Month: April 2019

In a twist, China has announced that it has persuaded Malaysia to resume a canceled rail project worth $10.7 billion. The sudden about-face by Kuala Lumpur, which had earlier rejected the Chinese-funded project, will be a big boost for China ahead of a Belt and Road Forum in Beijing later this month, say analysts.

China is hosting its second annual Belt and Road Forum from April 25 to 27 in Beijing. The event is likely to include the heads of state and governments of 40 different countries and officials from 60 others as Beijing tries to win more support for the trillion-dollar infrastructure and investment plan known as the Belt and Road Initiative, or BRI.

In recent months, the initiative has faced tough challenges as Sierra Leone, Bangladesh, Myanmar and Malaysia canceled or reduced the size of previously negotiated deals. Although Malaysia is back on board, it has forced China to accept a 30 percent reduction in the price of the project.

The reworked deal with Malaysia highlights how China is trying to face up to widespread criticism about the financing costs of its projects and concerns expressed by experts and government leaders around the world that the projects are nothing but diplomacy debt traps.

“I think China is trying to make changes. But it is trying to do too much too quickly and with too much skepticism facing it. No wonder it’s having a torrid time,” said Kerry Brown, director of the Lau China Institute at King’s College London.

Analysts said it is likely that the forum will be mostly about optics, but some real deals could be finalized. Given the heavy criticism about the projects, there will be high expectations from participants, which Beijing has said will include 40 heads of states and governments.  

“They will presumably want something more than mere protocol. Even the promise of deals is better than none at all,” Brown said.

Analysts add that, despite the criticism of the plan, which has been loud at times, the BRI has been able to attract dozens of foreign governments and has been backed by institutions like the World Bank because it is offering to build much-needed infrastructure and help foot the cost.

“The reason so many countries are interested in BRI is because China is offering something no one else is and there is genuine demand for what BRI represents,” said Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy in Beijing.

Still, it has not been easy for Chinese leaders to wade through the skepticism and sometimes strong opposition to the program from the United States’ and China’s neighbor, India. Critics see BRI as China’s attempt to impose financial imperialism on economically weak but strategically located countries. Many have also raised questions because of the lack of transparency surrounding the projects.

Recently however, there have been signs China is modifying the program to suit the needs of its customers, particularly those like Malaysia and Italy, which are not as desperately in need of Beijing’s financial largesse and deep pockets. Italy recently joined the BRI bandwagon after visiting Chinese President Xi Jinping provided the kind of assurances Rome sought.

“Chinese regulators realize they need to be pragmatic if these projects are to be successful, especially where there is local pushback on political and societal levels,” said Andrew Polk, partner at Beijing-based consultancy firm Trivium China.

There are still serious questions about the kind of changes that Beijing is ready to make. Some analysts believe that China might offer better financial terms and stop its practice of flooding foreign projects with Chinese workers; however, they say Beijing is unlikely to make changes in crucial areas like the transparency of deals and Chinese companies involved in overseas projects.

“Beijing could make the terms of deals public, which would be a major signal of change, but no indications of that happening soon,” said Jonathan Hillman, director of the Reconnecting Asia Project at the Center for Strategic and International Studies in Washington.

“Greater transparency would constrain Beijing’s ability to funnel cash through BRI projects to its friends in high places,” he said.

There have been problems even in places where Chinese projects have proven to be successful in terms of implementation. For instance, Chinese companies have ensured the commercial success of the Greek port city of Piraeus. “But its political impact is mixed. Greeks might welcome Chinese investment, but they don’t want China’s environmental or labor practices,” Hillman said.

The U.S. recently described BRI as a “vanity project” and announced it would not send a high-level delegation to the forum. Analysts are wondering if the U.S. will stay away from the meeting altogether.

“The U.S. has made its position clear. It opposes the BRI. Attendance under the current circumstances with the trade war unresolved would be odd,” Brown said.

Haenle said he believes the U.S. should engage with the BRI along with its friends and partners.

“The U.S. is right to point out the flaws in the Belt and Road Initiative, but if it wishes to see them corrected, it must also put forward its own alternatives and refrain from knee-jerk reactions,” he said.
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The latest power outage started another tough week for factory owner Antonello Lorusso in the city of Valencia, once Venezuela’s industrial powerhouse.

For the past month, unprecedented nationwide blackouts paralyzed the factory and the rest of the country, cutting off power, water and cell service to millions of Venezuelans.

