FTAs: Democrats' Battle Against TPP, Obama & Co.

♠ Posted by Emmanuel in , at 5/05/2015 01:30:00 AM
It's deja vu all over again.
I hate to say it, but it's patently obvious that so many aspects of global governance are held hostage by the political processes of just one country--the United States. Reforms of the World Bank and the IMF have not proceeded because the US Congress cannot get its collective mind around to recognizing our changed world where America does not play the same role it once did. Hence the Chinese gaining adherents after proposing the creation of an Asian Infrastructure Investment Bank (AIIB). But there's more...much more.

Despite the previous Bush 43 and current Obama administrations being the main proponents of forging a free-trade agreement among members of the Asia-Pacific Economic Cooperation (APEC) via the Trans-Pacific Partnership (TPP) expansion negotiations, a fact remains: TPP will probably not be concluded if American lawmakers do not ratify it. Later in Bush 43's second term--2007 to be exact--he lost fast-track authority, or that to negotiate FTAs internationally and have the US Congress vote on them on a yes/no basis. Not having this authority allows lawmakers to open up and re-write texts of negotiated FTAs, leaving endless room for second-guessing of these trade deals. The resulting meddling would likely scupper any number of trade deals as other countries balk at the waste of time writing deals that the US will not pass.

Traditionally the more trade-phobic of the two major parties, the Democrats have become more so as of late. To be sure, declining living standards and falling wages Stateside have not exactly provided a fruitful economic backdrop to signing more FTAs. After all, if all those old FTAs failed to meaningfully lift living standards, why sign more? We can certainly debate how much trade is at "fault" for the new normal of a moribund US economy, but Democrats in Congress need no help making this connection, to the detriment of TPP:
Two decades ago, President Bill Clinton needed Republican support to win a bitter battle over the North American Free Trade Agreement. He also garnered 40 percent of congressional Democrats, including almost half the party's senators. President Barack Obama may also win some close trade votes -- first with the approval of a bill giving him so-called fast-track authority to negotiate the huge Trans-Pacific Partnership and then when the deal itself moves through Congress. This time, more than 80 percent of congressional Democrats will oppose the president.

Democrats have turned decidedly protectionist in the decades since the passage of Nafta, a period that coincides with increasing globalization and steep losses of U.S. manufacturing jobs. Even Hillary Clinton is breaking with her husband's free trade record, hinting she may oppose the TPP, which would bind the U.S. and 11 other Pacific Rim nations.

Obama and his unaccustomed allies, Republican congressional leaders, want to pass fast-track authorization -- which assures a straight up or down vote on TPP and other trade deals -- by the end of the month. It's a slog. For now, fewer than 20 House Democrats are on board, and Obama will get no more than 30; 10 Senate Democrats may go along, but no more than 15.
It will be interesting to see if Hillary Clinton expressing skepticism about TPP is a political ploy that will pay off. Like her husband and Obama after him, she is campaigning on a "trade skeptic" stance to appease union supporters of the Democratic Party, but will likely abandon it if and when she becomes president. Besides, making anti-trade a top campaigning point may not work. Consider John Connally:
The protectionist pressure has reached Hillary Clinton. Signaling she may oppose TPP may be good primary politics but it may not be as popular a stance in a general election. Although conditions have changed markedly, it's instructive to remember John Connally, the one-time Democrat who, more than Ronald Reagan, became the most dynamic Republican candidate in the 1980 presidential race. He ran on a get tough on trade platform, warning the Japanese that they "better be ready to sit on the docks of Yokohama in their own Toyotas, watching their own Sonys."

The Texan spent $12 million -- the equivalent of $39 million today -- and got one delegate, Ada Mills of Arkansas. He had to drop out after only the third primary.
I guess there's only one way to find out. And I remain pessimistic about TPP's prospects anyway.
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Peruvian Alejandro Toledo on Fixing Venezuela

♠ Posted by Emmanuel in at 5/04/2015 10:26:00 AM
Simon Bolivar's ideological successors have much to answer for.
There's good commentary from former Peruvian President Alejandro Toledo in the New York Times on fixing Venezuela for good. But first, let's recount how it got into such a bad situation. Sure, Venezuela can resort to endless stopgap measures like supposedly borrowing another $5 billion from China just last month. However, China itself may instead be a cause of Venezuela's current woes since neither the terms of the loans not the uses of this money are known. It's untraceable and therefore hard to attribute developmental outcomes to:
China started to lend massively to Venezuela in 2007. Since then it has lent more than $45bn, of which about $20bn is still outstanding. After a visit to Beijing on January 8, President Nicolás Maduro said he had won further “investment”.

