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Monthly Archives: September 2022

Chart: Both U.S. Initial and Continuous Jobless Claims Fell Last Week

Source : Bloomberg

Chart: U.S. Treasury 10-Year Yield Rises Above 4% to Highest Since 2020

Source : Bloomberg

Chuckles of the Day





10 Great Excuses for Sleeping at Work

  1. “I was doing a highly specific Yoga exercise to relieve work-related stress.
  2. Do you discriminate against people who practice Yoga?
  3. “Why did you interrupt me? I had almost figured out a solution to our biggest problem.”
  4. “The coffee machine is broken.”
  5. “Someone must’ve put decaf in the wrong pot.”
  6. “Boy, that cold medicine I took last night just won’t wear off!”
  7. “It worked well for Reagan, didn’t it?”
  8. “I was cross-training for telecommuting.”
  9. “Ah, the unique and unpredictable circadian rhythms of the workaholic!”
  10. “Wasn’t sleeping. Was trying to pick up a contact lens without hands.”

* * * * * * *

10 More Great Excuses for Falling Asleep at Work

  1. “It’s okay: I’m still billing the client.”
  2. “They told me at the blood bank this might happen.”
  3. “This is just a 15-minute power nap like they raved about in that time-management course you sent me to.”
  4. “I was working smarter, not harder.”
  5. “Whew! I must have left the top off the liquid paper.”
  6. “I wasn’t sleeping! I was meditating on the mission statement and envisioning a new paradigm!”
  7. “This is one of the seven habits of highly effective people!”
  8. “I was testing my keyboard for drool resistance.”
  9. “I’m actually doing a “Stress Level Elimination Exercise Plan” (SLEEP).
  10. “This is in exchange for the six hours last night when I dreamed about work!”





How the Bank of England Should Respond to U.K. Fiscal Policy Crashing the Pound

Adam S. Posen wrote . . . . . . . . .

Given the irresponsible fiscal policy announcement of the UK government last Friday, and the rout of the pound that followed, the Bank of England had few good options on Monday. Clearly, there is a fundamental macroeconomic conflict between the Truss government’s so-called growth program of large-scale spending and the Bank’s need to reduce trend inflation. While there cannot be a currency crisis in the UK, which has a flexible exchange rate and issues public debt in its own currency, a collapsing currency is still a major problem for its inflation and financial stability. The Bank had to make a choice.

So the Bank’s governor, Andrew Bailey, issued a statement that the central bank’s Monetary Policy Committee (MPC) would make a “full assessment” at its next scheduled meeting in November and that “The MPC will not hesitate to change interest rates by as much as needed….” The pound then continued to fall, and market expectations priced in more future interest rate increases, up to 6 percent in 2023.

It is right and necessary for an independent central bank to wait silently (in public) for the elected government to move forward with its fiscal plans, whatever they are. When the Bank of England leadership made clear a preference on fiscal policy for one party’s platform in the run-up to the 2010 UK election, it was a grievous mistake. But it is also right and necessary for an independent central bank to speak frankly about the economic impact of the sitting government’s fiscal plans once made and state that it will alter policy in response. Part of the inflation problem in the US at present is because the Federal Reserve failed to respond publicly to the massive short-term fiscal stimulus of the American Rescue Plan once passed in March 2021. There is a point in the sequence where the central bank should not stay neutral or encouraging (just as elected officials are free to criticize monetary policy ex post).

I believe that the Bank of England should be making it clear that the government’s reckless budgetary statement is having consequences that will surely require higher interest rates. The Bank can do so by making clear the program’s implications for the UK economy and thus for what the Bank will do with interest rates. When a government’s discretionary expansionary fiscal policy leads to a falling rather than a rising currency, despite rising rates, it is a clear signal that markets doubt the credibility of the government’s economic competence or goals, in this case for good reason.

One option would have been for the Bank to remain silent, letting the currency fall further. This would have been a clear statement that depreciation of the pound was only to be expected, given the fiscal policy, and the onus was on the government to reverse that policy. That would be a risky choice, and if a newly installed Prime Minister and Chancellor had privately made clear they would not reverse until calamity hit, it would be irresponsible for the Bank to let the pound go into free fall.

Once the Bank decided to speak, however, it should have put more emphasis on a promise of higher interest rates, rather than sounding neutral about the proposed fiscal policy and even positive about parts of it. For example, I would not have acknowledged that the initial effect of the energy price caps would be to reduce headline inflation since that benefit is likely to be offset, perhaps fully, by the inflationary effects of tax cuts and depreciation of the pound. Certainly, I would not have included in the statement the seemingly complimentary comment, “I welcome the Government’s commitment to sustainable economic growth,” when the option was available to make no normative comment at all.

So, the statement I would have issued would read as follows:

“It is a simple economic reality that sustained large movements in exchange rates will affect the UK inflation forecast, and therefore the amount and duration of moves in the Bank’s policy rate in response. It is also a simple reality that the Bank takes the Government’s programs as given when making our forecasts, so large movements in HM Government’s fiscal stance will be responded to by monetary policy in so far as they alter the inflation outlook on net.

Our path of interest rate hikes in the period ahead therefore will likely have to steepen and lengthen from what it was before the Chancellor’s announcement last Friday and the subsequent movements in the trade-weighted pound exchange rate (if those changes persist). If in the Monetary Policy Committee’s assessment the inflation outlook will be higher, policy will be set accordingly. While it remains for the Committee to make a more precise update of the economic outlook ahead of our November meeting, there is no question that outlook must be for significantly higher inflation now than it was when we last met.

