Reuters News - U.S. set to push security strategy as Chinese maneuvers rattle region

MANILA (Reuters) - Recent incidents involving Chinese ships in Southeast Asian waters are testing regional faith in Beijing’s sincerity about maritime peace, and aiding a renewed U.S. push to build alliances with countries unnerved by China’s assertiveness.

Chinese maneuvering in energy-rich stretches of the South China Sea, including a standoff in Vietnam’s Exclusive Economic Zone, will figure on Friday when top diplomats of Southeast Asian bloc ASEAN attend a security gathering with world powers.

Among those is a United States that has laid out an “Indo-Pacific Strategy” challenging Chinese maritime hegemony and seeking stronger ties with nations pushing back against Beijing.

Vietnam has done just that, demanding earlier this month that China remove a survey ship and escorts from its waters near an offshore oil block.

Within hours, the U.S. State Department rebuked China for “bullying behavior” and “provocative and destabilizing activity”.

“The U.S. role is undeniable and very important and they need to put more pressure on China,” said Hai Hong Nguyen, a research fellow at Queensland University of Technology in Australia.

“The international community needs to do that too. All the claimants need to internationalize it.”

Vietnam’s call to rally the international community was a departure from its usual cautious responses to China, which seeks to settle rows bilaterally.

Vietnam also appears to have tacit support from Russia, whose state oil firm Rosneft, is operating an oil block within what China says is its historic jurisdiction.

Two days after a Chinese coastguard ship was tracked near the oil block on July 16, in what U.S. thinktank Asia Maritime Transparency Initiative (AMTI) called a “threatening manner”, the Vietnamese arm of Russia’s Sputnik state news agency said President Vladimir Putin sent a personal message of gratitude to Rosneft Vietnam for developing the block.

Russia will be among the 27 countries at Friday’s ASEAN Regional Forum meeting in Bangkok.

Also present will be foreign ministers of Japan, the United States, China and Australia, plus those of the Philippines, Malaysia and Vietnam, which have recently been impacted by Chinese vessels, including the coastguard and a fishing militia.

The Philippine foreign minister on Wednesday confirmed a diplomatic protest to China over Chinese vessels surrounding the tiny Philippine-held Thitu island.

‘GRAY ZONE TACTICS’

The same Chinese Haijing 35111 coast guard ship that showed up near Rosneft’s operation off Vietnam was also tracked near an oil rig on Malaysia’s continental shelf during May, according to the AMTI thinktank.

Meanwhile in June, a Chinese fishing boat sank a Filipino vessel, leaving 22 crew stranded near the Reed Bank, the site of gas deposits inside the Philippine EEZ. China said it was an accident.

On Monday, Philippine Defense Secretary Delfin Lorenzana confirmed that five Chinese warships passed through Manila’s 12-mile territorial sea this month without notifying the government, calling that “a failure to observe protocol or common courtesy”.

According to South China Sea expert Carl Thayer, the recent increase in Chinese assertiveness is no coincidence, but a response to the U.S. Indo-Pacific Strategy, and an increase in flyovers by U.S. bombers and U.S. navy patrols in the South China Sea, through which $3.4 trillion of goods pass annually.

Thayer suggested China was actively preventing Southeast Asian neighbors from developing offshore energy reserves without its participation, and discouraging foreign partnerships.

“China’s use of gray zone tactics will inevitably cause regional states to take countermeasures and push back,” he wrote. “This carries the risk that confrontations at sea will escalate.”

Defending Beijing’s position, China’s ambassador to the Philippines, Zhao Jianhua, said on Tuesday that China was committed to international law and “working very hard” with ASEAN to create a maritime code of conduct within three years.

“No matter how strong China may become, China will never seek hegemony or never establish spheres of influence,” he said.

China’s one key ally is Philippine President Rodrigo Duterte, who despises the United States, and whose foreign policy was praised by China’s Global Times newspaper last week as “peaceful, cooperative and restrained”.

But Duterte’s U.S.-allied defense top brass appear uncomfortable with the position and surveys show Filipinos vastly favor the United States over China.

According to Manila-based author and analyst Richard Heydarian, Duterte is increasingly isolated in defending China.

“From the very front lines, Hong Kong and Taiwan all the way to the Philippines, Malaysia, Indonesia and definitely Vietnam - you’re seeing a robust pushback by a lot of smaller countries,” he said.