Lorusso’s packaging plant, Distribuidora Marina, had already struggled through years of hyperinflation, vanishing client orders, and a flight of employees. Now the situation was worse.

For the whole month of March, Lorusso said, his company produced only its single daily capacity: 100 tonnes of packaged sugar and grains. When Reuters visited on April 8, he was using a generator to keep one of his dozen packaging machines working to fulfill the single order he had received. Power had been on for a few hours, but was too weak to run the machines.

“There is no information, we don’t know if the blackouts will continue or not,” said Lorusso, who has owned the factory for over 30 years. He said the plant had just a day’s worth of power over the previous week.

Power has been intermittent since early March, when the first major blackout plunged Venezuela into a week of darkness.

Electricity experts and the opposition have called the government incompetent at maintaining the national grid. President Nicolas Maduro has accused the opposition and the U.S. government of sabotage.

Venezuela’s industry has collapsed during six years of recession that have halved the size of the economy. What is left is largely outside of the capital Caracas, the only big city that Maduro’s government has excluded from a power rationing plan intended to restrict the load on the system.

In Valencia, a few multinational companies like Nestle and Ford Motor Co cling on. But the number of companies based there has fallen to a tenth of the 5,000 there were two decades ago, when Maduro’s predecessor Hugo Chavez became president, according to the regional business association.

‘The game is over’

The government said on April 4 that the power rationing plan meant Valencia would spend at most 3 hours a day without electricity, but a dozen executives and workers there said outages were still lasting over 10 hours. Generators are costly and can only power a fraction of a business’s operations, they said. Many factories have shut down.

“The game is over. Companies are entering a state of despair due to their inviability,” said an executive of a food company with factories in Valencia, speaking on condition of anonymity.

Industrial companies this year are operating below 25 percent of capacity, according to industry group Conindustria. It estimated companies lost about $220 million during the days in March without power, and would lose $100 million more in April.

Nestle’s factory, which produces baby food, halted during the first blackout in early March and operations again froze two weeks later, with employees sent home until May, according to Rafael Garcia, a union leader at the plant. He blamed the most recent stoppage on very low sales of baby food which cost almost a dollar per package, or about what a person on minimum wage earns in a week.

“My greatest worry is the closure of the factory,” said Garcia, as he sat at a bus stop on Valencia’s Henry Ford avenue, in the city’s industrial outskirts where warehouses sit empty and streets are covered in weeds.

Nestle did not respond to emails seeking comment.

Ford’s plant along the avenue was working at a bare minimum for several months, union leaders said. In December, the carmaker began offering buyouts to staff after it received no orders for 2019, they said. Ford, in December, said it had “no plans to leave the country.”

The outages have idled more than just factories. In the countryside, lack of power has prevented farmers from pumping water to irrigate fields.

Since January, farmers have sown 17,500 hectares of crops, a third of the area seeded last year, and they fear losing the harvest due to the lack of water, according to agricultural associations. In the central state of Cojedes, several rice growers have already lost their crops, farmers said.

“In the rural areas, the blackouts last longer,” said Jose Luis Perez, spokesman for a rice producers federation. Producers of cheese, beef, cured meats and lettuce told Reuters orders had dropped by half in March as buyers worried the food would perish once their freezers lost power in the next blackout.

Back in Valencia, Lorusso was preparing his factory for the new era of scarce power. He has converted one unused truck in his parking lot into a water tank. He plans to sell another to buy a second generator.

“We’ve spent years getting used to things. Then we were dealt this hard blow, and now we’re trying to find ways to cope,” he said.
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Walt Disney Co on Thursday said its new family-friendly streaming service will cost $7 monthly or $70 annually with a slate of exclusive TV shows and movies from some of the world’s most popular entertainment franchises in a bid to challenge the digital dominance of Netflix.

The ad-free monthly subscription called Disney+ is set to launch on Nov. 12 and in every major global market over time, the company said. In addition to Disney films and TV shows, it will feature programming from the Marvel superhero universe, the “Star Wars” galaxy, “Toy Story” creator Pixar animation and the National Geographic channel.

The company said it has struck deals with Roku Inc and Sony Corp to distribute Disney+ on streaming devices and console gaming systems and expects it to be widely available on smart televisions, tablets, and other outlets by launch.