What makes China unusual is not just the amount it is willing to lend but the way it lends. First, Beijing has chosen to be opaque: we know neither the terms of the loans nor the uses of the money. The debt is repaid in oil, making Wall Street bondholders junior to China. The Venezuelan public has little information on where the money is being spent.
Gotta love those soft loans if you're Venezuela's leaders, but it breeds complacency that the Chinese will bail them out whenever the coffers are empty. So, they continue with their quite frankly mad governance. This is where Toledo comes in and suggests, how should I put this, neoliberal reforms:
The recent news from Venezuela has been troubling — and also far from surprising. As the Venezuelan economy continues to struggle and inflation pushes many of the most basic everyday needs out of reach of ordinary working people, President Nicolás Maduro has responded, not with a plan, but with a crackdown. It has included arresting Antonio Ledezma, the mayor of Caracas, and other opposition figures on questionable charges — to say nothing of the jailings of peaceful protesters.

Mr. Maduro’s attempts to deflect criticism by pointing to aggression from the United States and international meddling — even if they were rooted in fact — would do nothing to solve Venezuela’s problems. If he were a serious leader, he would look first at the Venezuelan economy, which, in reality, is at least two economies, separate and far from equal.

Despite its reputation for redistribution, Venezuela has seen rising inequality. Even as ordinary Venezuelans have seen their purchasing power shrink in the face of rapidly rising inflation, the elite has relied on the growing strength of its access to dollars, a dichotomy that throws Venezuela’s ever more unequal economy into sharp relief.
The suggested solutions also sound familiar. Diversify exports, increase their value-added, improve the fiscal situation, etc:
Venezuela’s economic problems extend beyond inequality and poverty. Over the long term, Venezuela must follow the lead of other Latin American nations and reorient its economy away from dependence on the volatile oil export market. It must develop its other resources and capacities across a broad spectrum of more labor-intensive industries like manufacturing or agricultural processing. But that long-term problem is no reason not to attempt to tackle inequality today. The tools for doing so vary in complexity and difficulty, but they offer an array of approaches for a government committed to the issue.

One crucial tool is the combination of tax collection and fiscal policy. Improved tax collection raises revenues without raising rates, and those revenues enable investments in health care, early childhood education, primary and secondary education, job training and agricultural education programs that offer the poor a chance to improve their lives.
What makes Toledo somewhat unique is that he doesn't necessarily say that regime change must first take place for these reforms to be undertaken. Ultimately, they say people get the leaders they deserve. So, I guess it's really up to the Venezuelan people if the self-styled socialists who are actually increasing and not decreasing inequality through their economic mismanagement are finally sent packing.
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Groovy Kind of Customs Union: Kazakhstan v Russia

♠ Posted by Emmanuel in , at 5/01/2015 01:30:00 AM
Screw Russia, "Buy Kazakh."
We haven't had a trade-related post in quite some time now, so I have one for you right here. And what a story it is! In fact, it's my early candidate for 2015's dumb-but-true story in a year not exactly lacking for logically-challenged events. With apologies to Phil Collins, ever heard of an internally discriminatory free trade agreement? Neither have I--until now. It seems Kazakhstan has been heavily promoting a "buy Kazakh" drive immediately after a customs union with Russia came into effect at the start of the year.
Shelves in supermarkets across the ex-Soviet republic of Kazakhstan teem with bright signs championing locally-produced goods over Russian alternatives.The push to buy local is part of the government's "Made in Kazakhstan" initiative to support domestic producers struggling to match cheap imports from neighbouring Russia, which have enjoyed the competitive benefits of the sanction-battered ruble's dramatic slide in value.

The campaign was launched despite Kazakhstan and Russia having entered the Eurasian Economic Union earlier this year -- the trade bloc backed by both countries' authoritarian presidents. The blue "KZ" labels of the Buy Kazakh campaign appear to be achieving their objective with some patriotic shoppers...

Authorities in Astana have recently slapped bans on fuel and foods -- from chocolate to pork products -- imported from its strategic Russian partner, citing alleged sanitary breaches [...] Following complaints by Kazakh confectionery giant Rakhat that its sales have plummeted 20-30 percent this year due to Russian competitors selling their products up to 60 percent cheaper, Astana moved to bolster the company's fortunes this month by banning Russian chocolate.

Prohibitions are also roiling fuel products after Kazakhstan suspended imports for 45 days on March 5, citing a domestic surplus. Last week the Kazakh government renewed restrictions on Russian diesel imports, with local refiners standing to benefit as farmers prepare for the spring sowing season.
Not to be outdone in "liberalizing trade," the Russians have been blocking their Kazakh counterparts with trade barriers of their own as both sides deny that anything is amiss:
Moscow has responded with tit-for-tat measures as both government seek to protect affected businesses.