The exchange rate is not a target of the Bank’s monetary policy. The pound is not in a fixed exchange rate arrangement, and therefore there is no market-traded level of the pound that threatens the Bank’s mandated goals in and of itself. The impact of movements in the exchange rate, however, can be material for the inflation outlook, and accelerating movements can be destabilizing in extreme situations for inflation expectations and financial markets.

As was the case in 2008-09, the MPC is ready to make rapid adjustments in the stance of monetary policy between scheduled meetings as part of our mandate should financial conditions warrant. These adjustments could be in the policy rate, in balance sheet operations, or both, as needed. If we see acute indications of rising financial stress or jumps in inflation expectations, we will not wait for a planned MPC meeting to respond.”

The irony is that the founding triumph of the Bank of England’s inflation targeting regime was the anchoring of inflation when the pound left the European Exchange Rate Mechanism in 1992, 30 years ago this month. For the three decades since then, including during the Global Financial Crisis, the Bank was able to largely ignore the exchange rate when setting monetary policy. This was because it was confident that the pass-through from moves in the sterling exchange rate to domestic inflation would be temporary and one-off.

As I warned starting in 2017, Brexit would undermine this anchor because it would make less credible the commitment of UK governments to stability. A smaller, more closed economy, with less access to markets and more friction with its largest economic partners, would be less buffered from economic shocks. Large inflation shocks would then be more persistent contributing to trend inflation, not simply one-off as before.

That meant the UK macro regime was going partway back to the 1970s, irrespective of the Bank of England’s commitment to its inflation target. The MPC would have to again start to keep one eye on the exchange rate when setting policy, not solely focusing on the domestic outlook.

Now, the Truss-Kwarteng fiscal policy package has taken the UK policy regime right back to 1974, bringing pound weakness front and center. The years that followed were the nadir of British postwar economic performance and awful for the British people.

One key difference now is that the Bank of England is independent. That independence should be exercised to put up rates quickly all the while explaining to the public that interest rates will have to go even higher for longer than they otherwise would have, given the government’s fiscal stance and its impact on the pound.

As with Brexit, UK elected officials have the right to disregard predictable and predicted economic costs. And as with Brexit, the Bank was right to stay publicly silent on those costs until the political decision was made. Now, however, the Bank of England should not hesitate to respond to those sad realities and to matter of factly attribute them to the government’s choices.


Source : The Peterson Institute for International Economics

China’s Economic Stimulus Explained – Understanding China’s Monetary and Fiscal Policy

China is ramping up stimulus measures to mitigate the impact of COVID-19 lockdowns and external disruption to the economy. The government is hoping that “prudent” monetary measures, such as reduced lending costs and profit transfers, and “proactive” fiscal tools, such as tax and fee relief, which saw the country through 2020 will have the same effect in 2022. We explain China’s economic stimulus measures and discuss how they are being expanded and implemented in 2022.

The COVID-19 pandemic has presented unprecedented challenges to the world economy, many of which persist until today. The sky-high cost of commodities and enduring supply chain bottlenecks caused by the disruption of 2020 has now been exacerbated by geopolitical conflict. In China, new waves of COVID-19 have led authorities to lock down parts of the country, creating new hurdles for an economy already facing a slowdown from global economic pressure and a slump in the property sector.

Despite the headwinds from external and internal factors, China succeeded in maintaining positive GDP growth in both 2020 and 2021 – at a rate of 2.3 and 8.1 percent respectively. In March of this year, set an ambitious target of “around 5.5 percent” GDP growth for 2022.

This goal now appears increasingly difficult to meet. Significant economic disruption from COVID-19 lockdowns and restrictions on movement, global economic pressure stemming from the Russia-Ukraine war and strained supply chains, and persistent issues such as high commodity prices and a slumping property sector, have compounded to create an increasingly difficult situation.

Since the outbreak of the pandemic in 2020, China has employed a series of targeted policy tools to stimulate the economy and support vulnerable businesses and people. These stimulus measures are in part to thank for keeping the economy afloat throughout the last two turbulent years.

Now, with increasing urgency to boost the economy in the lead-up to the pivotal 20th Party Congress in the latter half of the year, the government is extending, expanding, and ramping up these support measures. However, it is also moving relatively carefully, adhering to a long-held practice of cautious monetary easing and targeted fiscal policy.

Background: 2022 economic indicators

China’s economy grew at a rate of 4.8 percent year-on-year in the first quarter of 2022. This was a better-than-expected result, surpassing the 4 percent growth seen in the last quarter of 2021. However, most of this growth occurred before significant disruption to the economy stemming from COVID-19 outbreaks and the outbreak of the Russia-Ukraine war.

Other economic indicators from the past few months show that the GDP data for the second quarter may not be as rosy.

In the period between January and April 2022, for instance, real estate investment decreased by 2.7 percent year-on-year with investment in residential real estate decreasing 2.1 percent year-on-year. The year-on-year growth rate of real estate investment in 2021 was 4.4 percent, despite significant turmoil in the sector that year.

Real estate investment is an important indicator of economic health because the property sector plays an outsized role in the country’s economy.

Consumption has also taken a significant hit over the past few months. In April, the total retail sales of social consumer goods dropped by 11.1 percent year-on-year, a more severe decrease than the 3.5 percent seen in March. From January to February, the indicator grew by 6.7 percent year-on-year.

Manufacturing PMI, which gives an indicator of manufacturing activity in a given month, has also dropped since March 2022, reaching a low of 47.4 in April (a PMI of above 50 indicates an economic expansion compared with the previous month, while a PMI of below 50 indicates a contraction).