“Definitely, Washington has that strategic room for maneuver,” he said.

Additional reporting by Khanh Vu in HANOI and Matthew Tostevin in BANGKOK; Editing by Michael Perry

Our Standards:The Thomson Reuters Trust Principles

BBC News - Can fresh US-China talks end the trade war?

Image copyrightGETTY IMAGES

Top trade negotiators from the US and China are meeting for the first time in almost three months on Tuesday to try and do a deal, but expectations are low.

Still, while there's been an apparent lull since the two sides last sat down and talked, there's been plenty going on under the surface.

There's now fresh evidence to show just how much the trade war is hurting both China and the US.

Here are three sore points between them that are adding yet another layer of complexity to the negotiations.

Much ado about Huawei

The US is stepping up its attacks on Huawei. In May, the US slapped an export ban on American companies from selling to Huawei on national security grounds.

While this didn't cripple Huawei's business, it rattled the tech sector around the world.

Companies from Japan to the US were worried about the impact of the ban on their supply chains, as they too carried products for Huawei with US parts inside.

But suddenly in June at the G20 summit, US President Donald Trump appeared to soften his stance on Huawei, by announcing that the US would allow some American companies to sell to the Chinese firm.

Since then, though, there's been confusion in the Trump administration over which companies can sell their products to Huawei and what they can sell.

Image copyrightGETTY IMAGES

Image captionHuawei is a major bone of contention between the US and China

Back in Beijing, there's a sense that this move by President Trump was less a carrot to China and more about listening to the powerful US tech lobby, which had complained it was being shut off from a paying customer.

For China, Huawei is about more than just business. It is a national champion.

Beijing sees the US move as an attack not just on Huawei, but on China's ambitions to succeed on the international stage.

Still, President Trump's apparent U-turn on Huawei doesn't mean that Washington is letting the Chinese company off the hook.

It has become the bogeyman the US uses as a symbol of everything that's wrong with the Chinese economy, accusing Huawei of receiving state support and of close links to the Chinese government - all of which the firm denies.

Promises, promises: Agriculture wars

One of the key sticking points between China and the US has been agriculture.

The trade dispute has seen Beijing target US farmers, including those supplying agricultural products such as meat, grains and soybeans, in retaliation for tariffs on Chinese products.

Image copyrightGETTY IMAGES

But in an apparent goodwill gesture at the weekend, ahead of the talks, China said it had bought several million tonnes of soybeans from the US since President Trump and President Xi met at the G20 in June.

A clear signal from the Chinese that they are willing to buy more grains from the US would be seen as positive by Washington, helping to smooth over sensitivities on agriculture.

Beijing has indicated it could buy more agricultural products from the US.

But a lot will hinge on how the talks go over the next few days and how much trust can be built between the two sides.

Warning signs

That lack of trust between China and the US is filtering into the real world.

In just the last three months, we've seen another wave of data that shows fresh cracks in the global economy due to the trade war.

Exports from China and the rest of Asia are falling at a dramatic pace.

Image copyrightGETTY IMAGES

Image captionThe US and Chinese presidents agreed to resume trade talks at a G20 summit in Japan in June

Part of the reason is China's slowdown, but the other reason is increasingly the trade war.

Companies are holding off on expansion plans as they decide whether to move out of China, which means new factories aren't being built and new jobs aren't being created.

That's led to fresh warnings about the risks that the trade war poses to the global economy from institutions such as the International Monetary Fund (IMF).

The IMF cut its growth forecasts for the global economy for this year and the next, citing the trade war as one of the key reasons.

Meanwhile, US economic data on Friday showed that the US economy grew less than previously thought last year.

The figures showed that foreign trade and business investment shrank as the US continued its trade war with China.

All of this underlines just how important it is that the US and China come to a resolution on trade.

But given that the last three months of no talks have seen them grow even further apart, negotiations are in an even more precarious state than before.

Reuters News - A Fed interest rate cut is in the bag. What then?

SAN FRANCISCO (Reuters) - U.S. central bankers are expected to lower borrowing costs this week for the first time since the depths of the financial crisis more than a decade ago. That’s the easy part.

Whether that inaugurates a series of quarter-percentage-point interest rate cuts that could stretch deep into next year, as financial markets are betting, or something more limited is by far the harder decision facing Federal Reserve policymakers.