Officials in both countries deny problems in bilateral relations, with Putin's spokesman Dmitry Peskov recently calling talk of a trade war an "exaggeration". Kazakhstan's Deputy Economy Minister Kairbek Uskenbaev said the bans concerned "specific companies," and would not damage the country's "most friendly" relations with Russia.
With "free trade agreement partners" like these, who needs protectionism?
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What Church Should Catholic Climate Deniers Join?

♠ Posted by Emmanuel in , at 4/30/2015 01:30:00 AM
Marco Rubio, other American climate change deniers should bear the US flag at SSPX's get-togethers.
The past two popes have been firmly ensconced in the green camp. That is not to say that there are any number of Catholic climate change deniers. Oftentimes two things go together: conservatism and climate change denial. I myself am of the "reluctant environmentalist" stripe: Sure I'd love to consume fossil fuels and throw away non-biodegradable petrochemical-based products with reckless abandon. However, as a reasonable person mindful of the impact of my way of life and how it affects others as well as future generations, I am more circumspect. As with most science, we cannot be entirely "sure" that man-made climate change is occurring. Rather, the overwhelming weight of scientific evidence suggests anthropogenic climate change is happening. Following the precautionary principle--we cannot be fully certain about man-made climate change, but the consequences of ignoring this not-unreasonable possibility are too horrific to contemplate--it is advisable for societies to cooperate on steps to mitigate the phenomenon.

Following this line of thinking, I applaud Pope Francis placing emphasis on the issue and await his forthcoming encyclical about it. The leader of the church should speak about meaningful contemporary issues, no? However, the "Republican" wing of the Catholic church is, ah, reheating the same old chestnuts beloved of these deniers:
“The Holy Father is being misled by ‘experts’ at the United Nations who have proven unworthy of his trust,” Joseph Bast, president of the Heartland Institute, a libertarian think tank based in Chicago, and one of the organizers of the press conference denouncing Francis on Monday. 

“Humans are not causing a climate crisis on God’s Green Earth – in fact, they are fulfilling their Biblical duty to protect and use it for the benefit of humanity,” Mr. Bast continued in a statement released Monday. “Though Pope Francis’s heart is surely in the right place, he would do his flock and the world a disservice by putting his moral authority behind the United Nations’ unscientific agenda on the climate,” he said in a statement, contradicting the vast majority of world’s climate scientists.”  
Francis’s popularity among Catholics could prove politically difficult for many Catholic Republicans, including presidential hopefuls Jeb Bush, Chris Christie, Bobby Jindal, Marco Rubio, and Rick Santorum, most of whom, too, express skepticism about the science of climate change.
Just as the Americans made a ruckus some time ago about leaving British rule called the "War of Independence," I think it's high time that these so-called Catholics in the US sever ties with those other imperialist Europeans at the Vatican. Down with this popery! So they may not like Protestantism and all its denominations, but there are other schismatic options for the Marco Rubio bunch. In particular, I commend to them the Society of St. Pius X [SSPX] which denies the changes made during Vatican II to make church proceedings more relevant to the laity such as delivering the Mass in local languages and facing the congregation and not the altar during Eucharistic celebrations.

Being ever so backward looking, Catholic climate change deniers would fit right in with these folks who haven't recognized changes the church has made since, oh, 1962. Not that we haven't tried to reason with these folks:
Pope Benedict launched a series of doctrinal discussions with the SSPX in 2009, lifting excommunications imposed on its four bishops, who were ordained in 1988 without papal approval, and expressing his hopes they would return to full communion with the church. In 2011, the Vatican gave SSPX leaders a "doctrinal preamble" to sign that outlines principles and criteria necessary to guarantee fidelity to the church and its teaching; the Vatican said the SSPX leaders would have to sign it to move toward full reconciliation.

But [SSPX Superior General] Bishop Fellay said he repeatedly told the Vatican that the contents of the preamble -- particularly acceptance of the modern Mass and the council as expressed in the Catechism of the Catholic Church -- were unacceptable. He said the only reason he continued discussions with Vatican officials was because others "very close to the pope" had assured him that the pope was not in agreement with hard-line official pronouncements from the Vatican. 
Some people prefer to live in the past. I think the vast majority of the US "Catholic" Republicans mentioned above should definitely join those who revel in it. (SSPX's antagonistic position on Judaism may be a deal-breaker, though.) The rest of us have long since chosen to move on guided by faith and reason.
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Should UK Kick Out--and HK Welcome--HSBC?

♠ Posted by Emmanuel in at 4/29/2015 01:30:00 AM
Parting is such unsentimental indifference.
Following up on the previous post on HSBC airing the possibility of leaving London for Hong Kong, various pundits have offered their opinions on who would benefit and who would lose out from this mooted move. After all, it is not everyday that the world's second-largest bank in terms of assets at a $2.723 trillion says it's upping sticks. HSBC shares listed in Hong Kong and London have jumped quite a bit in the expectation that more capital could be freed up by less onerous regulations in Hong Kong, but we'll have to see about that.

