Date: January 10, 2019
U.S. Pushes China on Promises After ‘In-Depth’ Trade Meetings
The Trump administration is pushing for a way to make sure China delivers on its commitments in any deal the two nations reach to defuse a trade war that has roiled financial markets and dimmed the outlook for global growth. The U.S. wrapped up three days of mid-level talks with China in Beijing on Wednesday, noting a commitment by President Xi Jinping’s government to buy more U.S. agricultural goods, energy and manufactured products. For its part, China said the meetings were “extensive, in-depth and detailed,” and laid the foundation for a resolution of the conflict. The office of U.S. Trade Representative Robert Lighthizer said it wants any deal to include “ongoing verification and effective enforcement” and the U.S. will decide on next steps after officials report back to Washington. China’s Ministry of Commerce on Thursday said the two sides “implemented the consensus” reached by the two presidents in earlier talks, and discussed both trade and structural issues in the meetings. Investors welcomed signs of optimism from the talks. Stocks rose globally after the two economic powers appeared to inch closer to an agreement, with the S&P 500 Index rising for a fourth day to the highest in almost a month. The U.S. push for enforceable targets in a deal underscores the challenge of reaching a lasting truce. President Donald Trump and his deputies have criticized China for failing to live up to past promises, including a pledge to promptly open up the Asian nation’s economy to more trade and investment after it joined the World Trade Organization in 2001. Trump and Xi have given their officials until March 1 to reach an accord on “structural changes” to China’s economy on issues such as the forced transfer of American technology, intellectual-property rights, and non-tariff barriers. It’s a tight window in which to nail down deep changes to China’s economic model, some of which past U.S. administrations advocated for years and U.S. lawmakers on both sides of the aisle support.
ECB Says Cutting Economic Outlook Kept Growth Risks Balanced
European Central Bank officials agreed that a cut to their 2019 growth projection in itself acknowledged that risks to the outlook for the euro-area economy had increased. That effectively allowed President Mario Draghi to avoid saying in December that the balance of risks was to the downside, which would have jarred alongside a decision to halt bond buying after almost four years. Instead, he described it as broadly balanced and only “moving’’ lower. “Uncertainties and risks related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial volatility had remained prominent,” the ECB said in the account of its Dec. 12-13 policy meeting published Thursday. “It was underlined that the situation remained fragile and fluid, as risks could quickly regain prominence or new uncertainties could emerge.” The euro was little changed after the report and traded at $1.1533 at 1:59 p.m. Frankfurt time. “Uncertainties and risks related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial volatility had remained prominent,” the ECB said in the account of its Dec. 12-13 policy meeting published Thursday. “It was underlined that the situation remained fragile and fluid, as risks could quickly regain prominence or new uncertainties could emerge.” The euro was little changed after the report and traded at $1.1533 at 1:59 p.m. Frankfurt time. The central bank currently pledges to keep rates at their current levels at least through the summer, even though market participants have taken more recent weakness in data to signal that a hike could be delayed. Minutes from the Federal Reserve’s Dec. 18-19 meeting showed on Wednesday that policy makers could place interest rates in the U.S. on hold through March or longer as they wait for clarity on risks to global growth that could affect their economy.
How Malaysia’s 1MDB Scandal Shook the Financial World
Malaysia’s state-owned investment fund, 1MDB, was supposed to attract foreign investment. Instead, it has spurred criminal and regulatory investigations around the world that have cast an unflattering spotlight on financial deal-making, election spending and political patronage under former Prime Minister Najib Razak. The figures are mind-boggling: A Malaysian parliamentary committee identified at least $4.2 billion in irregular transactions related to 1MDB. In May, Najib was ousted in a general election as the scandal fueled a voter backlash that ended his party’s 61 years of rule. As the investigations continue, Najib faces trial on corruption and other charges and U.S. prosecutors implicated at least three senior Goldman Sachs Group Inc. bankers in a multiyear criminal enterprise, one of whom admitted bribery. Malaysia has also filed criminal charges against the U.S. bank. Investigators have been trying to trace how money flowed through and around 1MDB and illegally into personal accounts. The U.S. Justice Department says more than $4.5 billion flowed from the fund, through a complex web of opaque transactions and fraudulent shell companies, to finance spending sprees by corrupt officials and their associates. The U.S. alleges that a small coterie of Malaysians, led by businessman Low Taek Jho (known as Jho Low), diverted money from 1MDB into personal accounts disguised to look like legitimate businesses, and kicked back some of those funds to officials. Some of the money is alleged to have ended up with Najib and his family. That includes $681 million that landed in Najib’s personal bank account, according to U.S. prosecutors. Malaysia’s then attorney general, backed by Saudi authorities, said in 2016 the $681 million was a donation from the Saudi Arabian royal family, much of which was returned. U.S. investigators say the money instead came from, and was returned to, an offshore entity allegedly controlled by Jho Low. Malaysia’s new Prime Minister, Mahathir Mohamad, says his country is seeking to recoup billions of dollars of 1MDB funds, including fees from Goldman. The bank made $593 million working on three bond sales that raised $6.5 billion for 1MDB in 2012 and 2013, dwarfing what banks typically make from government deals.