Disney kicked off its presentation to Wall Street analysts at its Burbank, California, headquarters on Thursday with a video that demonstrated the breadth of its portfolio, showing clips from dozens of classic TV shows and movies from “Frozen” and “The Lion King” to “Avatar” and “The Sound of Music.”

Executives said they see opportunities to take its ESPN+ sport streaming video service to Latin America and are looking into international expansion of its Hulu streaming video business, which offers movies and shows targeted to adults.

The entertainment giant is trying to transform itself from a cable television powerhouse into a leader of streaming media. Chief Executive Bob Iger in February called streaming the company’s “No. 1 priority.”

Wall Street has pinned high hopes on the new service, which analysts expect would cost about $7.50 monthly and lure about 7.2 million U.S. subscribers in 2020 and 13.66 million by 2021, according to a poll of analysts conducted by Reuters.

The digital push is Disney’s response to cord-cutting, the dropping of cable service that has hit its ESPN sports network and other channels, and the rise of Netflix Inc. The Silicon Valley upstart has amassed 139 million customers worldwide since it began streaming 12 years ago.

The Mouse House, as Disney is known, will join the market at a time when audiences are facing a host of choices, and monthly bills, for digital entertainment. Apple Inc, AT&T Inc’s WarnerMedia and others plan new streaming services. To bolster its potential digital portfolio, Disney recently purchased film and TV assets from Rupert Murdoch’s 21st Century Fox and gained prized properties such as “Avatar.”

In a January regulatory filing, Disney reported losses of more than $1 billion for streaming-related investments in Hulu and technology company BAMtech.

Disney had been supplying new movies such as “Black Panther” and “Beauty and the Beast” to Netflix after their runs in theaters but ended that arrangement this year to feed its own streaming ambitions. The company estimated it is foregoing $150 million in licensing revenue this fiscal year by saving programming for its own platforms.

The Disney+ programming will draw in part from Disney’s deep library of classic family films. It also will include exclusive original content such as a live-action “Star Wars” series called “The Mandalorian,” a show focused on Marvel movie villain Loki, and animated “Monsters at Work,” inspired by hit Pixar movie “Monsters Inc.”

Some new Disney movies, such as a “Lady and the Tramp” remake, will go directly to the Disney+ app. Other new releases will appear on Disney+ after their run in theaters and after the cycle out of the home video sales window, executives have said.
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Uber Technologies Inc. has 91 million users, but growth is slowing and it may never make a profit, the ride-hailing company said Thursday in its initial public offering filing. 

The document gave the first comprehensive financial picture of the company, which was started in 2009 after its founders struggled to get a cab on a snowy night. 

The filing underscores the rapid growth of Uber’s business in the last three years but also how a string of public scandals and increased competition from rivals have weighed on its plans to attract and retain riders. 

$3B loss from operations

The disclosure also highlighted how far Uber remains from turning a profit, with the company cautioning it expects operating expenses to “increase significantly in the foreseeable future” and it “may not achieve profitability.” Uber lost $3.03 billion in 2018 from operations, excluding one-off gains. 

The S-1 filing with the U.S. Securities and Exchange Commission revealed Uber had 91 million average monthly active users on its platforms, which include ride-hailing and Uber Eats, at the end of 2018. This was up 33.8 percent from 2017, but growth slowed from 51 percent a year earlier. 

Uber in 2018 had revenue of $11.3 billion, up around 42 percent over 2017, again below the 106 percent growth in the prior year. 

Uber set a placeholder amount of $1 billion but did not specify the size of the IPO. Reuters reported this week that Uber plans to sell around $10 billion worth of stock at a valuation of between $90 billion and $100 billion.

Investment bankers had previously told Uber it could be worth as much as $120 billion. 

Uber will follow Lyft Inc. in going public. Shares in its smaller rival closed at $61.01 on Thursday, 15 percent below its IPO price set late last month, a development that has sent chilling signals to other tech startups looking to go public. 

Adverse events

After making the public filing, Uber will begin a series of investor presentations, called a road show, which Reuters has reported will start the week of April 29. The company is on track to price its IPO and begin trading on the New York Stock Exchange in early May.

Uber faces questions about how it will navigate any transition toward self-driving vehicles, a technology seen as potentially dramatically lowering costs but also as possibly disrupting its business model.

One advantage Uber will likely seek to play up to investors is that it is the largest player in many of the markets in which it operates. Analysts consider building scale crucial for Uber’s business model to become profitable.