In the meantime, ponder some comments. The Hong Kong Monetary Authority--obviously the financial services regulator in the Chinese Special Administrative Region (SAR)--says it is ready to welcome HSBC despite its gargantuan stature relative to the size of Hong Kong's economy:
HSBC's $2.6 trillion balance sheet is nearly eight times the size of Hong Kong's economic output. So the HKMA would have to scale up its regulatory operations, analysts and regulatory experts said. "Can HKMA regulate an institution the size of HSBC? They would have to hire in more staff, expand the scope of their coverage and communicate more with other regulators," said Jim Antos, bank analyst at Mizuho Securities Asia Ltd in Hong Kong...

The HKMA said on Friday it would adopt a "positive attitude" should HSBC return to the territory. On Monday, an HKMA spokeswoman said the regulator could not comment in detail on its ability to regulate a bank of HSBC's size. But the size of HSBC relative to Hong Kong's economy should not be a cause for concern because international regulators are devising rules for resolving bank failures without using public funds, she said.
So that's the diplomatic answer from the HKMA. That is, there's no need to worry about the matter until the paperwork begins to be filed for the move. While cautiously suggesting that it is up to the task of regulating an HSBC-sized behemoth, it remains noncommittal at present about the increased resources it would need to marshal if HSBC does move to Hong Kong.

On the other hand, I am more amused by Bloomberg View saying that for the UK, it's goodbye, good riddance, and don't let the door hit you on the way out. In other words, there isn't much point in groveling for HSBC to stay in the UK given its laundry list of nefarious activities:
There’s nothing wrong with companies reviewing their affairs, including which country they choose to hang their brass plaque in. But threatening to leave in a fit of pique every time there’s a threat of increased regulation or a nudge in taxation smacks of teenagers threatening to run away from home because a curfew is too early or performing household chores are too tedious. And HSBC in particular is becoming a bore by regularly trying to blackmail the U.K. authorities.

It may make sense for HSBC -- which started life a century and a half ago as the Hong Kong and Shanghai Banking Corp. -- to move. It's been based in London as a result of its purchase of Midland Bank a bit more than two decades ago. But it made more than 78 percent of its 2014 profit in Asia, compared with just 3.2 percent from its European operations; the figures for 2013 were 70.3 percent and 8.1 percent, respectively. 
HSBC seems to hold the mistaken belief it’s doing the U.K. a favor by hanging its hat in London. The levy has been increased eight times since it was introduced in the middle of 2010, which feels excessive -- until you remember that HSBC’s Household Finance unit played a leading role in the U.S. subprime mortgage debacle that triggered the global financial crisis; that U.K. banks have paid billions of pounds in fines for malfeasance in everything from rigging Libor to mis-selling insurance to their retail clients to arranging dodgy swaps for their corporate customers; and that the easiest way to reduce your levy payment to the U.K. government is to shrink your balance sheet.
I guess there's only one way to find out whether the British can really be so blase about letting HSBC so easily--and whether Hong Kong really wants to bring in this colossus and the regulatory challenges it brings. 
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Yanis Varoufakis: Rise of the Econocomedian

♠ Posted by Emmanuel in , at 4/28/2015 01:30:00 AM
The real Varoufakis needs to work on the pectoral definition, though.
I have previously commented on the sartorial bankruptcy of Greece's leaders to complement their financial bankruptcy. Apparently, though, Finance Minister Yanis Varoufakis sets new standards in these respects. At the end of last week, the funkily-attired and attitudinally-challenged civil servant got a severe dressing down from his EU peers over his seemingly autistic approach to negotiations. As a "game theorist," he should have recognized the game the EU is playing since it holds all the cards: It's called Now I've Got You, You SOB -
When Yanis Varoufakis warned his fellow euro-area finance chiefs of the dangers of pushing his government in Athens too far, Peter Kazimir snapped. Kazimir, Slovakia’s finance minister, launched a volley of criticism at his Greek counterpart, releasing months of pent-up frustrations among the group at the political novice. They’d had enough of what they called the economics professor’s lecturing style and his failure to make good on his pledges.

The others at the April 24 gathering in Riga, Latvia, took their cue from Kazimir -- they called Varoufakis a time waster and said he would never get a deal if he persisted with such tactics. The criticism continued after the meeting: eight participants broke decorum to describe what happened behind closed doors. A spokesman for Varoufakis declined to respond to their descriptions.
“All the ministers told him: this can’t go on,” Spain’s Luis de Guindos said the following day. “The feeling among the 18 was exactly the same. There was no kind of divergence.” The others who provided an account of the meeting in interviews asked not to be named, citing the privacy of the talks.
What irks admittedly rather faceless and colorless EU finance ministers is the same as what irks me: Varoufakis appears profoundly uninterested in interacting with his peers and addressing their concerns in a meaningful way instead of making endless Communist Manifesto-inspired tweets. He seems absorbed by his emergent cult of personality and stroking his ego at the expense of the plight of ordinary Greeks.

