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Netherlands PHOTO

Dutch entrepreneurs optimistic about Chinese business climate

This week, BenCham presented the key findings of the Sino Benelux Business Survey at the Embassy of the Kingdom of the Netherlands in Beijing. Every year, BenCham investigate the business climate for Benelux businesses in China. “It is great to see that Benelux businesses are performing very well and are expecting to profit even further from the current business climate. Many are actually outperforming the local market,” said Mr. Bas Pulles, Deputy Head of Mission of the Netherlands Embassy in Beijing.

Favorable Business Climate

Dutch and Benelux businesses are optimistic about doing business in China. A majority experiences the business climate as favourable. 89% of Dutch companies realized equal or increased profits according to the survey. The success of Dutch companies may be due to their competitive position in the market, which according to businesses is thanks to their high product quality and good management. Expectations for the business results in 2018 are overall very positive.

Economic Slowdown

The Chinese economy has entered a new phase after its years of high-speed GDP growth. The aim of the government is to stimulate qualitative rather than quantitative growth by focusing on domestic consumption. So far, the effects of the Chinese economic slowdown on Benelux businesses appear limited. More than half of the businesses do not expect any impact.

“Even though we expected the economic slowdown to severely impact businesses, it seems we are already transforming towards ‘the new normal’ and the impact is limited. We believe this is mainly because many Benelux businesses are active in sectors which are booming because of economic trends such as urbanization, made in China 2025 or the rise of the middle classes,” said Mr. Roland Reiland, Deputy Head of Mission of the Luxembourg Embassy in Beijing.

Rising Salary & Regulatory Costs

Businesses experienced positive results, based on higher turnovers, better use of technology and increased efficiency. However there were also negative drivers. There is an increasing financial burden because of rising salary and regulatory costs, which makes that some businesses are considering leaving China. Also, the unlevelled playing field is making things increasingly difficult for Benelux businesses: many businesses feel local competitors receive preferential treatment. Moreover competition from other foreign owned (and Chinese) companies is growing. Also, more so than last year, businesses perceive the government regulations as restrictive.

“It is an interesting paradox really: many businesses are profiting in the current business climate but at the same time we see an increasing number of businesses contemplating to leave the Chinese market,” said Mr. Karel van Hecke, Deputy Head of Mission and Head of the Economic Department of the Belgium Embassy in Beijing. “A possible explanation may be that businesses who came here many years ago purely for cheap production are now struggling, but more recent entrants to the market are thriving,” mentioned Mr. Raoul Schweicher of Moore Stephens Advisory.

Belt & Road Initiative

For the first time the BenCham questionnaires and the Sino-Dutch survey were merged. When the 2016 edition of the Sino Benelux Business Survey was presented, little was known about the impact of the Belt and Road Initiative. Right now, more details on projects are available. However, only 16% of Dutch respondents has come across opportunities arising from BRI, and a vast majority 81% feels they don’t have enough information about BRI to profit from it.

“Let us not forget that many projects are currently being branded as a BRI-project. This makes it difficult for entrepreneurs to discover what BRI actually entails. For instance, we are already seeing some impact on for instance the logistics sector, with air routes being used much more frequently. This is due to BRI-projects, but not directly linked. It’s important that local authorities start defining BRI projects more clearly so that we can actually gain insight into the opportunities,” said Mr. Van Hecke.

Mr. Pulles added: “Because so many projects are branded as a BRI-project, businesses are very unsure of concrete opportunities. Right now, we notice most opportunities are within really specific projects for very specific parts or subprojects, for instance in the field of technology or ports. As embassies, we need to share more information on BRI and work on translating high-level BRI projects into such concrete opportunities.”

Trade War PHOTO

China slams US “blackmailing” as Trump issues new trade threat

US President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods and Beijing warned it would retaliate, in a rapid escalation of the trade conflict between the world’s two biggest economies.

Trump’s latest move, as Washington fights trade battles on several fronts, was unexpectedly swift and sharp.

It was retaliation, he said, for China’s decision to raise tariffs on $50 billion in US goods, which came after Trump announced similar tariffs on Chinese goods on Friday.

“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said in a statement on Monday.

The comments sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows.

China’s commerce ministry said Beijing will fight back with “qualitative” and “quantitative” measures if the United States publishes an additional list of tariffs on Chinese goods.

“Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions,” the ministry said in a statement.

“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US, but of the world.”

US business groups said members were bracing for a backlash from the Chinese government that would affect all American firms in China, not just in sectors facing tariffs.

Jacob Parker, vice president of China operations at the US-China Business Council in Beijing, said China would undoubtedly “begin looking at other ways to enforce action against U.S companies that are operating in the market.”

Some companies have reported Beijing is meeting with Chinese businesses to discuss shifting contracts for US goods and services to suppliers from Europe or Japan, or to local Chinese firms, Parker said.

Washington and Beijing appeared increasingly headed toward open trade conflict after several rounds of talks failed to resolve US complaints over Chinese industrial policies, lack of market access in China and a $375 billion US trade deficit.

US Trade Representative Robert Lighthizer said his office was preparing the proposed tariffs and they would undergo a similar legal process as previous ones, which were subject to a public comment period, a public hearing and some revisions. He did not say when the new target list would be unveiled.

“As China hawks, like Lighthizer and (Peter) Navarro, appear to have gained power within the Trump administration lately, an all-out trade war now seems more inevitable,” said Yasunari Ueno, chief market analyst at Mizuho Securities in Japan.

Tit-For-Tat

On Friday, Trump said he was pushing ahead with a 25 percent tariff on $50 billion worth of Chinese products, prompting Beijing to respond in kind.

Some of those tariffs will be applied from July 6, while the White House is expected to announce restrictions on investments by Chinese companies in the United States by June 30.

“China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong,” Trump said.

Trump said if China increases its tariffs again in response to the latest US move, “we will meet that action by pursuing additional tariffs on another $200 billion of goods.”

Trump said he has “an excellent relationship” with Chinese President Xi Jinping and they “will continue working together on many issues.”

But, he said, “the United States will no longer be taken advantage of on trade by China and other countries in the world.”

Cooling Chinese Economy

The intensifying trade row threatens to put more pressure on the already cooling Chinese economy, risking an end to a rare spell of synchronized global expansion and collateral damage for its export-reliant Asian neighbours.

China’s central bank unexpectedly injected 200 billion yuan ($31 billion) in medium-term funds into the banking system on Tuesday in a move analysts said reflected concerns about liquidity but also the potential economic drag from a full-blown trade war.

China imported $129.89 billion of US goods last year, while the US purchased $505.47 billion of Chinese products, according to US data.

Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank, said that means China will soon run out of imports of US goods on which to impose retaliatory tariffs.

China was unlikely change its industrial policies in response to the US trade threats, he said. That could take a long and painful trade fight.

“As I’ve said from the beginning, China will back off its industrial plans only when US trade measures are large and lasting enough to threaten the influx of foreign exchange. Not due to announcements,” he said. – Reuters

Currency PHOTO

GBP/USD – British Pound Unchanged after Carney Testimony

The British pound is showing little movement in the Tuesday session. In North American trade, GBP/USD is trading at 1.3427, unchanged on the day. On the release front, Britain posted a deficit of GBP 6.2 billion, below the estimate of 7.2 billion. This marked the first deficit after a string of three straight surpluses. British CBI Industrial Order Expectations disappointed with a reading of -3, missing the estimate of 2 points. This was the first decline since October. In the US, the Richmond Manufacturing Index jumped to 16, well above the estimate of 9 points. On Wednesday, the UK releases a host of inflation indicators, led by CPI. The Federal Reserve will release the minutes of its May policy meeting.

Bank of England Governor Mark Carney testified earlier on Tuesday before a parliamentary committee, but his remarks have had little impact on the British pound. Carney acknowledged that growth in the first quarter was weak, blaming “temporary and idiosyncratic factors”, such as massive snowstorms which hampered economic growth. The BoE has forecast growth in Q1 of just 0.4%. As for monetary policy, Carney was subtle, saying that “interest rates are more likely to go up than not, but at a gentle rate”. The bank balked at a rate hike earlier in May, due to weakening inflation and a spate of soft economic data. BoE policymakers are unlikely to raise rates before August at the earliest.

