Categoría: Comercio internacional

UK and China: it was so nice while it lasted.

~ Joan Amenós ~ Deja un comentario

…Our contributor Oriol Caudevilla warned in August 2018 about the loss of UK attractiveness to China. Brexit is, indeed, a disgrace from several points of view. However, in the last part of the article the author points out the possible benefit that Brexit will mean for Paris, Frankfurt and, especially, Hong Kong. Errors in government policy also mark the future of cities.

**

China’s interests largely unaffected by Brexit

By Oriol Caudevilla | Updated: 2018-08-15 10:47.

CHINA WATCH.

..1.-Sir Winston Churchill once said that «success consists of going from failure to failure without loss of enthusiasm«. When it comes to Brexit, it is undeniable that there have been failures so far: let’s hope that those in charge of it do not lose their enthusiasm to make the best possible deal.

…Brexit has unfortunately become a synonym for uncertainty – anathema to all businessmen and investors. The media carries disquieting news of Brexit almost every day, especially now that the March 2019 deadline is approaching, and also because of Boris Johnson’s and David Davis’ resignations in July as well as Theresa May’s weak position, which seems to grow weaker by the day.

…The truth is that, right now, no one can tell for sure what will happen. One week it seems that there will be a «soft Brexit», the next it seems that there will be no deal… and so on. Just in case, the European Union is already discreetly preparing for a no-deal Brexit.

*

..22-.However, in this article I will focus only on how Brexit will affect UK-China relations, speculating as well whether Brexit will have any significant effect on Hong Kong, since it will affect China’s plan to use London as a launch pad for the «internationalization» of the renminbi. Obviously, it will affect much more that the United Kingdom and the rest of the EU, but in our globalized world, it is inevitable that the decision will affect their trading partners, especially China.

…The impact of Brexit in China, in the long run, will entirely depend on the kind of Brexit and also on the degree of unity of the EU: China will be far more interested in dealing with a post-«soft Brexit» UK rather than dealing with an UK which left the EU with no deal whatsoever. This is despite the fact that the current UK-China trade relationship is more essential to the UK than to China

…The UK is the EU’s top recipient for Chinese FDI with €23 billion in 2016 ($27 billion), becoming China’s second-largest trade partner in Europe (€62 billion in 2016), after Germany. In 2017, Britain’s trade with China boomed as the rest of the EU lagged behind. According to the Office for National Statistics, the UK sends 3.1 percent of its exports to China, while 7 percent of its imports are from China.

…However, a post-Brexit UK will be less attractive for China. The impact of Brexit on China will largely depend on the degree of EU unity. British Prime Minister Theresa May visited China and met President Xi Jinping in February along with a delegation of 50 British businessmen (the first time any British leader made an official trip to China after the Brexit referendum in June 2016), signing a «joint trade and investment review» and £9 billion ($11.7 billion) in deals.

…Nevertheless, for China, doing business with the post-Brexit UK will be much more difficult, since there will be many more procedures to go through in order to sign any trade deal, plus one of the main reasons why the UK was attractive to China was precisely the fact that UK is part of the EU, thus the UK becomes a gateway into the EU.

…In other words, keeping the status quo benefits both countries. But if UK were to leave EU, it will become far less attractive to its trading partners.

…In May 2016, London was declared a key RMB platform alongside New York and Hong Kong. Chinese Treasury bonds have been issued in London, but a big part of China’s interest in London lies in the fact that China wants to have access to the EU’s more than 400 million consumer market. But without membership in EU, UK’s role as a RMB internationalization center will be substantially reduced.

**

...3.-London’s losing its status as a premier RMB internationalization center will benefit other financial centers such as Paris, Frankfurt and Hong Kong. Since the UK will become more insulated from the rest of Europe, Hong Kong can capitalize on its traditional position as a gateway to China, a fact borne out by its Stock Connect schemes with Shanghai and Shenzhen. This favored status will attract displaced investors to Hong Kong, given the fact that funds domiciled in Hong Kong meeting certain criteria may be marketed to millions of potential investors.

