China’s currency set for worst month since US trade war

Investors fear country’s post-Covid economic bounce will prompt withdrawal of stimulus

Hudson Lockett in Hong Kong

Demand for China’s renminbi drove gains of 6.7% against the dollar last year © Financial Times

China’s currency is set for its worst month against the dollar in more than a year and a half, as investors fret that a clampdown on borrowing could slow the country’s swift economic recovery from Covid-19.

The tightly regulated onshore-traded renminbi fell 1.4 per cent against the greenback in March to about Rmb6.57, marking its worst one-month drop since August 2019, when Washington labelled Beijing a currency manipulator. 

The recent drop also erased the Chinese currency’s gains against the dollar since the new year.

The fall represented a partial reversal for China’s currency after a banner 2020, when demand for the renminbi drove gains of 6.7 per cent. 

Offshore investors, eager to capitalise on the country’s rapid economic rebound from the coronavirus pandemic, poured more than Rmb1tn into China’s bond and stock markets.

It also reflected the fact that Beijing faces a dilemma regarding whether to withdraw stimulus now that the world’s second-biggest economy has recaptured its pre-pandemic growth rate, just as the recovery elsewhere in the world begins to pick up steam.

Economists said that China’s vague recently announced GDP growth target of “over 6 per cent” for 2021 was weighing on the currency. 

That is because it may signal authorities could be willing to clamp down on financial risk so forcefully that growth for the year could come in well below the 8.5 per cent forecast by economists polled by Bloomberg.

“China’s economy is now well above trend and, with policy stimulus being withdrawn, is on course for a cyclical slowdown that isn’t reflected in consensus expectations,” said Julian Evans-Pritchard, senior China economist at Capital Economics. 

“At the same time, the outlook for the rest of the world has brightened”.

That shift has been felt in global bond markets. In recent weeks, the difference in yields between Chinese government bonds and their US counterparts has narrowed sharply. 

Analysts said the gap could close further, which would make Chinese bonds less attractive for international investors and dampen a main driver of inflows into the country last year.

“By the end of 2022, we think the China yield premium could hit a decade low . . . Portfolio inflows to China, which picked up sharply last year, will slow or even reverse,” Evans-Pritchard said.

One area where inflows are likely to grow is via passive investors, or those that track indices. On Tuesday, FTSE Russell confirmed it would begin adding Chinese debt to its benchmark World Government Bond index in October with a 5.25 per cent weighting.

Analysts at Citi estimated the inclusion would drive about $105bn of passive inflows into Chinese government bonds over a three-year period.

Chinese equities are also lagging their global peers — squashing another driver of global demand for the renminbi. 

China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks has dropped more than 15 per cent from its recent peak in mid-February.

Analysts said that while the People’s Bank of China would welcome some weakness in the currency, which could help boost exports, few expected runaway depreciation against the dollar.

The central bank, which sets a daily midpoint for the renminbi’s dollar trading band, said last week that it planned to make the currency’s exchange rate more flexible — a signal that analysts said often correlated with depreciation.

“The market clearly picks up on these phrases,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore. 

“If it feels authorities don’t want the [exchange] rate to trend higher, we see a pullback.”

The Stuck Container Ship on the Suez Canal Was a Metaphor

Long-distance supply chains hide costly risks — and those risks may help usher in a new stage of global commerce.

By Marc Levinson

   Chris Gash

The March 23 grounding of the giant vessel Ever Given (which was freed on Monday) in the Suez Canal may have been bad news for the world economy. 

Still, corks have been popping in the headquarters of the world’s container shipping lines. 

Carriers are having their best year since at least 2008: Ships are full, rates are sky-high, and profits, slim in recent years, are rolling in.

The Ever Given fiasco will work out well for the container-shipping industry, by driving freight rates even higher as delays and detours reduce the number of voyages the vessels can complete between Asia and Europe.

But the good news for ship lines may be fleeting: After the pandemic-driven boom in Chinese exports subsides, trade in the sorts of goods that fill container ships is likely to be anemic in the years ahead. 

Many of the companies that traffic in those goods increasingly recognize that they’ve done their sums wrong: The long-distance supply chains that have defined globalization since the 1980s hide risks, of which the transport delays caused by the blockage of the Suez Canal are just the latest example.

It used to be that manufacturing was a rich-country activity; poorer countries supplied raw materials to rich-country factories and then purchased their exports. 

Rich-country politicians were prone to preach the virtues of open markets; their poor-country counterparts were suspicious of trade and foreign investment.

But starting in the late 1980s, the combination of cheaper container shipping, vanishing communications costs and improved computing flipped the script. 

Manufacturers and retailers adopted new strategies — arranging, for example, to buy chemicals in Country A, transform them into plastics in Country B, mold the plastics into components in Country C and deliver them to an assembly plant in Country D.