As a result, even the leader of the tie-forsaking neo-Marxist contingent, Greek Prime Minister Alexis Tsipras, has sidelined the bald-headed Narcissist-Leninist who probably fantasizes that he's The Rock, or at least Vin Diesel:
Greece’s outspoken finance minister Yanis Varoufakis has been sidelined after three months of fruitless talks with international creditors to unlock €7.2bn in bailout funds, heartening investors and sparking a rally on the Athens stock market. Eurozone officials said they were encouraged by the move by Alexis Tsipras, Greece’s prime minister, to overhaul his bailout negotiating team in the wake of an acrimonious meeting of eurozone finance ministers in Riga last week.

The shake-up comes as Athens faces questions over whether it can meet this month’s wage and pension bill of nearly €2bn as well as a €750m loan repayment due to the International Monetary Fund on May 12. The Athens stock market rose nearly 4.4 per cent on the news and borrowing costs on Greece’s July 2017 bonds were down almost 4 percentage points from Friday’s close to 21 per cent. Yields on Greece’s benchmark 10-year bonds were down a full percentage point at 11.4 per cent.
His comic antics wouldn't be so intolerable if it weren't for what's at stake for Greece, the Eurozone, and the world economy. Ah, well, I guess Varoufakis' fifteen minutes of fame have run out. Perhaps unwilling to return to the boring old life of a college teacher, there are other career paths beckoning as suggested by this self-styled "socialist" who wears Burberry scarves. Stand-up comedy seems to be a natural thing for him since he's certainly not cut out to be a Eurocrat of any sort. What a joke.

How many eurozone finance ministers does it take to make Varoufakis wear a tie? 

5/4 UPDATE: No less than Mohamed El-Erian begs to differ:
Varoufakis was a breath of fresh air in this protracted and exhausting Greek economic drama, which involves alarming human costs in terms of unemployment, poverty and lost opportunities. Backed by considerable economic logic and a desire to do better, he pressed for more realism in the policy conditions demanded by Greece’s creditors. And he never tired of reminding people that Greece's recovery wasn't that country's responsibility alone.
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Leaving London: HSBC Returns to Hong Kong?

♠ Posted by Emmanuel in , at 4/27/2015 01:30:00 AM
The once and future home of HSBC?
It may seem odd that the "Hong Kong and Shanghai Banking Corporation" or, more broadly, HSBC Holdings is headquartered in Canary Wharf, not in Hong Kong or Shanghai. However, the name does not suggest the place in the case of the British banking giant since it's been UK-based since 1993 after its purchase of Midland Bank and when there were doubts as to what the PRC would do after the 1997 takeover of Hong Kong. Most readers should be familiar with HSBC embroiling itself with nearly every financial scandal possible in recent years. A laundry list of fines have thus been levied on the bank, though in all fairness, the same can be said about several of its European and American counterparts. You name it and HSBC has probably been fined over it: US mortgages. LIBOR fixing. Forex rigging. And now HSBC is expecting another round of fines over laxity in implementing anti-money laundering regulations. It's literally billions and billions lost in fines.

I am of two minds about public persecution of banks nowadays through these record-breaking fines and other measures. Are banks to be punished simply for being banks--especially those with global reach? Arguably, the end result of so many requirements for minimum capitalization, AML-CFT and so forth is that even bigger agglomerations have emerged post-crisis since it's not exactly cheap to meet all these regulations. If they're even bigger and more central to nations' financial systems, it's hard to imagine them becoming easier to let fail.

Feeling the heat of public persecution--even the usually business-friendly Conservative Party in the UK has turned against the banks in line with the public mood--what's HSBC to do? It can stand around for another round of bank-bashing, or it can move elsewhere. Hence its recently mooted plans to leave the UK where it is currently headquartered.
A move to Hong Kong, viewed by analysts as the bank’s most likely destination should it relocate, would unpick a structure that’s existed since the Hongkong and Shanghai Banking Corp. acquired Britain’s Midland Bank Plc in 1992. A transfer should cost no more than $1.5 billion because HSBC still has a base in the former British colony, said Chirantan Barua, an analyst at Sanford C. Bernstein Ltd. in London. “The work is underway,”

Chairman Douglas Flint told shareholders at the bank’s annual meeting in London on Friday. “The question is a complex one and it is too soon to say how long this will take or what the conclusion will be.” Flint has been under pressure from investors to consider moving from the U.K., where a levy imposed on banks’ global balance sheets following the financial crisis cost HSBC 750 million pounds ($1.1 billion) last year, more than any other lender. Europe accounts for less than a quarter of profit at the bank, which operates in more than 70 nations.