However, the figures from May indicate a slight recovery. The PMI of large enterprises reached 51, up 2.9 percentage points from the previous month. Small and medium-sized companies still experience a contraction, but at a smaller rate, with PMI reaching 49.4 in May, up from the low of 46.7 in April.

The production index also saw significant improvement, reaching 48.2, up from 44.4 in April, while new orders increased by 5.6 points to reach 48.2 This indicates that the decline in manufacturing market demand narrowed in May.

What stimulus measures has China implemented so far?

China has consistently refrained from using universal cash-in-hand measures to stimulate the economy, such as those seen in countries such as the US, leaning instead on the country’s financial system to support the private sector, implementing preferential tax policies and fee cuts, and increasing government spending and investment to indirectly support the real economy.

Since the initial outbreak of COVID-19 in early 2020, the government has been utilizing a series of fiscal and monetary tools to provide support for companies struggling under growing economic pressure, which we discuss below.

Fiscal policies

Tax rebates and fee cuts

The government has deployed a host of preferential tax policies and fee cuts to support both businesses and individuals throughout the pandemic. These include refunds, waivers, and reductions to corporate income tax (CIT), value-added tax (VAT), and individual income tax (IIT). Many of these applied to small businesses and companies in industries that were particularly hard-hit by the pandemic, and individuals working in essential roles, such as healthcare workers.

Starting in late 2021, China rolled out a raft of tax relief measures for small businesses to provide financial relief in the face of economic pressure from continued COVID-19 disruption and rising operational costs. Industries covered include manufacturing, services, and technology, as well as low-profit enterprises in other industries.

In March 2022, the tax bureau revealed that China had issued US$39 billion in tax deferrals to small businesses that month alone, as a result of the tax policies implemented in 2021 and extended in the first half of 2022.

In the 2022 Government Work Report released in early March, the government further ramped up its tax policy, pledging a total of RMB 2.5 trillion (US$374 billion) in tax refunds and reductions in 2022, of which RMB 1.5 trillion (US$224.5 billion) would be earmarked for VAT rebates. All of this amount of money is to go directly to companies.

In addition to tax relief, the government has also extended fee cuts for small businesses and companies in certain industries. This includes deferral of social security premiums, housing provident fund payments, loan interest, as well as reduction of education surcharges.

Special purpose bonds

Local government special-purpose bonds (SPBs) are one of the key ways in which local governments fund infrastructure and other public projects within their jurisdiction. Importantly, investment in infrastructure is also one of the government’s main strategies for boosting economic growth.

There are certain limits and criteria for the types of projects that can be financed via SPBs – for instance, they are limited to nine major areas, including transport, energy, and affordable housing.

In 2021, the Chinese government set the SPB quota at RMB 3.65 trillion (US$547.5 billion). According to data from the State Council, funds raised from around 50 percent of the bonds were used to invest in transportation and municipal and industrial park infrastructure projects, and around 30 percent went to affordable housing projects and social undertakings such as healthcare, education, pensions, and tourism.

Following the economic slowdown in the second half of 2021, the government decided to front-load the 2022 quota of SPBs, releasing RMB 1.46 trillion (US$218.5 billion) of the 2022 quota in late December 2021, in order to boost spending at the beginning of the year.

As the economy met further headwinds from stringent COVID-19 lockdowns and containment measures in cities such as Shenzhen, Shanghai, and Beijing, as well as increasing instability in the global economy as a result of the Russia-Ukraine war, the government has strived to further speed up the issuance of SPBs.

A set of 33 policy measures released by the State Council at the end of May urged local governments to complete the issuance of all of the RMB 3.45 trillion (US$517.5 billion) of the SPBs that have already been released by the end of June and have mostly used them up by the end of August. The total quota for SPBs in 2022 has been set at RMB 3.65 trillion (US$547.5 billion).

Monetary policies

PBOC profit transfer

In March 2022, the PBOC announced (link in Chinese) an RMB 1 trillion (US$149.6 billion) profit transfer to the government. According to the statement, the funds would primarily be used for tax refunds and transfers to local governments to help them provide support to local businesses and people.

RRR cuts

Another of the government’s monetary policy tools is cutting banks’ reserve requirement ratio (RRR). The RRR is the amount of liquidity that banks must withhold against the amount they invest. A lower RRR means that banks have more cash to spend.

In December 2021, the PBOC cut the RRR by 0.5 percent, freeing up RMB 1.2 trillion (US$179.6 billion) for banks. The central bank had previously cut the RRR by the same amount in July 2021, releasing about RMB 1 trillion (US$179.6 billion) in funds. This will allow banks to provide more loans to businesses struggling in the economic slump at the end of the year, according to analysts.

The first RRR cut in 2022 occurred on April 25, however, it was significantly smaller than previous cuts at 0.25 percent, freeing up RMB 530 billion (US$79.3 billion).

LPR cuts

Another key tool for stimulating the economy is cutting the loan prime rate (LPR). The LPR is the benchmark corporate loan and mortgage rate for commercial banks set by the PBOC. The LPR benchmark is set on the 20th of every month and is based on the proposed rate of 18 commercial banks, including two foreign banks. The LPR is also underpinned by the medium-term lending facility (MLF) rate, which is set by the PBOC. We discuss the MLF in more detail below.

Lowering the LPR, therefore, reduces the costs of new loans for borrowers, helping to inject more liquidity in the economy. It can therefore also help boost housing sales as new mortgages become cheaper.