Container ships made it possible to move parts and components from one country to another at low cost, while technology, soon accelerated by the internet, allowed managers to oversee their supply chains from a headquarters far away.

Two factors drove this redistribution of industry. One was wages: The gap between the pay of factory workers in China or Mexico and those in Western Europe, Japan or North America yawned so wide that even if the low-wage workers accomplished far less in an hour of work, producing in Shanghai rather than in St. Louis made financial sense. 

The other was economies of scale. Factories serving the entire world could specialize, making a small array of products in enormous volume and lowering the cost of each unit.

Foreign investment was once intimately related to exporting and importing. 

But with outsourcing, there was no need for the company at the top of the chain — often, the brand name on the final product — to undertake large investments in the countries where it wanted its components or its finished goods produced. 

Firms could build supply chains on the cheap, contracting with other companies to do the manufacturing work rather than tying up their shareholders’ capital in plants and equipment.

Globalization, which arguably dates to the rise of industrial capitalism around 1830, never looked like this before. 

Executives of multinational corporations were transfixed by the promised savings from shifting production abroad. 

Factories in Europe, Japan, Canada and the United States closed their doors as companies chased lower costs. 

Starting in the second half of the 1980s and for two decades after, trade in manufactured goods grew twice as fast as the global economy.

Hardly any attention was paid to the risks arising from the number of firms that might be involved in making and delivering any given product. 

The potential loss of revenue if the supply chain failed to deliver goods on time was simply ignored.

The company at the top of a supply chain often has little insight into its suppliers’ suppliers or into the transportation system that connects them. 

Incident after incident — from the shutdown of the U.S.-Canada border after 9/11 to the earthquake that crippled hundreds of Japanese auto parts plants in 2011 to pandemic-related factory closures in 2020 — has shown long supply chains to be more fragile than imagined. 

For many firms, the consequences can be painful, even fatal.

And the business risks are not limited to disruption. 

Famous firms have seen their names tarnished by scandals involving working conditions or environmental practices at obscure companies far down their supply chains. 

When consumers in Europe and North America, concerned about repression of the Uyghur minority in China, demanded that apparel companies disclose whether their clothing contained cotton grown in Xinjiang province, many companies, well removed from the production process, did not know.

Meanwhile, the ultralarge container ships like Ever Given that have entered the world’s fleet over the past few years have made long value chains even more problematic. 

These vessels, some carrying as much cargo as 12,000 trucks, steam more slowly than their predecessors. 

The complexity of loading and unloading often puts them behind schedule, and the sheer number of boxes moved on and off a single ship tangles ports and delays deliveries.

So long-distance trade is slower and less reliable than it was two decades ago. 

That helps explain why exports of manufactured goods account for a smaller share of the world’s economic output than they did in 2008. 

Once the risks are accounted for properly, manufacturing in distant places with low wages isn’t always a bargain.

Yet pronouncements about the death of globalization are not well founded. 

Rather, the stage of globalization we have known since the 1980s, in which highly trained employees in the advanced economies create physical products to be manufactured where wages are lower, is past its peak. 

In its place, a new stage of globalization, in which factory production and foreign investment matter less than the flow of services and ideas, is advancing quickly.

The Bollywood movies and Japanese television shows available on your favorite streaming service are part of that flow, but so are the research, engineering and design tasks that companies increasingly distribute across multiple countries in order to take advantage of local talent and shape products to local tastes.

Cross-border trade in other commercial services — a category that excludes transportation, travel and goods-related services — increased roughly 8 percent a year in the first two decades of the 21st century, a third again as fast as trade in manufactured goods. 

That figure doesn’t include growth in the largely uncountable cross-border flow of data within corporate networks.

In globalization’s next stage, ships carrying metal boxes full of stuff will no longer be at the center of the story.

Marc Levinson, an economist and a historian, is the author of “The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger” and, most recently, “Outside the Box: How Globalization Changed From Moving Stuff to Spreading Ideas.”

U.S. Calls for Pause on Johnson & Johnson Vaccine After Clotting Cases

The Food and Drug Administration and the Centers for Disease Control will stop using the vaccine at federal sites and urge states to do so as well while they examine the safety issues.

By Noah Weiland, Sharon LaFraniere and Carl Zimmer

Pharmacists prepare syringes with the Johnson & Johnson vaccine for Covid-19 in Detroit on Monday.Credit...Nicole Hester/Ann Arbor News, via Associated Press

WASHINGTON — Federal health agencies on Tuesday called for an immediate pause in use of Johnson & Johnson’s single-dose coronavirus vaccine after six recipients in the United States developed a rare disorder involving blood clots within about two weeks of vaccination.

All six recipients were women between the ages of 18 and 48. One woman died and a second woman in Nebraska has been hospitalized in critical condition.