After weeks of an escalating trade war between the US and China, there was a breakthrough of sorts on Sunday. The US dollar has posted gains after Treasury Secretary Steven Mnuchin announced that the two sides had made significant progress and the trade war was being ‘put on hold’. Just last week, the White House sounded pessimistic about a deal being reached with China. The two economic giants have imposed stiff tariffs on one another in recent weeks, worth billions in trade. These moves had raised fears of a bilateral trade war between the two largest economies in the world. The respite in tariffs means that the US can sit down with the Chinese and discuss the US trade deficit with China, which President Trump has long complained is a result of a non-level playing field with China. In addition to the trade deficit, the US wants to discuss technology transfers and cyber theft.

IL PHOTO

ZTE tests China’s commitment to international law

ZTE, a Chinese technology firm, has been hit with US sanctions that threaten to cripple the company. Two lessons can be drawn from this experience. First, that companies disregard US laws at their peril. Second, that a global supply chain is inherently risky and every effort should be made to promote nationally developed technology. It looks as though China will focus on the second. That is the wrong approach.

ZTE is China’s second-largest manufacturer of telecommunications equipment, with a stock market value of $20 billion before its recent troubles. About 60 percent of its revenue comes from network business and 32 percent from consumer business. It is the fourth-largest seller of smartphones in the United States.

In Japan, it has partnered with Softbank and NTT Docomo, seeking to claim a 10 percent share of the SIM market. The company has about 200 employees in Japan, some of whom work at a Tokyo research and development center that is focused on 5G and other next-generation network technologies that Japan will roll out for the 2020 Summer Olympic Games in Tokyo. Reportedly, those facilities are too small and the company is planning to expand to accommodate between 500 to 600 engineers.

Those plans may now be on hold. Last year, the US Commerce Department wrapped up a two-year investigation of ZTE by concluding that it had violated US law by illegally shipping telecommunications equipment to Iran and North Korea. The company was charged with — and subsequently admitted to — violating US sanctions to obtain “hundreds of millions of dollars in contracts” with Iranian enterprises, including the government, from 2010 to 2016.

As a result, the US imposed a combined civil and criminal penalty and forfeiture of $1.19 billion on the company, the largest penalty ever levied in an export control case. In addition, ZTE agreed to a seven-year suspended denial of export privileges, which could come into effect if any aspect of the agreement was not met or if the company committed additional violations.

ZTE also said it would fire four senior employees and punish dozens of others who were involved. Earlier this month, it was discovered that ZTE had misled the US Commerce Department by making false statements, obstructing justice and “affirmatively misleading” the government in regard to those punishments. ZTE had dismissed the four senior employees as promised, but had not disciplined 35 others by either reducing their bonuses or reprimanding them.

US Commerce Secretary Wilbur Ross was blunt: “ZTE misled the Department of Commerce. Instead of reprimanding ZTE staff and senior management, ZTE rewarded them. This egregious behavior cannot be ignored.”

This breach triggered the seven-year ban, along with a ruling that prohibits US companies from selling to ZTE for the same period of time. That, some analysts have concluded, could put the company out of business, since it is estimated that as much as 30 percent of the components in ZTE equipment originates in the U.S. Not only companies but financial institutions — in and out of the US — are going to consider ZTE to be radioactive and avoid doing business with the firm.

The US penalty is not ZTE’s only problem. Also this month, the head of Britain’s national cyber security center sent a letter to that country’s telecommunications organisations warning that “the national security risks arising from the use of ZTE equipment or services within the context of the existing UK telecommunications infrastructure cannot be mitigated.” Other governments should be similarly concerned.

ZTE called the US decision “unacceptable” and has sought to provide additional information to modify the US Commerce Department ruling.

The Chinese government also criticised US penalties against its companies, saying that it will protect the interests of Chinese firms and urged Washington to deal with the issue in accordance with the law.

That is the issue. ZTE agreed to accept a penalty and then lied about its implementation. Beijing should be worried that its companies disregard not only the law, but their promises to national legal authorities. Beijing agreed to sanctions against Iran and North Korea and ZTE’s actions undercut them. Beijing should have been pressing the company to comply with the trade restrictions, rather than outsourcing enforcement of its international obligations to Washington. This is a worrying indicator of Beijing’s thinking about the rule of law and how it will promote international peace and security.