In addition to answering questions about the company’s finances, Uber Chief Executive Dara Khosrowshahi will be tasked with convincing investors that he has successfully changed the culture and business practices after a series of embarrassing scandals over the last two years.

Those have included sexual harassment allegations, a massive data breach that was concealed from regulators, use of illicit software to evade authorities and allegations of bribery overseas. Khosrowshahi joined Uber in 2017 from Expedia Inc. to replace company co-founder Travis Kalanick, who was ousted as CEO. 

Uber said in its filing its ridesharing position in the United States and Canada was “significantly impacted by adverse publicity events” and that its position in many markets has been threatened by discounts from other ride-hailing companies. 

A #DeleteUber campaign surged on social media in 2017 after a public relations crisis, which Uber said in its filing meant hundreds of thousands of consumers stopped using its platform within days. 
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Hunter-gatherers in the Amazon sought in court on Thursday to stop Ecuador’s government from auctioning their land to oil companies, as tension mounts over the future of the rainforest. 

In a lawsuit seen by the Thomson Reuters Foundation — which could set a precedent for other tribes opposed to drilling — the Waorani said the government did not properly consult them in 2012 over plans to auction their land to oil companies. 

“We live on these lands and we want to continue to live there in harmony. We will defend them. Our fight is that our rights are respected,” said Nemonte Nenquimo, a leader of the 2,000-strong Waorani. 

“Our fight is not just a fight about oil. This is a fight about different ways of living — one that protects life and one that destroys life,” said Nenquimo, from Pastaza province in the eastern Amazon. 

Ecuador’s energy and environment ministries, the respondents in the case, and the nation’s hydrocarbons secretary were not immediately available to comment. 

When President Lenin Moreno met Waorani leaders last year to hear their concerns, he said it was important to have a dialog and reach a consenus. 

Tensions have simmered between indigenous communities and oil companies in Ecuador since Texaco — now Chevron — began operations in the Amazon in the 1960s.  

​Key step

Ecuador is pushing to open up more rainforest and develop its oil and gas reserves in the hope of improving its sluggish economy and cutting its high fiscal deficit and foreign debt. 

The constitution gives the government the right to develop energy projects and extract minerals on any land, regardless of who owns it, but requires that communities are consulted first and are properly informed about any projects and their impact. 

Laws to regulate the consultation process have yet to be introduced, although the court case could push the government to do this, said Brian Parker, a lawyer with campaign group Amazon Frontlines, which is supporting the Waorani. 

“The lawsuit is to ensure that the processes enshrined in the constitution are carried through to guarantee the Waorani rights to prior consultation and their rights to territory,” said Parker, who is based in Ecuador. 

“The fact that the Waoroni have a chance in court to be able to plead their case is in itself a very important step,” he said, adding that a court victory would provide an “invaluable precedent” for other indigenous Amazonian tribes. 

The government announced last year that it had divided swaths of forest up into blocs for auction, one of which — bloc 22 — covers the Waorani’s ancestral lands, raising the specter of pollution and an end to their way of life. 

​Present for hearing

Hundreds of Waorani and other indigenous peoples arrived in Ecuador’s eastern city of Puyo to witness the court hearing, which is expected to include several days of oral testimony from Waorani leaders, with a decision in the next few weeks. 

Ecuadorians voted last year to give broad backing to limits on oil production and mining in environmentally sensitive areas, among other issues. 

In two landmark cases in 2018, local courts sided with indigenous communities who said the government had failed to inform them before designating their land for mineral exploitation. 

The Costa Rica based Inter-American Court of Human Rights also ruled in 2012 that Ecuador had violated its Sarayaku Amazonian community’s right to prior consultation before drillers started exploration on their lands in the late 1990s. 
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U.S. consumer prices increased by the most in 14 months in March, but the underlying inflation trend remained benign amid slowing domestic and global economic growth.

The mixed report from the Labor Department on Wednesday was broadly supportive of the Federal Reserve’s decision last month to suspended its three-year campaign to raise interest rates.

The U.S. central bank dropped projections for any rate hikes this year after lifting borrowing costs four times in 2018.

Minutes of the Fed’s March 19-20 meeting, published on Wednesday, showed most policymakers viewed price pressures as “muted,” but expected inflation to rise to or near the central bank’s 2 percent target. The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy is currently at 1.8 percent.