In May 2022, the PBOC cut the five-year LPR by a record amount, from 4.6 percent to 4.45 percent, in part to help boost the property sector.

Relending programs

Since the outbreak of the pandemic, the PBOC has increasingly been leaning on its relending program to extend support to small businesses and hard-hit sectors. Re-loans, also known as central bank loans, are loans that the central bank provides to commercial banks. The PBOC also sets the relending rate, meaning it can control the price of loans and enable banks to issue cheaper loans by lowering the relending rate.

Recent examples of these programs include an RMB 100 billion (US$15 billion) relending program to support the transport industry launched in May 2022 and an RMB 40 billion (US$6 billion) relending program for elderly care.

In December 2021, the PBOC also cut the relending rate for small businesses and rural industries.

Medium-term lending facility

The MLF is a key channel through which the PBOC can inject liquidity into the banking system. Through the MLF, the PBOC provides medium-term loans (about three months to one year) to large commercial banks to provide them with more cashflow

The MLF rate is the interest rate at which the PBOC provides the loans to the banks. A lower MLF rate, therefore, makes borrowing cheaper for the banks. Because the MLF rate also influences the LPR, cuts to the MLF will also reduce the cost of loans for companies and individuals.

The last time the PBOC cut the MLF rate was in January 2022, when it reduced the rate from 2.95 percent to 2.85 percent on one-year MLF loans worth RMB 700 billion (US$104.8 billion). In March 2022, the PBOC injected RMB 100 billion (US$15 billion) worth of one-year MLF funds (link in Chinese) into the banking system but did not cut the MLF rate as expected.

How has China’s “prudent” monetary policy helped the economy?

China has been steadfast in its use of a “prudent” monetary policy throughout the pandemic, constantly reiterating that it would refrain from using measures that risk “flooding” the market with liquidity.

This “prudent” monetary policy means using highly targeted monetary tools, such as relending and policy loans to provide support for specific industries and groups of people, as well as broader tools, such as RRR and LPR cuts to increase liquidity through the banking system.

Shortly before the 2022 Two Sessions held at the beginning of March 2022, the People’s Bank of China (PBOC), China’s central bank, posted an article on its official WeChat account. The article highlighted the benefits of this policy on China’s economy, stating that it has ensured stability in the years leading up to and throughout the pandemic in several ways.

One of these is maintaining a stable price of goods. According to the PBOC, China has been a considerable stabilizing factor for the price of goods as the cost of commodities and inflation in developed countries rose considerably during the pandemic. In January 2022, the global commodity price index (CPI) rose 46 percent year-on-year, with the US and Euro area seeing a 7.5 percent and 5.1 percent rise respectively. According to the National Bureau of Statistics (NBS), China’s CPI rose just 0.9 percent year-on-year that same month, maintaining an average CPI growth of 2.1 percent since 2018.

Moreover, the policy has enabled China to maintain the exchange rate of the renminbi stable, despite turbulence in international financial markets. During the 973 trading days in China’s foreign exchange market from 2018 to 2021, the central parity rate – the rate at which the currency trades against other currencies – of the renminbi against the US dollar appreciated on 485 trading days, depreciated on 487 trading days, and remained flat on one trading day. According to the PBOC, these changes reflect the normal two-way fluctuation.

In addition, these achievements have also helped prevent severe inflation from interfering with economic growth and enabled China to take appropriate measures in the event of downward pressure on the economy.

The prudent monetary policy has also enabled the PBOC to be more flexible and precise in its approach to economic stimulus, allowing more room to inject liquidity into the areas that need it the most when required. This is most commonly achieved through means such as RRR cuts, cuts to the LPR, cuts to relending rates, increasing the proportion of inclusive loans for small businesses, and other monetary measures to stimulate the real economy.

Can we expect more stimulus measures in 2022?

According to estimates by Bloomberg, China’s total pledged stimulus for 2022 currently amounts to RMB 35.5 trillion (US$5.3 trillion) – significantly higher than in 2021 but still below RMB 37.5 trillion (US$5.6 trillion) seen in 2020. Excluding general budget expenditure, the fiscal and monetary stimulus amounts to RMB 8.8 trillion (US$1.3 trillion) thus far in 2022 and RMB 12.8 trillion (US$1.9 trillion) in 2020.

The PBOC deployed its main stimulus tools more frequently in 2020 than it has done so far in 2022. For example, in 2020, it cut the RRR rate three times between January and May 2020. This indicates that the government may still have room to further ease monetary policy and expand upon fiscal measures to boost the economy in 2022.

Although the smaller-than-expected RRR cut in April and lack of an MLF cut in March prompted some analysts to believe that further RRR and lending rate cuts were unlikely, the government has since hinted that it may yet turn to these tools. The 33 stimulus measures released on May 31 call for “promoting the steady and moderate reduction of real loan interest rates” and to “continue releasing the efficacy of the mechanism reform for setting the LPR”.
The measures also encourage financial institutions to establish a “green channel” for financial bonds for agriculture, rural areas, and farmers, SMEs, green industries, and entrepreneurship and innovation.

Expansion of fiscal stimulus is also possible. The State Tax Administration recently expanded its VAT credit refund program to even more companies, increasing the number of covered industries from six to 13. A program deferring social security premiums for hard-hit industries was also recently expanded to cover another 17 industries, in addition to the five that were previously eligible for the program.

To encourage more infrastructure investment by local governments, the measures also propose expanding the scope of projects that can be financed through SPBs, with priority given to new infrastructure (projects in digital and emerging fields, such as 5G and artificial intelligence) and new energy projects.