“They may not like the U.K., but I’m not sure there’s exactly going to be a raft of people queuing up to have them” because of the size of HSBC’s $2.6 trillion balance sheet, said Edward Firth, head of European bank research at Macquarie Group Ltd. in London. “Hong Kong is the only serious possibility.” 
Markets cheered on the news, apparently being sympathetic to the over-regulation argument:
HSBC jumped 2.9 percent to 629.7 pence a share in London trading. The stock is up 3.5 percent this year, trailing Standard Chartered Plc’s 11 percent gain and Barclays Plc’s 7.5 percent increase.
As you may have surmised, it is not a story solely about HSBC but also the way political classes treat the financial sector and even the future of UK in Europe. With mainstream parties competing to bash banks harder and the Tories still contemplating holding a referendum over the UK being in the EU, now may be the time to return to Asia:
“Investors are excited about the possible move because the U.K. has been tightening their regulations,” said Castor Pang, Core Pacific-Yamaichi’s head of research in Hong Kong. “They are hoping that HSBC could free up more capital when it’s based outside the U.K.” George Osborne, the ruling coalition’s finance minister, increased the levy on bank balance sheets for an eighth time in his most recent budget, and both the Labour and Conservative parties have pledged a more onerous tax regime for banks in their manifestos.

HSBC also said it’s concerned about Britain’s potential exit from the European Union. The Conservative party has pledged to hold a referendum on continued membership if it wins. The bank said the importance of EU markets to British trade make it riskier for the U.K. to leave the 28-member economic union than try to overhaul it.

Both Britain’s main political parties seized on the the bank’s announcement: Prime Minister David Cameron said the move underlines the need for pro-business policy. Opposition Labour party leader Ed Miliband said HSBC’s comments were “very significant” and that the last thing Britain needed was two years of debate about whether to leave the EU or not.
While I too believe that Hong Kong is the only place with a financial services sector big and sophisticated enough for HSBC to call home, you have to wonder if the PRC is going to treat HSBC with kid gloves. The Chinese have a very long memory, and the bank was a key financial intermediary for the opium trade which the Chinese remain rather upset about as evidenced by their histories of this period. None of the major news outlets have not really probed how amenable today's China--well, sort of--is to hosting HSBC, but surely it's a consideration the bank will need to think carefully about soon.
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Intervenzione: HK Monetary Authority Peg Defenders

♠ Posted by Emmanuel in , at 4/24/2015 01:30:00 AM
These are the days defending the HKD peg.
All manner of currency pegs are being assaulted nowadays by speculators. A few days back we discussed the Danish krone coming under sustained assault but the authorities there successfully defending its link to the euro. But, here in Asia, there's another peg that some are betting will not withstand an attack: the Hong Kong dollar to the US dollar. Since 1983--a long time ago when Hong Kong was still a British colony--the monetary authority there pegged HKD 7.8 / USD 1. Having withstood the Asian financial crisis as other currencies in the region plummeted in value, Hong Kong has a well-deserved reputation for toughness in maintaining this peg.

However, that doesn't mean the Hong Kong Monetary Authority (HKMA) is not challenged every now and again. Since 2005, it has striven to keep the exchange rate between 7.75 to the US dollar on the strong end and 7.85 on the weak end. Unbeknownst to most casual currency observers, the HKMA has intervened thrice in four business days this week. First, on Monday...
The Hong Kong Monetary Authority (HKMA) stepped into the currency market again and sold HK$2.325 billion ($300 million) in Hong Kong dollars on Monday as the local currency hit the strong end of its trading range. The city's de-facto central bank has intervened multiple times in the market in the past fortnight. According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$275.3 billion on April 22.
...then on Wednesday:
The Hong Kong Monetary Authority (HKMA) intervened in the currency market, selling HK$1.55 billion ($200 million) in Hong Kong dollars on Wednesday as the local currency hit the strong end of its trading range [...] According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$293.863 billion on April 24.
On Thursday, they were at it again:
The Hong Kong Monetary Authority (HKMA) intervened in the currency market, selling HK$1.938 billion ($250 million) in Hong Kong dollars on Thursday as the local currency hit the strong end of its trading range [...] According to the HKMA, the latest intervention will lift the aggregate balance - the sum of balances on clearing accounts maintained by banks with the authority - to HK$295.8 billion on April 27.
These come after earlier interventions in April. How does that Donna Summer song go again? The HKMA works hard for the money.
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Cold War II, Really: EU Sues Gazprom for Antitrust