…To sum up, the world has turned upside down indeed: meaningless trade wars, Xi championing the Old Order established by the US, US President Donald Trump doing everything he can to destroy this Old Order, Xi defending the Paris Accords and promoting free trade both now being denigrated by Trump… and the still unresolved tumultuous Brexit. But whatever its endgame, Brexit will bring new opportunities to Hong Kong as a center to internationalize the RMB.

*

Oriol Caudevilla is an expert on East Asian studies and on EU-China relations. The views expressed do not necessarily reflect those of China Watch.

*

 

Not only China

~ Joan Amenós ~ Deja un comentario

…Our contributor Oriol Caudevilla is informing periodically about big changes that, eventually, are going to influence decisively in our land use and in our daily lives. We have read in his last article the importance of the China-USA trade fight.

…We see today the relevance of another actor: the Islamic world. Nowadays, the bigger and powerful metropolitan areas  are not in West countries, but in Asian territories. For instance, you can see below the top 10 containers ports of the world, 2001 and 2015 (measured by the number of container boxes being loaded and unloaded). I have underlined the last European and American representatives. In 2015 they have disappeared:

Top 10 container ports of the world, 2001 and 2015 (1):

2001 2015
1 Hong Kong Shangai
2 Singapore Singapore
3 Busan Shenzen
4 Kaohsiung Ningbo-Zhoushan
5 Shanghai Hong Kong
6 Rotterdam Busan
7 Los Angeles Guangzhou
8 Shenzen Qingdao
9 Hamburg Dubai
10 Long Beach Tianjin

…The trend is every day more intense and we don’t note slowing perspectives. Of course, this is not a catastrophe and there will be a lot of opportunities for trade and wealth in the new scenario. But the cultural, legal and political mixing will be thrilling and vertiginous.

*

Original source (Chinadaily): HK should aim to be hub for Islamic finance.

Friday, December 14, 2018, 11:39 

We respect the original text, but number divisions and bolds are ours.

HK should aim to be a hub for Islamic finance

By Oriol Caudevilla

…1.-Islamic finance is a financial system which operates according to Islamic Law (sharia). Like the conventional financial system, Islamic finance features institutions such as banks, capital markets, investment firms, etc. A basic feature that differentiates Islamic finance from regular finance is the fact that interest charges (riba) are prohibited. Even though Islamic theories of economics have existed for more than a millennium, the modern Islamic finance industry made its debut only in the 1970s.

*

…2-2.-There is now a clear recognition of the importance of Islamic finance in the global financial system, and not only in Muslim countries. According to the 2018 Islamic Financial Services Industry Stability Report by the Islamic Financial Services Board in Malaysia, the Islamic financial services industry’s total value has exceeded the US$2 trillion mark. The main growth drivers were sukuk (sharia-compliant bonds) issuances. The size of the Islamic finance industry has more than doubled since 2009.

…While growth has slowed since the global financial crisis, the industry has plenty of scope to grow further. When it comes to top countries for Islamic banking penetration, the Islamic banking share of total banking assets is 100 percent in both Sudan and Iran, 57 percent in Brunei, 51 percent in Saudi Arabia, 27 percent in Qatar and 24 percent in Malaysia, to quote some examples. It is also worth noting that the market for Islamic sukuk bonds has become quite strong in several non-Muslim majority states, such as the United Kingdom.

…In Asia, Malaysia remains a leader in Islamic finance. However, Singapore (a country whose Muslim population represents roughly 14 percent of its total population) is trying to become an Islamic finance hub. It has launched a new sharia-compliant index which will serve as a benchmark for sharia-compliant funds looking to invest there. Geographically, Singapore has an advantage, given its proximity to the most populous Muslim countries. However, there had been only 20 sukuk issuances in Singapore over the past 16 years.