One reason: No clear consensus from Fed officials about why they need to cut rates in the first place, particularly with the U.S. unemployment rate near a 50-year low and the American economy puttering along as the best-in-class performer among developed nations.

Is it a bit of insurance against risks posed by slowing global growth and trade tensions? A step to bolster sluggish inflation? A bid to lift labor markets further? An effort to right kinks in the bond market? Over the last several weeks, Fed policymakers have floated each of these ideas and others.

New York Fed President John Williams even briefly convinced markets the Fed planned to cut rates by half a percentage point this week, until the New York Fed issued a statement to explain that his remarks about “vaccinating” the economy against serious illness were academic in nature and not meant to signal near-term policy decisions.

Complicating matters is the Fed’s desire to make clear that loosening monetary policy is not a reaction to months of pressure from U.S. President Donald Trump to do just that.

Investors should get some clarity when the Fed’s rate-setting committee releases its policy statement at 2 p.m. EDT (1800 GMT) on Wednesday after the end of a two-day meeting. Fed Chairman Jerome Powell will hold a press conference shortly after.

CROSSCURRENTS

Economists and traders overwhelmingly expect the Fed to cut its policy rate by a quarter of a percentage point on Wednesday, matching the size of each of the nine rate hikes the Fed delivered from 2015 to 2018.

The big debate at the July 30-31 meeting will be about what comes next, and how to communicate it, Cornerstone Macro economist Roberto Perli said.

“I bet the statement will ... leave the door open to more, to at least another 25 (basis-point cut) down the road,” Perli said.

But as for what economic threshold would trigger a further rate cut, he said, “I don’t think they have a clear idea.”

The federal funds rate is currently set in a range of 2.25% to 2.50%. Traders of futures tied to the rate have priced in a full percentage-point drop by the end of next year. But the economic picture now is quite different from the last few times the Fed has cut rates.

Since the Fed’s last rate-setting meeting in mid-June, economic data on retail sales and job creation has been stronger than expected, and durable goods orders, a proxy for business spending plans, jumped in June. At the same time, U.S. home sales tumbled, manufacturing has been weak for months, and exports are down.

A report on Friday showed robust consumer spending kept the U.S. economy growing at a 2.1% pace in the second quarter, a smaller slowdown than expected. But it also underscored the weak business investment and inflation that has worried Powell.

The competing threads are likely to feed a robust debate during the meeting over whether a rate cut is even needed, and may limit how much more easing could be signaled.

“I think it’s a stretch to think this either is or should be the beginning of an easing cycle; it’s simply not warranted,” said Ward McCarthy, chief U.S. economist at Jefferies.

Some Fed policymakers, including Kansas City Fed President Esther George and Boston Fed President Eric Rosengren, may even go so far as to register their reservations over further easing with a formal dissent.

‘MORE LEEWAY’

Still, the Fed has a lot to contend with.

Mounting signs of weakness in Europe and China and the prospect that new British Prime Minister Boris Johnson will make a messy exit from the European Union have raised the odds of rate cuts abroad, with the European Central Bank looking all but certain to ease policy come September.

Some see rate reductions overseas as building the case for reducing U.S. rates.

Indeed that’s been a core argument from Trump, who has accused foreign central bankers of using monetary policy to devalue their currencies, and urged the Fed to do likewise.

In gauging the Fed’s next step, investors will have no “dot plot” to consult, as they have after with every other policy move since the Fed began in 2012 to publish quarterly interest-rate forecasts from individual policymakers.

Because those forecasts have at times been at odds with the Fed’s agreed-upon policy message, their absence could actually make Powell’s task easier.

“Not having the projections this month gives them a lot more leeway in sending a message of ‘we’ll respond as warranted,’” said Richard Moody, chief economist at Regions Financial Corp.

The Fed could also put an early end to planned reductions to its $3.8 trillion balance sheet, built up during years of bond-buying after the 2007-2009 Great Recession. The runoff, seen as tightening policy on the margins, is scheduled to end in September in any case.

Ending it slightly early could defuse criticism that balance sheet policy is working at cross purposes with interest rate policy. And should the Fed disappoint markets by signaling further rate cuts are less than a sure thing, Moody said, a change to the balance sheet plan could be a “consolation prize.”