“For the most part, inflation remains tame,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “The Fed effectively went on vacation and is likely to stay there for quite a few more months.”

The Labor Department said its Consumer Price Index rose 0.4 percent, boosted by increases in the costs of food, gasoline and rents. That was the biggest advance since January 2018 and followed a 0.2 percent gain in February.

In the 12 months through March, the CPI increased 1.9 percent. The CPI gained 1.5 percent in February, which was the smallest rise since September 2016. Economists polled by Reuters had forecast the CPI climbing 0.3 percent in March and accelerating 1.8 percent year-on-year.

Stripping out the volatile food and energy components, the CPI nudged up 0.1 percent, matching February’s gain. The so-called core CPI was held down by a 1.9 percent plunge in apparel prices, the largest drop since January 1949.

The government last month introduced a new method and data to calculate apparel prices. Apparel prices, which had increased for two straight months, trimmed the core CPI by 0.07 percentage point in March. Many economists expected a reversal in April.

“The new price collection methodology for apparel incorporates corporate data from one unidentified department store to complement prior survey-based collection,” said Kathy

Bostjancic, head of U.S. Macro Investor Services at Oxford Economics in New York. “The new methodology appears more likely to show large monthly declines due to the lifecycle of apparel.”

Low inflation expectations

In the 12 months through March, the core CPI increased 2.0 percent, the smallest advance since February 2018. The core CPI rose 2.1 percent year-on-year in February.

The dollar was trading slightly lower against a basket of currencies, while U.S. Treasury prices rose. Stocks on Wall Street were mostly higher.

Inflation has remained muted, with wage growth increasing moderately despite tightening labor market conditions. Minutes of the March policy meeting showed some Fed officials believed the benign price pressures could be the result of low inflation expectations and also an indication the labor market was likely not as tight as implied by measures of resource utilization.

“The minutes reinforce our view that rates are on hold for the foreseeable future, though this could shift if the economy and or inflation surprise to the up or down sides,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

A 3.5 percent jump in energy prices in March accounted for about 60 percent of the increase in the CPI last month. Gasoline prices surged 6.5 percent, the biggest gain since September 2017, after rising 1.5 percent in February.

Food prices gained 0.3 percent after accelerating 0.4 percent in February.

Food consumed at home increased 0.4 percent. Consumers also paid more for rent. Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.3 percent in March after a similar gain in February.

Healthcare costs rebounded 0.3 percent after slipping 0.2 percent in February. There were increases in the costs of prescription medication and hospital services.

The cost of new vehicles rebounded 0.4 percent after declining 0.2 percent in February. But there were decreases in the prices of used motor vehicles and trucks, airline fares and motor vehicle insurance.
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Mexico’s foreign minister on Wednesday criticized hold-ups in the flow of goods and people at the U.S-Mexico border, and said he planned to discuss the matter with U.S. Department of Homeland Security officials later in the day.

After days of traffic delays at sections of the border that have alarmed businesses, Foreign Minister Marcelo Ebrard said the disruptions were raising costs for supply chains in both countries.

“Slowing down the flow of people and goods at the northern border is a very bad idea,” Ebrard said in a post on Twitter, using unusually frank language on an issue that has caused constant friction between Mexico and the administration of U.S. President Donald Trump.

Ebrard said his ministry would get in contact on Wednesday with the new leaders of the U.S. Department of Homeland Security. The department’s former secretary Kirstjen Nielsen, who had overseen Trump’s bitterly contested immigration policies during her tenure, stepped down at the weekend.

The border slowdowns have occurred after Trump late last month threatened to close the frontier if Mexico did not halt a surge in undocumented migrants reaching the United States.

On Monday, a judge in San Francisco said the Trump administration’s policy of sending some asylum seekers to Mexico while their claims worked through a backlogged immigration court system was not authorized by U.S. law.

The White House said on Tuesday it would appeal the ruling and that its policy was part of a “cooperative program extensively negotiated with the government of Mexico.”

However, in a sign of ongoing tensions over the issue, Mexico’s foreign ministry noted afterwards that the return of the migrants was a “unilateral” measure with which it did not agree but was allowing on a “temporary” basis.

On Wednesday morning, only one of six lanes for commercial vehicles was open at the Bridge of the Americas border crossing between Ciudad Juarez and El Paso, according to online data from the U.S. Customs and Border Protection.

 
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