♠ Posted by Emmanuel in ,, at 4/23/2015 01:30:00 AM
Is it just me or is Schalke 04 having Gazprom as its sponsor similar to having an "I [HEART] SATAN'S WORKS" jersey?
 I had rolled my eyes over the hyperbole about the current freeze in Russia-Western relations being "Cold War II"--until now, that is. Activist EU regulators have long been accused of being busybodies: first with the Microsoft case (which resulted in much ado about nothing) and now, interestingly enough, Microsoft prodding the EU to do something about Google's dominance in cell phone operating systems via Android and its bundling of various apps. To me it's an open-and-shut case of Microsoft's OS being uncompetitive, but hey, I am not an EU competition regulator.

Something I am fairly assured of is that Google will copy the Microsoft playbook in wearing down EU regulators and eventually making token changes. (USA Today's Michael Wolff offers excellent commentary on the upcoming EU v Google case.) However, a reasonable response is not what I'd expect from another case EU regulators are making against the Russian gas giant Gazprom. Having applied all sorts of sanctions that have resulted in doubts about the financial viability of Russian, mostly state-owned firms, to survive without access to Western capital markets, they are now going for Russia's throat.

If Gazprom is not allowed to conduct normal business activities in Western Europe, that is the absolute last straw. What else recourse will Russia have? Other markets are not readily accessible without pipelines, and LNG facilities that will allow Russia to ship gas overseas are not yet fully operational. Go ask the French. Anyway, onto the story:
The European Commission (EC) has charged Gazprom with abusing its dominant market position in Central and Eastern European gas markets. The Commission said its preliminary view was that the Russian energy giant was breaking EU anti-trust rules. It added Gazprom may have limited its customers' ability to resell gas, potentially allowing it to charge unfair prices in some EU member states.

Gazprom rejected the Commission's objections, calling them "unfounded". "Gazprom strictly adheres to all the norms of international law and national legislation in the countries where the Gazprom Group conducts business," the company said in a statement...Brussels began investigating state-controlled Gazprom three years ago, but Moscow says the Commission's allegations are politically motivated.
Yeah, sure, Gazprom. I am sure your activities are not "politically motivated" in the least[nudge-nudge, wink-wink].
The EU's new anti-monopoly chief, Margrethe Vestager, said the Commission had found that Gazprom "may have built artificial barriers preventing gas from flowing from certain Central European countries to others, hindering cross-border competition. "Keeping national gas markets separate also allowed Gazprom to charge prices that we, at this stage, consider to be unfair. "If our concerns were confirmed, Gazprom would have to face the legal consequences of its behaviour." Brussels' competition authority has the power to impose fines of up to 10% of Gazprom's global turnover.

The Commission questioned the formulae the energy giant used to come up with the different prices at which it sold gas to individual countries. "Gazprom's specific price formulae, which link the price of gas to the price of oil products, seem to have largely favoured Gazprom over its customers," it said.

The Commission said that, in its preliminary view, Gazprom was hindering competition in the gas markets in eight Central and Eastern European member states - Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. Russia supplies about a third of the EU's gas requirements, with half that amount going through pipelines that cross Ukraine.
When cornered, Russia will lash back...and boy does it have a lot of ways to do so. On one hand, I am fairly certain that Gazprom has all sorts of anti-competitive practices. On the other hand, the timing of this case with arch-regulator Margethe Vestager at the controls is most unfortunate and suspicious.

I fear this episode won't end well, to be honest. 
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China's Enduring War on the Bourgeois Sport of Golf

♠ Posted by Emmanuel in ,, at 4/22/2015 01:30:00 AM
Seen an apparatchik thereabouts? Call 1-888-JAIL-CORRUPT-OFFICIALS.
It's good to know that some things never change: Despite China turning more capitalist than many Western nations in terms of the sheer rapaciousness tolerated and even encouraged by its leaders, there are unspeakable evils that remain...like, er, golf. Last year, an FT journalist Dan Washburn even wrote a well-regarded book on this very topic. By offering three vignettes on the grey area golfing entrepreneurs operate in, he provided fascinating insights into how the sport is still linked to vice despite the "anything goes" attitude that pervades Chinese society nowadays. Here is the book's blurb:
Statistically, zero percent of the Chinese population plays golf, a politically taboo topic still known as the “rich man’s game.” Yet China is in the midst of a golf boom – hundreds of new courses have opened in the past decade, despite it being illegal to build them.Award-winning journalist Dan Washburn charts a vivid path through this contradictory country by following the lives of three men intimately involved in China’s bizarre golf scene.