Whether the stimulus measures rolled out thus far will be enough to turn the economy around in the latter half of 2022 remains to be seen. China is still facing considerable challenges, with parts of the country still not fully back to normal and restrictions on movement between different areas of the country still in place.

Although the measures are expansive, they may still not be enough to achieve the 5.5 percent growth target. More direct stimulus to businesses and consumers may be required in order to get the country back to full swing by the end of the year, but current indications are that the government is hesitant to do this. The direction that the government will take over the summer and fall may become clearer after the economic data for the second quarter is released next month.


Source : China Briefing


Read also at Federal Reserve Bank of New York

Is China Running Out of Policy Space to Navigate Future Economic Challenges? . . . . .

Chart: Gold Has Been Out-performing Most Assets in 2022

Source : Bloomberg

Faced with an Overseas Debt Crisis, Will China Change Its Ways?

Few moments better encapsulate the hope and hubris of China’s Belt and Road Initiative, a global infrastructure binge, than the inauguration of Sri Lanka’s Colombo Port City in 2014. Xi Jinping, China’s president, attended in person, nodding approvingly as a project manager introduced the $15bn plan to build a high-tech offshore financial centre with a marina, hotels and luxury homes on 665 acres (269 hectares) of land reclaimed from the sea off Sri Lanka’s capital. Local officials likened the project to Dubai and Singapore. Mr Xi (pictured on his visit to Sri Lanka) called it a “major hub” of the 21st Century Maritime Silk Road—the part of Belt and Road that aimed to reshape ocean trade by financing ports and related infrastructure without the pesky conditions that Western and multilateral lenders demand.

Flash forward to August 2022 and the future of Sri Lanka—let alone Colombo Port City—hangs in the balance. Crippled by fuel and food shortages, the country is seeking a bail-out from the International Monetary Fund after defaulting on its debt in May. Pakistan, another big borrower, is also in the midst of an imf bail-out and dozens more Belt and Road countries are facing debt distress. The extent to which China, the world’s biggest official creditor, bears responsibility is hotly debated. But what matters now is how it responds. Sri Lanka will be a critical test of Chinese willingness to co-ordinate with other lenders, potentially at the expense of Mr Xi’s original geostrategic goals.

Central to the issue is China’s relationship with the Paris Club of 22 mostly Western creditor countries. It is an “ad hoc participant” in the group but has refused invitations to join. One reason is the club’s close connection to the imf and World Bank, which America dominates. Another is its commitment to consensus, information-sharing (China likes to keep loan terms secret) and “comparable treatment” for all creditors. China wants to be prioritised and favours negotiating debt relief bilaterally: many of its loan contracts include clauses to that effect. Besides, adopting the group’s standards would undermine Mr Xi’s talk of a superior alternative to Western development finance.

Yet there are signs that China is slowly, if reluctantly, adjusting that position, as covid-19, inflation and the war in Ukraine amplify the debt problems many poorer countries faced before 2020. In May that year the g20, which includes China, established the Debt Service Suspension Initiative (dssi), under which official bilateral creditors temporarily suspended interest and principal payments from any of the world’s 73 poorest countries that requested such relief. China said in late 2020 that it had deferred at least $2.1bn in payments from dssi countries.

In November 2020 China also backed the “Common Framework” agreement between the g20 and the Paris Club to co-operate on debt treatments for poor countries. The first deal under that framework came in July 2022 when, after months of testy negotiations, official creditors agreed to provide relief to Zambia, unlocking a $1.4bn imf bail-out—although details are still to be finalised. China, Zambia’s biggest official creditor, initially resisted co-ordinating with other lenders but in May agreed to co-chair a creditor committee with France. The two countries also co-chair a creditor committee for Ethiopia.

China’s shift appears to be driven, in part, by the size of the problem and increasing international scrutiny of its lending. Chinese data are murky, but the World Bank provides debt statistics for 68 countries eligible for the dssi, some 60% of which are at high risk of, or already in, debt distress. In 2020 those countries owed $110bn to China—more than all other official bilateral creditors combined, according to researchers at Fudan University in Shanghai. They say that in 2022 China is due to receive 26% of debt-service payments from those 68 countries. Eight, such as Angola and Laos, will spend more than 2% of gross national income making those payments to China (see chart 1).

There may also be many more “hidden” problems linked to China. Economists at the World Bank, Harvard University and the Kiel Institute, a German think-tank, estimate that half of China’s lending abroad is unreported, and that between 2008 and 2021 the country quietly arranged 71 distressed-debt restructurings—more than the Paris Club—often following a long spell of default. Restructuring almost always involved lengthening maturities or grace periods, rather than reducing principal. Some countries, including Venezuela and Zimbabwe, restructured Chinese loans five times or more (see chart 2).

Some detect echoes of emerging-market debt crises in the 1980s and 1990s, when Paris Club members obscured lending details and repeatedly rescheduled loans, leading to a lost decade of low growth. The shift towards writing down debt came only after America’s Brady Plan in 1989 and the Heavily Indebted Poor Countries initiative in 1996. In a recent paper Ye Yu and Zhou Yuyuan of the Shanghai Institutes for International Studies (siis) called for a “new version” of the Brady Plan, urging China to be more transparent about its lending and to co-ordinate more with America and other Paris Club members to ensure “equitable and fair burden-sharing among all categories of creditors”.