The development of Islamic finance in Hong Kong is a natural extension of Hong Kong’s role as an international financial center

…3.-But what about Hong Kong? Can it become a hub for Islamic finance? I have no doubt that this is feasible if Hong Kong can cleverly leverage its mature financial market. Indeed, it should not let this opportunity slip by. While Hong Kong profits from being “the gateway to China”, this role will admittedly diminish as the Chinese mainland keeps opening its economy and financial system to outside players. Thus it would be wise for Hong Kong to diversify its economy as much as possible. It must therefore grab hold of any opportunity to do so. And becoming an Islamic finance hub is just such an opportunity.

…Hong Kong’s initial attempt to develop Islamic finance started in 2007 when the then chief executive Donald Tsang Yam-kuen mentioned in his Policy Address the possibility of developing an Islamic financial market and a sukuk market. To pave the way for this, the Legislative Council amended the Inland Revenue Ordinance (Cap 112) and the Stamp Duty Ordinance (Cap 117) to provide a taxation framework for sukuk issuances comparable to that for issuances of conventional bonds.

…In 2014, the government offered its first sukuk under the Government Bond Programme (a second one was offered in 2015 and a third one in 2017). The 2014 sukuk, with an issuance size of US$1 billion and a tenor of 5 years, marks the world’s first US dollar-denominated sukuk originated by an AA-rated government. However, only three sukuk issuances have taken place in Hong Kong, and, none of them has been considered extremely successful yet. For example, at 3.132 percent, the yield of February 2017’s sukuk is less than that of most other AA-rated 10-year sukuk in the market.

…Despite this, Hong Kong should not let up its efforts to become a hub for Islamic finance, because it has all the ingredients to succeed. Hong Kong has not had traditionally an array of Islamic financial products, so it takes time to create this array. Rome wasn’t built in a day. But it’s important to start with the right steps. The development of Islamic finance in Hong Kong is a natural extension of Hong Kong’s role as an international financial center. As a financial gateway to China, it is an ideal place to intermediate between Islamic finance investors and issuers. At the same time, Chinese mainland companies have increasing funding and investment needs (credit is hard to obtain in the Chinese mainland, hence the gradual growth of a shadow banking system there), so mainland issuers may consider the Islamic finance market as a potential source for funding and investment.

…To sum up, the growing Islamic finance industry offers massive opportunities for Hong Kong as it has all the right conditions to facilitate its growth. It is an ideal place for sharia-compliant institutions to narrow the gap between the Islamic world and China, and other East Asian developing countries.

***

The author has worked as a business analyst for a Hong Kong publicly listed company, and was appointed fellow in 2017 at the Centre for Financial Regulation and Economic Development, CUHK, where he studied the situation of Islamic finance in Hong Kong.

*

(1)Robert GOTTLIEB and Simon NG, Global cities. Urban Environments in Los Angeles, Hong Kong and China, The MIT Press, 2017, p. 17.

A big issue to watch in next years.

~ Joan Amenós ~ Deja un comentario

…Our contributor Oriol Caudevilla wrote in July on the most important trade issue to the immediate future. Of course, it’s not a foreign or strange question, because we can see its influence in our cities: shopping streets, industrial parks…China will reach soon the first GDP in the world, their economic power is already evident in large areas of Asia, Africa and in South America too, they have a big share of the West countries public debt…

 …Caudevilla recommends multilateralism and free trade, but perhaps USA claims for more balanced relation is the last effort before surrender, the swan song.

**

Monday, July 09, 2018, 10:51

US-China trade war: Have the costs been counted?

By Oriol Caudevilla. 

…1.-According to Sun Tzu, “the greatest victory is that which requires no battle”. However, the Trump administration seems to have chosen the opposite path — battle (and war). We are not talking here of war as an armed conflict, but about a trade war. It is true that a trade war, per se, is less harmful than an armed conflict, but its consequences may be catastrophic in many ways with the potential to ruin the lives of millions of people.

…Still following Sun Tzu, “who wishes to fight must first count the cost”. Has the US government actually counted the costs and considered all the possible outcomes?