We meet Zhou, a peasant-turned-golf-pro who discovered the game after winning a job as a security guard at an exclusive golf club – and believes golf to be his ticket to joining China’s emerging middle class; Wang, a lychee farmer whose life is turned upside down when a massive top-secret golf complex moves in next door to his tiny ancient village; and Martin, a Western executive trying to navigate China’s byzantine and highly political business environment, ever watchful for Beijing’s “golf police.” 
Recently, Dan Washburn has noted that golf has come under increased scrutiny as of late. How so? Supposedly, the links are where corrupt officials conclude shady deals, thus connecting the ongoing crackdown on corrupt officials to activities connected with golf. Courses, therefore, are scenes of unspeakable crimes. Just for stepping on foot a golf course, one apparatchik has been put "under investigation" (i.e., branded a lawbreaker):
On March 30, Chinese authorities announced the closure of 66 "illegal" golf courses -- roughly 10% of all courses in the country -- in an apparent attempt to start enforcing a long-ignored ban on golf-related construction.  The following day, the Commerce Ministry announced that one of its senior officials was under investigation for "participating in a company's golf event," thus putting him on the wrong side of President Xi Jinping's "eight rules" against extravagance among government officials.

In Xi's China, being put "under investigation" is tantamount to being found guilty. Since embarking on his seemingly ceaseless anti-corruption campaign more than two years ago, hundreds of thousands of officials at all levels of government have been put in the crosshairs. The biggest names caught in the web are called "tigers." That's not a golf reference, but China's current crackdown on the sport does show how pervasive and unpredictable Xi's crusade has become.
Apparently, the jihad against golf traces back to Maoist times. That said, there are also ecological concerns about these courses' sucking up huge amounts of water in a country where it is scarce:
As I wrote in my book on the topic, China has long had a complicated relationship with golf. Mao Zedong banned it, denouncing golf as the "sport for millionaires." Even after China opened up and golf re-emerged in the mid-1980s, largely as a way to attract foreign investment, the sport was saddled with serious image problems.

It's not hard to see why. The construction and maintenance of golf courses is particularly resource intensive. China is home to 20% of the world's population, yet just 7% of its fresh water and 9% of its arable land, one-fifth of which is polluted. Golf also remains prohibitively expensive in China (this was one thing about which Mao was right) and it has earned a reputation as a self-indulgent, elitist pursuit. 
In a nation of 700 million peasant farmers, only a small sliver of the population can afford to play the game. That small sliver should not include anyone living off the salary of a public official, but it often has over the years. At best, the public would view these backswinging bureaucrats as out of touch. At worst, they are thought to be totally corrupt. In Guangdong province, the birthplace of golf in modern China, an investigative team has been formed to crack down on officials who took part in any of nine golf-related activities. There's even a public hotline for reporting suspected golf violations. 
The thing about golf is that it exists in this grey area where the caprices and whims of Communist Party leaders dictates whether the sport is permitted or not. As with many things in China, designation and enforcement of rules can be--how can I put it--selective. To illustrate, the author notes that China is busy training a golf squad since the 2016 Summer Olympics will feature the sport for the first time in over a century. Not that China is expected to medal having no world-class golfers precisely because of its naff image in the mainland, but if there's something to be won, the Chinese will try anyway:
This is a weird time in China. Xi's campaign against corruption has created a very tense and uncertain business and political climate. And yet, in some ways, things seem to be China as usual. Just days before the latest golf crackdown was announced, it was widely reported that Tiger Woods had signed a $16.5 million deal to redesign two courses in China. The week after The Masters, Bubba Watson, the No. 3 golfer in the world, is scheduled to compete in the $2.5 million Shenzhen Invitational, the latest international golf tournament to land on China's shores.

Meanwhile, the Chinese government quietly continues to funnel an unprecedented amount of money into its national golf team, all in pursuit of those all-important Olympic medals. So what does this all mean? And what does the future hold for golf in China? Every time I am asked that, I am reminded of a new take on an old joke: If you want to make China laugh, tell it about your predictions. 
The trouble is that Chinese officialdom does not adequately distinguish among three different sets of concerns: (1) the ideological permissibility of golf as a pastime in China; (2) the tendency for corrupt public officials to play golf; (3) whether these courses were acquired by land-grabbing or forced evictions; and (4) the environmental impact of the sport. Until these concerns are sorted out separately, you will have this head-scratching phenomenon of quickly-changing periods of permissiveness and prohibition. The only way I think these matters can be sorted in favor of golf is if a globally competitive Chinese golfing athlete emerges. Venezuela, communistic as it is in different ways, began providing state sponsorship for Pastor Maldonaldo given his (somewhat limited) successes in Formula One despite it having an elitist reputation.

Then again, you suspect that keeping golf in a grey area is actually intended. Asians are more used to living with such ambiguities. F-O-R-E!
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