China’s evolving position may also be linked to its recent efforts to provide emergency lending as some borrowers have struggled to service its infrastructure loans. State-owned Chinese banks made nearly $24bn in balance-of-payments loans to Pakistan and Sri Lanka in the past four years, according to AidData, a research lab at William and Mary, an American university. “China has dabbled with this idea that they could be an alternative to the imf,” says Bradley Parks of AidData. “What we’re watching now is a period of real-time learning and adaptation, where I think they’re having second thoughts.”

In Sri Lanka alarm over Chinese infrastructure loans first flared in 2017, when the government, struggling to service its debts, granted a Chinese state company a 99-year lease on a port that China helped to finance and build. As other Chinese projects faltered, China’s state banks pivoted towards emergency lending, providing $3.8bn between October 2018 and March 2022, according to AidData. Most observers agree that China’s lending did not cause the crisis: they blame Sri Lanka’s government for slashing taxes in 2019 and covid for crushing tourism in 2020. But Sri Lankan former officials say China’s liquidity injections persuaded them to reject advice to approach the imf much earlier.

The hope now for Sri Lanka is that Zambia’s deal has set a precedent for China to co-ordinate with other creditors, even though the island’s middle-income status excludes it from the Common Framework. Ranil Wickremesinghe, Sri Lanka’s new president, declined to discuss details in an interview with The Economist but appeared confident of a deal. One proposal under discussion is for China, as Sri Lanka’s biggest bilateral creditor, to co-chair a creditor committee with Japan, the second-biggest (and a Paris Club member). India could join, too. The aim, says one adviser, is “ad hoc” Common Framework treatment.

The geopolitical landscape, however, is even trickier than it was for Zambia. China’s relations with Japan and India are at a low: in August China fired missiles into waters near Japan during drills around Taiwan, and its forces have clashed with Indian troops over a disputed border since 2020. America continues to accuse China of “debt-trap diplomacy”, citing Sri Lanka as evidence. China denies that, noting (correctly) that most developing countries, including Sri Lanka, borrow more from multilateral and private lenders. It also points to its bilateral debt relief, including a pledge on August 18th to forgive 23 interest-free loans to African countries (it didn’t state their value, but China’s interest-free loans are typically small).

Sri Lanka is also confronting many of the same issues that delayed the Zambia deal. America and China both worry that restructuring will favour the other. The Paris Club wants more transparency from China, and more Chinese bank loans treated as official debt. China wants multilateral and Western commercial lenders to take a bigger haircut. It is also wary of setting a precedent for other borrowers—and stirring public anger at home. “China’s money doesn’t fall from the sky: it’s earned by the Chinese people’s hard work,” Liu Zongyi of siis told a nationalist Chinese news website on August 15th.

To avoid the delays that Zambia faced, some advisers are urging Sri Lanka to begin debt-restructuring talks with China at an earlier stage, and before the Paris Club. The imf has called for such talks, but it is unclear if they have started at a high enough level. Zambia is “a warning and a lesson”, says Shanta Devarajan, a former World Bank official advising Sri Lanka. “We’re still applying the same principles and trying to reach this intercreditor equity. But the sequence in which you discuss it might be important.” He predicts an imf bail-out by year’s end. Others expect a longer wait.

The imf says its staff are visiting Sri Lanka from August 24th to 31st to discuss reforms needed for the next step—a staff-level agreement on a bail-out. But the fund also stressed that final approval for the bail-out will require “adequate assurances” from creditors on restoring debt sustainability. Even the staff-level agreement will require painful reforms, possibly including adjustments to Colombo Port City, such as scrapping investor tax breaks. That may confound Mr Xi’s vision of a maritime Silk Road metropolis. But it would arguably offer more hope for Sri Lanka—and dozens more debt-ridden countries.


Source : The Economist

U.S. Treasury Official Criticizes China’s ‘Unconventional’ Debt Practices

Andrea Shalal wrote . . . . . . . . .

A top adviser to U.S. Treasury Secretary Janet Yellen warned on Tuesday that China’s foot-dragging on debt relief could burden dozens of low- and middle-income countries with years of debt servicing problems, lower growth and underinvestment.

Yellen’s counselor Brent Neiman criticized China’s “unconventional” debt practices and its failure to move forward with debt relief at an event at the Peterson Institute for International Economics.

“China’s enormous scale as a lender means its participation is essential,” Neiman said in the speech, first reported by Reuters, citing estimates that China has $500 billion to $1 trillion in outstanding official loans, mainly to low and middle-income countries.

Many of those countries are facing debt distress after borrowing heavily to combat COVID-19 and its economic fallout. Now Russia’s war in Ukraine has caused food and energy prices to soar, while rising interest rates in advanced economies have triggered the biggest net capital outflows from emerging markets since the global financial crisis, Neiman said.

He said a systemic debt crisis had not materialized, but economic stresses and domestic vulnerabilities were increasing and could grow worse.

China had a unique responsibility on debt issues since it is the world’s largest bilateral creditor, with claims surpassing those of the World Bank, the International Monetary Fund and all Paris Club official creditors combined, Neiman said.

When asked about Neiman’s remarks during a regular media briefing, Chinese foreign ministry spokesperson Wang Wenbin said that Western commercial and multilateral creditors were the main creditors of developing nations, not China.

“In recent years, the increasing debt of developing countries has mainly come from Western commercial creditors and multilateral institutions, and developing countries’ long-term debt payments have mainly flowed to Western commercial creditors and multilateral institutions,” said Wang.

“The relevant remarks by the U.S. side are not in accordance with the facts.”