China’s seeming indifference to those obligations is troubling, but more disturbing is the conclusion that the best course of action is to develop a high-tech industry that would make the country’s technology independent. China has plans to develop a national semiconductor industry to reduce foreign vulnerability. This is part of a larger plan to not only develop Chinese national champions across a range of cutting-edge technologies, but to insulate its economy from foreign pressure.

That is worrisome for many reasons, not least being the balkanisation of national communications markets, with competing standards and reduced interoperability. For Japanese companies whose supply chains span the Asia-Pacific, the prospect is harrowing.

Biz PHOTO

China could target broad range of US businesses if trade spat worsens

China could target a broad range of U.S. businesses from agriculture to aircraft, autos, semiconductors and even services if the trade conflict with the United States escalates, the China Daily newspaper said in an editorial on Thursday.

Trade tension has been growing between the world’s top two economies after U.S. President Donald Trump last Friday moved to impose up to $60 billion in tariffs on some Chinese imports, promoting warnings from Beijing it will retaliate with duties of up to $3 billion of U.S. imports even as it urged Washington to “pull back from the brink.”

On Wednesday, Trump’s top trade envoy said he would give China a 60-day window before tariffs on Chinese goods take effect, but added that it would take years to bring the two countries’ trading relationship “to a good place.”

The China Daily on Thursday quoted Chinese Premier Li Keqiang as telling a U.S. Congressional delegation this week that China was open to dialogue but “fully prepared with countermeasures”.

It warned that if the conflict continued to escalate “China could consider taking reciprocal measures against U.S. imports of agricultural products besides soybeans, as well as aircraft, automobiles and semiconductors.”

“And should the Trump administration further obstruct Chinese investments in the U.S., even tougher measures such as restrictions on imports of U.S. services and similar investment reviews would likely be on the table,” it said.

Separately, Hong Kong’s South China Morning Post reported on Thursday that U.S. and Chinese officials had been holding talks to shield American soybeans and other agricultural products from trade sanctions.

Bitcoin India PHOTO

Crypto BANNED? Is cryptocurrency legal in India?

Bitcoin and other cryptocurrencies are facing a crackdown from governments around the world, including India and China, in a bid to tighten up regulations and protect consumers. But are cryptocurrencies legal in India?

Since the start of 2018, Bitcoin has suffered a massive price crash after its stratospheric growth last year sparked concern among central bankers.

International Monetary Fund (IMF) chief Christine Lagarde is the latest economic chief to wade into the argument, saying cryptocurrency regulation is “inevitable”.

And bitcoin’s price fall – slumping more than 55 percent since its December high of $19,982 – has been partly blamed on countries that are beginning to introduce cryptocurrency regulations.

Some of the most outspoken countries are India, South Korea and China.

Is the cryptocurrency legal in India?

Bitcoin and other cryptocurrencies have a complicated relationship in India because although they are not technically banned, they are not considered to be legal tender by financial institutions.

This was outlined by Finance Minister Arun Jaitley during a budget speech on February 1.

Mr Jaitley said: “The government does not consider cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto assets in financing illegitimate activities.”

Last August he told the Indian Parliament that the government had no authority to regulate cryptocurrencies.

Bitcoin trading is hugely popular among Indians and has surged in recent months across the country.

According to one estimate by bitcoin platform Unocoin, its website saw a steep rise in users towards the end of last year.

Company founder Sathvik Vishwanth told the Financial Times in January: “Early last year we were gaining about 10,000 new users each month.

“In December it was about 7,000 to 8,000 each day.”

Is cryptocurrency legislation on its way in India?

While India is not outlawing cryptocurrency just yet, it does seem to be making things very difficult for investors.

In recent days, India’s Income Tax Department announced it had issued notices to 100,000 cryptocurrency investors suspected of concealing profits.

Sushil Chandra, chairman of the Central Board of Direct Taxes, said: “We found out that there is no clarity on investments made by many people, which means that they have not declared it properly,”

“People who have made investments in cryptocurrency and have not paid tax on the profit earned by investing, we are sending them notices as we feel that it is all taxable.”

On Saturday, the Securities and Exchange Board of India chairman Ajay Tyagi said regulations on cryptocurrencies was being finalised, along with the individual roles of regulators, according to the New Indian Express newspaper.

No further information was given but investors will now be nervously waiting to hear what happens in the coming days and weeks ahead.