Reporting by Ann Saphir; Editing by Dan Burns and Paul Simao

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Brexit harming UK industrial strategy, warns top economist

By Ben Chu

The Brexit deadlock has undermined efforts to boost the UK economy, the chairman of the government's Industrial Strategy Council has told Newsnight.

The council holds the government to account over its industrial strategy.

Andy Haldane, who is also chief economist of the Bank of England, said it was "plausible" that one of the "costs of Brexit is that not as much other stuff has happened as might."

But he added that the strategy could still lift the UK's prosperity.

The industrial strategy, launched by Business Secretary Greg Clark in 2017, aims to create a more balanced economy by investing in certain sectors to create good jobs.

"In the absence of Brexit, might more have been done? Perhaps," Mr Haldane told the BBC.

But he stressed that the strategy was a long-term project and that skills, infrastructure and investment problems are not solved overnight.

"In the grand scheme of things, six months missed here, a year missed there, is less important than sticking to a tried and tested plan," he said.

Asked how worried he was about a potential no-deal Brexit on 31 October - a prospect that Conservative Party leadership contender Boris Johnson has said he would countenance - Mr Haldane pointed to the Bank's analysis from last yearwhich suggested that, in a worst case scenario, such a rupture could trigger a deep recession.

"That was the conclusion we reached then. We've done no updating of that since. That's our best guess - my best guess - as an economist," he said.

The Bank of England's former governor, Lord King, has criticised the Bank of England's no-deal analysis, rejecting its assumptions on how long transport disruption would last and saying the central bank had been "unnecessarily drawn in" to commenting on the subject.

Mr Haldane responded: "We are in a situation of quite considerable uncertainty right now and therefore reasonable people can reasonably disagree on the future course of the economy and what's right and what's not.

"Our role - when asked by Parliament - is to put our best analysis in play."

The current governor of the Bank of England, Mark Carney, is due to step down in January 2020 and the Treasury deadline for applications to succeed him closed last week.

Mr Haldane, who joined the Bank in 1989, has been spoken of in some quarters as a potential candidate.

Asked whether he was interested in the top job, and had put his hat in the ring, Mr Haldane said: "I've got a job currently. It's a job I love. It's a job it's a privilege to carry out. I'm very happy focusing on just that job right now."

The final choice of candidate is likely to be made by Theresa May's successor.

Some analysts have suggested Mr Haldane's chances - who has been unusually outspoken in highlighting the negative economic impact of inequality, the dwindling power of unions and the need for more long-termism in businesses in recent years - would be higher under a future Labour administration.

Asked by Newsnight about Labour's plans to re-nationalize utilities such as water and rail services, Mr Haldane said that it was not the job of the council to comment in advance on the merits of individual policies - from either the government or the opposition - but to evaluate them once implemented.

But he added: "This is about forming a view on what works and as importantly what doesn't work. There's no shame, by the way, in policies not working provided you are candid about reaching that judgment and you act in response to it."

BBC News - Government accused of prolonging UK housing crisis

Image copyrightSAM MELLISH

The government has been accused of prolonging the national housing crisis by failing to sell enough land for affordable and social housing.

The Public Accounts Committee said the UK would miss its 2020 target of public land sales "by a wide margin".

It said the government "has wasted a once-in-a-generation opportunity to alleviate the nation's housing crisis".

The government said it had delivered 222,000 new homes last year, more than "in all but one of the last 31 years".

"Government departments have identified enough surplus public sector land for 160,000 new homes and our development accelerator Homes England is providing expert assistance to get these built more quickly," the Ministry of Housing, Communities and Local Government added.

The Public Accounts Committee calculated the government's land sale failure would result in 91,000 fewer homes in 2020 than anticipated, equivalent to 57% of its overall target.

"The UK needs more houses. As a major land holder, the government is in a unique position to release land for new homes; and yet the objectives of its land disposal programmes are chaotic and confused," said committee chair Meg Hillier.

"We are baffled that the programmes were not designed with a view to how many homes were needed of what type, and where - nor how the proceeds will be used."

Missed target

The plan to release land was stymied from the beginning by muddled thinking and unrealistic targets, the committee said.

"This failure is largely because of the unrealistic targets the centre of government imposed on departments without enough thought about the issues that would need to be overcome to make sales happen."

Targets were set from the top down, and were "not supported by any evidence on what could realistically be delivered", the committee said.