Neiman’s critique of China’s debt practices marks the latest salvo by Western officials and the leaders of the World Bank and IMF, who have grown weary of delays and broken promises by China and private lenders. read more

As many as 44 countries each owed debt equivalent to more than 10% of their gross domestic product to Chinese lenders, but Beijing has consistently failed to write down debts when countries needed help, Neiman said.

Instead, China has opted to lengthen maturities or grace periods, and in some cases, such as that of Congo in 2018, even wound up increasing the net value of its loans.

Neiman said China’s lack of transparency and its frequent use of nondisclosure agreements complicated coordinated debt restructuring efforts, and meant liabilities to China were “systematically excluded” from multilateral surveillance.

Beijing signed up to the Common Framework for debt treatments agreed by the Group of 20 major economies and the Paris Club in late 2020, but it had delayed formation of creditor committees for Chad and Ethiopia, two of the three countries that had sought help under the framework.

In July, it said it and other official creditors would provide debt treatments for the third, Zambia, but delays had prolonged uncertainty and could discourage other countries from requesting help, Neiman said.

He said he hoped that Zambia’s creditors could complete a memorandum of understanding by the end of the year.

All three cases should be resolved quickly, he said, adding that some middle-income countries like Sri Lanka also needed urgent debt restructuring.

Neiman warned that IMF financing should not be used by countries to repay select creditors, and called for more transparent reporting and tracking of financing assurances.

He noted that China had engaged in “unconventional” practices that had allowed the IMF to move forward without obtaining standard financing assurances.

He cited China’s past actions on Ecuador’s debt in 2020 and its refusal to restructure its debt service for Argentina, even though Paris Club creditors were likely to do so.

“In many of these cases, China is not the only creditor holding back quick and effective implementation of the typical (debt restructuring) playbook. But across the international lending landscape, China’s lack of participation in coordinated debt relief is the most common and the most consequential.”


Source : Reuters

日中50年が暴く権力闘争、習氏悩ます「ダブル李」の処遇

編集委員 中沢克二 . . . . . . . . .

命懸けだった50年前の日中交渉が暴き出す中国の激しく、そして陰惨な権力闘争。それは国家主席の習近平(シー・ジンピン)を主役として16日から開かれる中国共産党大会の闘いの構図にもすっかり当てはまる。

1972年9月29日、中国·北京での日中共同声明署名に立ち会った生き証人が、上海がカギを握っていた共産党内の激しい権力闘争の一端を明かした。証言者は決死の覚悟で訪中した当時の首相、田中角栄の脇にいた首相秘書官、木内昭胤(95)だ。

「交渉が無事終わって田中総理は早く日本に帰りたかった。だが、なぜか周恩来総理が私たちに『どうしても上海に行ってくれ』というので、寄り道して帰ることになった」

「あとでわかるのだが、張春橋さん、姚文元さんとか『四人組』(江青、王洪文を含む4人)と呼ばれる周総理に必ずしも同調しない、日本との(共同声明)調印もこころよく思わない方々で上海が固められていた。(周総理は彼らを)口説くために苦心していた」

上海「四人組」説得に利用された日本の首相

9月29日、都内での国交正常化50年式典で、駐仏大使も務めた元外交官、木内が語った秘話は、中国の内部闘争を活写していた。周恩来のたっての願いを聞き入れた田中は署名の当日、自ら希望して周恩来の専用機に乗り込み、上海に降り立つ。空港で出迎えたのは、上海市トップの革命委員会主任、張春橋本人だ。

周恩来はその場で田中に張春橋を丁寧に紹介した。日本の首相を巧妙に利用して張春橋の顔を立てたのだ。外交を預かる周恩来はついに政敵の説得に成功した。中国共産党内の権力争いのクライマックスはこの瞬間である。

「四人組」として断罪された張春橋・元党政治局常務委員の拠点は上海だった

夜は上海市革命委の歓迎会も開かれた。田中は勧められるままにマオタイ酒の杯を重ねて酔っ払い、最後は周恩来に抱きかかえられるように退場した。田中らしい豪快さだ。半面、周恩来が田中を上海に連れていけなかった場合、張春橋らは納得せず、その後の日中関係も変わっていたかもしれない。

それから4年後、毛沢東が世を去ると、後ろ盾をなくした「四人組」は突如、逮捕され、張春橋には執行猶予付き死刑判決(のちの減刑で無期懲役)が下った。中国の権力闘争の一寸先は闇だ。北京から「四人組」の拠点、上海に足を踏み入れた田中は知らないうちにその渦中にいた。

権力者がナンバー2に抱く猜疑心はいまも

実は、この日中交渉には、現代中国史の闇にかかわるさらに陰惨な闘いが絡んでいた。共同声明署名の4カ月前だった5月中旬、月1度の尿検査で周恩来のぼうこうがんが判明していたのだ。だが中央指導者らの治療計画は党主席、毛沢東の許可が要る。

かつて共産党中央文献研究室で周恩来研究をしていた高文謙著の「周恩来秘録」によれば、ナンバー2の病状を本人より先に知ったトップは手術などを許さなかったばかりか、本人に知らせるなと命じたという。

毛沢東は、後継者だった林彪の死後、党ナンバー2になった周恩来の人気と実力を警戒していた。もし5歳若い周恩来が自分より長生きすれば、文化大革命(1966~76年)での自らの実績が、内情を知り尽くす周恩来に覆されてしまう。そんな猜疑心(さいぎしん)を抱いたのだ。その頃、毛沢東は自分の身体の衰弱も意識していた。