*

…2.-In fact, President Donald Trump is about to start a global trade war, so this conflict is not only with China but also with the European Union and beyond. In this article, I will focus on the Sino-US trade tension, even though the consequences of Trump’s decisions will be global. The trade war between the US and China is about to get real. On Friday, the world’s top two economies exchanged fire by hitting US$34 billion of each other’s exports with new tariffs, which will quite likely start a vicious cycle of escalating retaliations.

…These measures have unsettled markets and many companies have said that tariffs against China will affect consumers. The US National Retail Federation (NRF) issued a statement on June 15 in which they affirmed that tariffs are actually taxes on American consumers, since they will not reduce or eliminate what they consider to be China’s abusive trade practices.

…The NRF and the Consumer Technology Association commissioned a study in which the experts found that tariffs on US$50 billion of Chinese imports, coupled with the impact of retaliation, would lead to four job losses for every job gained and reduce the US GDP by nearly US$3 billion.

…But, why a trade war against China? President Trump and his advisers consider that tariffs are a necessary way to pressure China into abandoning claimed practices that they think are unfair, such as stealing intellectual property and forcing American companies to hand over technology. These accusations are denied and Beijing says they will not “fire the first shot” but, if necessary, will fight this war with measured responses. For now, Beijing plans to fire back by hitting more than 545 American products, such as cars, beef, seafood, dairy and agricultural products.

…A US-China trade war would not only hurt these two countries: Investors consider this conflict could inflict much harm on the global economy. Economists at Pictet Asset Management in London created a model which estimated that a 10-percent tariff on US trade passed on to the consumer could tip the global economy into a state of stagflation and knock 2.5 percent off corporate earnings. But, at the same time, the economies of many countries tightly integrated into the global value chain will be adversely affected.

…Economies like Taiwan, South Korea, Singapore or the Czech Republic could be even more vulnerable to the risks arising from this trade spat. For example, Taiwan is home to large electronic contract manufacturers like Foxconn, which manufactures Apple’s iPhone among others. Electronic integrated circuits accounted for 40 percent of Taiwan’s total exports.

…So, how bad can it get? Nobody knows for sure, but the world economy will be marked by uncertainty — anathema to all businessmen and investors. If we take a look at past trade wars, the results were not encouraging at all. To cite one example, the US Smoot-Hawley tariffs in 1930 are often considered as having started a trade war, which led to a massive decline in global trade by 66 percent from 1929 to 1934, according to a study from the University of Western Australia. Needless to say, the concept of globalization was not that developed in 1930 when compared to today, so the consequences could be even more widespread and severe.

…This trade war is the result of President Trump’s bet on protectionism and bilateralism instead of free trade and multilateralism which actually has brought great prosperity to America not to mention global influence. By insisting on bilateral deals, the US risks getting left behind (or even left out from key areas) within the world economic order. Trump obviously is entitled to choose which policy he prefers, but he should be aware of the consequences. In fact, it is hard to believe that he is and his principal economic advisers are known for their distorted economic beliefs.

**

…3.-Far more rational discussion is needed. If we read statistics like the ones from the NRF study (which is far from being an organization “suspected” of being pro-China), plus all the negative effects that this trade war will have globally, we can only ask: What is the point in such a trade war? Going back to Sun Tzu, has President Trump counted the cost before starting this fight? I doubt that Trump and his advisers have counted all the costs carefully before starting this meaningless fight, which looks more like a suicide mission than a carefully orchestrated strategy designed to generate overall positive outcomes.

…Does suppressing the so-called China’s “unfair and abusive trade practices” justify all the harms that will be caused to the global economic system? Will it recoup the inevitable losses? The answer is clearly no. We must try to dissuade the US from pursuing this destructive unilateralism and trade protectionism, which have no place in an era of inextricable economic interdependency. A return to free trade is the only viable path to generate prosperity and equitable distribution of wealth in a world that ideally should be without economic borders.

*

The author is an expert on East Asian studies and on EU-China relations. He holds a doctorate in Hong Kong real estate law and economics and has worked as a business analyst for a Hong Kong publicly-listed company.

***