Eyes closed

In addition, the government did not look at what type of houses were needed, and where, in deciding whether to sell land, it said.

Instead, it looked at what surplus land it had, and whether it could be sold, the committee said.

The government department responsible for housing, the Ministry of Housing, Communities and Local Government, has not counted the number of houses built on the land being sold, including affordable and social housing, arguing that local authorities are responsible for this.

But it is "unacceptable" that the department "pays so little attention to how the release of public land could be used to deliver affordable homes including social homes for rent," the committee said.

Counting the cost

The government is expected to meet a second target of raising £5bn from land sales, but this is mainly down to luck, the committee added.

Being on track for this target "is largely due to the unanticipated sale of Network Rail's railway arches in February 2019 which raised £1.46bn, nearly 30% of the overall target," the committee said.

There are unexplained sales, such as why 176 sites were sold for £1 or less between April 2015 and March 2018, the committee added.

There is also a tension between trying to sell the land for the maximum amount possible and expecting developers to then build social housing on that land, the committee added.

In March, an investigation by Huffpost and the Bureau of Investigative Journalism suggested that as little as 6% of the new homes built on land sold by local authorities were likely to be used for social housing, with some developments being solely luxury apartments.

BBC News - Global growth forecast cut by IMF amid trade tensions

The International Monetary Fund (IMF) has cut its growth forecasts for the global economy for this year and next.

It predicts growth of 3.2% in 2019, down from its April forecast of 3.3%. Growth next year is set to pick up to 3.5% next year, although that is below its earlier forecast of 3.6%.

Growth "remains subdued", the IMF says, and there is an urgent need to reduce trade and technology tensions.

The Fund has raised its growth forecast for the UK this year to 1.3% from 1.2%.

The revision for the UK reflects what the report calls a stronger-than-expected first three months of the year, boosted by pre-Brexit stockpiling.

Next year, the report predicts 1.4% growth. The UK forecasts are based on an assumption of an orderly Brexit followed by a gradual transition to the new regime. As the report notes, what this will be remains highly uncertain.

The IMF named a no-deal Brexit as one of the key risks to global economic growth.

"The principal risk factor to the global economy is that adverse developments - including further US-China tariffs, US auto tariffs, or a no-deal Brexit - sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline," the Fund said.

Image copyrightAFP

In an interview with the BBC, the IMF's chief economist, Gita Gopinath, said: "Global growth is sluggish and precarious. But it doesn't have to be this way because some of this is self-inflicted".

The report is, by implication, strongly critical of US President Donald Trump's approach to trade policy.

It says countries should not use tariffs - taxes on traded goods - to target bilateral trade balances, or as a substitute for dialogue to pressure others for reform.

• Faisal Islam: What happened to post-Brexit free-trade nirvana?
• Karishma Vaswani: Trade war infects Asia as exports plunge

Both these strategies are being employed by the Trump administration in its more assertive approach to trade policy.

It has sought to pressure other countries to takes steps to reduce the deficit the US has with them; to export less to the US or import more.

The official objective of the tariff increases directed against Chinese goods was reform. The Trump administration wanted China to take action to stop what the US sees as unfair subsidies and the unfair acquisition of American companies' technology.

Image copyrightGETTY IMAGES

The IMF also calls for the uncertainty surrounding trade agreements to be resolved quickly, including Brexit and the free-trade area encompassing the US, Canada and Mexico.

The report describes inflation as muted. That, together with the subdued growth means that the low interest rate policies pursued in many countries are appropriate.

Japan and the eurozone both have one of their central bank interest rates below zero. In the financial markets, the European Central Bank and the US Federal Reserve are thought to be likely to cut rates in the coming months - next week in the case of the US.

The IMF predicts that the US economy will see a significant slowdown as the stimulus from tax cuts fades. After 2.9% growth last year, it predicts 1.9% in 2020.

The largest forecast downgrades were in some of the major emerging economies, including Brazil where there is uncertainty about pension and other reforms, and South Africa, which is affected by strikes, energy supply problems and weak agricultural production.

There was also a smaller forecast downgrade for both years for China which partly reflects the trade tension with the US.

The somewhat quicker global growth predicted for next year is based mainly on an expected improvement in four severely stressed emerging economies - Turkey, Argentina, Iran and Venezuela. That, Ms Gopinath says, is subject to high uncertainty.