毛沢東は72年9月27日、白い付箋紙が無数に貼られた糸つづりの古書で埋まる中南海の書斎で田中に会った。だが同席した周恩来自身は、隣にいたトップの妨害で自らの病の深刻さを知らなかった可能性が強い。

田中を案内した上海行きの最中も、がんは身体をむしばみ続けていた。この前後に本格治療と手術に踏み切っていれば命は延びたに違いない。結局、周恩来は毛沢東より8カ月早く亡くなった。

かたや田中自身も訪中に政治生命を賭していた。北京に旅立つ朝、娘の真紀子(元外相)に言い放った言葉が時代がかっている。

「(北京で)毒をもられるかもしれない。本当に命懸けなんだ」

これまで必ず外国訪問に同行させていた真紀子を連れていけない理由は、中国側に毒をもられる恐れがあるからだという。真紀子自身が、在日中国大使館主催の国交正常化50年の宴席で披露した昔話だ。

半世紀前の日中外交秘話から浮かび上がる中国の権力闘争の普遍的構造は3つある。①重大な外交決断は、共産党内の権力闘争の材料になること②上海が党内闘争の最前線になりやすく、敗者は容赦なく粛清されること③絶対権力者でもナンバー2に猜疑心を持ち続けることだ。これは現代の中国共産党政治にも通じる。

日中関係はその後も中国の権力闘争の具になり続けた。元首相、中曽根康弘の85年の靖国神社参拝は、よい関係にあった当時の共産党総書記、胡耀邦が失脚する際の材料に持ち出された。90年代、元国家主席の江沢民(ジアン・ズォーミン)は「歴史認識問題」で日本に強い態度を取り、自らの求心力を高める愛国教育に利用した。

前国家主席である胡錦濤(フー・ジンタオ)の時代だった2008年、やっとこぎ着けた東シナ海ガス田を巡る日中合意が、中国内の軍を含む強硬派の横やりで棚上げになる不可解な一件もあった。まさに後の「強国路線」の前触れである。

記憶に新しいのは12年9月、沖縄県尖閣諸島の国有化に際し、中国で起きた激烈な反日デモだ。ちょうど胡錦濤から、習近平に権力が移行する空白期だった。国家副主席だった習は、反日デモ開始まで2週間近く、姿をくらました。

デモの裏にいたのは公安・警察部門を仕切っていた最高指導部メンバー、周永康だ。北京市の責任者である公安局長は傅政華である。北京のデモの一部参加者は、河北省固安県など北京近郊の農村部から日当、弁当付きで動員された。

デモ参加者の証言によると日当は50元(当時レート630円)。人集めは北京から村に公安ルートなどで依頼された。この騒ぎは当局の厳格な管理の下、演出された「官製デモ」の様相が強かった。

周永康と傅政華は後に失脚し、無期懲役などの判決を受けた。汚職が理由だが、実際は政治的な罪である。12年反日デモには、周永康サイドが、レームダック(死に体)化した胡錦濤グループに圧力をかける思惑も絡んでいた。

半世紀前と同じように 上海はいまも権力闘争の最前線である。党大会の最高指導部人事では、習近平が側近で上海トップの李強を「チャイナ・セブン」入りさせるのかが焦点だ。上海には、中国政界で隠然たる力を持つ江沢民ら「上海閥」も控えている。

そもそも李強は、23年春に首相から退く李克強(リー・クォーチャン)の後任候補の最右翼と目されてきた。だが上海は新型コロナウイルス感染症対策のための長期都市封鎖で大混乱した。中国経済低迷の象徴になった失点は痛い。

かつての総書記候補、李克強氏をどう扱うか

ここに第3の構造である絶対的なトップと、ナンバー2の確執が絡んでくる。習近平と李克強の関係だ。07年以前は、李克強が共産党トップ候補として最有力だったが、習に逆転を許した。習はこの経緯を15年間、意識してきた。過去を振り返れば、周恩来にも毛沢東の「上司」だった時代がある。共産党草創期のことだ。

最近の経済低迷で李克強は「改革・開放」路線の堅持を強く叫び、注目された。「北戴河会議」明けの8月中旬には、広東省深圳で「黄河・長江の逆流はない」と言い切った。一定の人気を誇る李克強の処遇は難しい。安定を重視して全国人民代表大会(全人代)常務委員長などに横すべりさせるのか、それとも引退に追い込むのか。

自信を持てない習が、警戒すべき李克強だけは最高指導部7人からはずしたいと考えてもおかしくない。まだ67歳の李克強が引けば、同じ1955年生まれの全国政治協商会議主席の汪洋(ワン・ヤン)や、王滬寧(ワン・フーニン)にも引退の可能性が出てくる。「68歳になっていれば引退」という鉄の内規の有名無実化だ。

その空いた席に自分に忠実で心から安心できる「見せかけだけの後継者候補」らを引き上げて重用する手がある。それが「浙江閥」の李強や重慶トップの陳敏爾なのか、はたまた中央弁公庁主任の丁薛祥なのかが問題だが……。

これこそ建国の父、毛沢東でさえ自分に尽くしたナンバー2の人気に嫉妬し、がん治療まで邪魔したとされる心理と力学である。毛沢東は最晩年、自らの路線に忠実と考えた華国鋒(毛死去後の党主席)を引き上げ重用した。

人事を主導できる権力基盤を固めてきた習は、まず李克強と李強という似た名前の「ダブル李」の処遇を決める必要がある。半世紀前の権力闘争から考えても、これは難題中の難題だ。(敬称略)


Source : Nikkei

Chart: U.S. Pending Home Sales Down To 11 Year Lows in August 2022

Source : Bloomberg