforts for trade deal

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British Prime Minister Boris Johnson and Canadian Prime Minister Justin Trudeau agreed on Friday to redouble their efforts to secure a trade agreement as soon as possible to unlock such a deal’s “huge opportunities”.

“The leaders agreed a comprehensive Free Trade Agreement between the UK and Canada would unlock huge opportunities for both of our countries. They agreed to redouble their efforts to secure an FTA (free trade agreement) as soon as possible,” Downing Street spokesperson said in a statement.

“They discussed a number of foreign policy issues including China and Iran.”

 

(Reporting by Guy Faulconbridge, writing by Elizabeth Piper)

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Greater pricing power to help Canadian exporters withstand loonie surge

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A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.

Exports account for nearly one-third of Canada‘s gross domestic product, compared with about 12% for the United States, making Canada‘s economy more sensitive to a stronger currency, with the loonie trading near a six-year high versus the U.S. dollar.

But exporters could remain more competitive than usual after the COVID-19 pandemic led to a surge in the amount of money available for consumer spending, bolstered by government support measures. A global shortage of goods, due to supply chain disruptions, could also help.

“The appreciation that we are seeing in the currency now is less of an issue than in most other appreciations that we have seen,” said Peter Hall, chief economist at Export Development Canada.

“There are not enough goods and services available to satisfy the demands of the marketplace at the moment. And in that case there is probably pricing power,” Hall added.

The prices that Canadian manufacturers charge for their products increased at a record pace in May, while activity climbed for the 11th straight month, data from IHS Markit Canada showed last week.

Canada‘s major exports include autos, oil and other commodities. With commodity prices soaring, the Canadian dollar has been the top performing Group of 10 currency this year, advancing 5% against the U.S. dollar.

It hit a six-year high near 1.20 per greenback, or 83.33 cents U.S., last week. The Bank of Canada has said that further appreciation could weigh on the economy.

The loonie traded close to parity for much of the 2007 to 2013 period, contributing to a slow recovery for Canada‘s exports from the global financial crisis.

“What (business) was left behind after that period of an overvalued currency was relatively strong,” said Doug Porter, chief economist at BMO Capital Markets.

That reduces the risk of a “hollowing out” of the sector during the current episode of currency strength, Porter said.

At Magna International Inc, a major Canadian producer of auto parts, global diversification of its operations helps protect against currency strength.

“Movements in the Canadian dollar have become relatively less impactful to our overall business,” a company spokesperson said in an email to Reuters. “Increased global economic activity, and in particular global light vehicle production is a more important factor to our outlook.”

For now, the greater concern for manufacturers could be the reduced and more costly supply of inputs, such as semiconductor microchips, as well as the lengthy closure of the U.S. border.

“The challenge we have faced as an industry is the movement of personnel,” said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers’ Association (CVMA). “If a piece of equipment on the line goes down, you may need to bring in someone from Michigan.”

For some industries, those logistical issues and the stronger Canadian dollar could be trivial compared to the jump in commodity prices.

“Under normal circumstances, a rising Canadian dollar would hinder the competitiveness of Canadian exports, but the way ag (agriculture) markets have risen overall, it’s a moot point,” said Lorne Boundy, merchandiser for Winnipeg-based crop handler Paterson Grain.

 

(Reporting by Fergal Smith; additional reporting by Allison Lampert in Montreal, Rod Nickel in Winnipeg and Shreyasee Raj in Bengaluru; Editing by Denny Thomas and Jonathan Oatis and Kirsten Donovan)

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