Nearly seven million people in the United States have received Johnson & Johnson shots so far, and roughly nine million more doses have been shipped out to the states, according to data from the Centers for Disease Control and Prevention.

“We are recommending a pause in the use of this vaccine out of an abundance of caution,” Dr. Peter Marks, director of the Food and Drug Administration’s Center for Biologics Evaluation and Research, and Dr. Anne Schuchat, principal deputy director of the C.D.C., said in a joint statement. “Right now, these adverse events appear to be extremely rare.”

While the move was framed as a recommendation to health practitioners in the states, the federal government is expected to pause administration of the vaccine at all federally run vaccination sites. Federal officials expect that state health officials will take that as a strong signal to do the same.

Scientists with the F.D.A. and C.D.C. will jointly examine possible links between the vaccine and the disorder and determine whether the F.D.A. should continue to authorize use of the vaccine for all adults or limit the authorization. An emergency meeting of the C.D.C.’s outside advisory committee has been scheduled for Wednesday.

The move could substantially complicate the nation’s vaccination efforts at a time when many states are confronting a surge in new cases and seeking to address vaccine hesitancy. Regulators in Europe and elsewhere are concerned about a similar issue with another coronavirus vaccine, developed by AstraZeneca and Oxford University researchers. That concern has driven up some resistance to all vaccines, even though the AstraZeneca version has not been authorized for emergency use in the United States.

The vast majority of the nation’s vaccine supply comes from two other manufacturers, Pfizer-BioNTech and Moderna, which together deliver more than 23 million doses a week of their two-shot vaccines. There have been no significant safety concerns about either of those vaccines.

But while shipments of the Johnson & Johnson vaccine have been much more limited, the Biden administration had still been counting on using hundreds of thousands of doses every week. In addition to requiring only a single dose, the vaccine is easier to ship and store than the other two, which must be stored at extremely low temperatures.

It is unclear whether the pause in the use of the Johnson & Johnson vaccine will upset the Biden administration’s plans to deliver enough vaccine to be able to inoculate all adults in the United States by the end of May, or whether the demand will be met by the other manufacturers.

Federal officials are concerned that doctors may not be trained to look for the rare disorder if recipients of the vaccine develop symptoms of it. The federal health agencies said Tuesday morning that “treatment of this specific type of blood clot is different from the treatment that might typically be administered” for blood clots.

“Usually, an anticoagulant drug called heparin is used to treat blood clots. In this setting, administration of heparin may be dangerous, and alternative treatments need to be given,” the statement said.

In a news release, Johnson & Johnson said: “We are aware that thromboembolic events including those with thrombocytopenia have been reported with Covid-19 vaccines. At present, no clear causal relationship has been established between these rare events and the Janssen Covid-19 vaccine.” Janssen is the name of Johnson & Johnson’s division that developed the vaccine.

In the United States alone, 300,000 to 600,000 people a year develop blood clots, according to C.D.C. data. But the particular blood clotting disorder that the vaccine recipients developed, known as cerebral venous sinus thrombosis, is extremely rare.

All of the women developed the condition within about two weeks of vaccination, and government experts are concerned that an immune system response triggered by the vaccine was the cause.

The decision is a fresh blow both to Johnson & Johnson and to the administration’s plans. Late last month, the company discovered that workers at a Baltimore plant run by its subcontractor had accidentally contaminated a batch of vaccine, forcing the firm to throw out the equivalent of 13 million to 15 million doses. That plant was supposed to take over supply of the vaccine to the United States from Johnson & Johnson’s Dutch plants, which were certified by federal regulators earlier this year.

The Baltimore plant’s certification by the F.D.A. has now been delayed while inspectors investigate quality control issues, sharply reducing the supply of Johnson & Johnson vaccine. The sudden drop in available doses led to widespread complaints from governors and state health officials who had been expecting much bigger shipments of Johnson & Johnson’s vaccine this week than they got.

States have been using the vaccine in a broad range of settings, including at mass vaccination sites and on college campuses. The vaccine’s one-shot approach has proved popular, and officials have directed it to transient, rural and isolated communities where following up with a second dose is more complicated.

It is common for regulators to investigate “safety signals” in new vaccines and other medical products. Very often, the signals prove not to be of concern. But the concerns about Johnson & Johnson’s vaccine mirror concerns about AstraZeneca’s, which European regulators began investigating last month after some recipients developed blood clots.

Out of 34 million people who received the vaccine in Britain, the European Union and three other countries, 222 experienced blood clots that were linked with a low level of platelets. The majority of these cases occurred within the first 14 days following vaccination, mostly in women under 60 years of age.

On April 7, the European Medicines Agency, the main regulatory agency, concluded that the disorder was a very rare side effect of the vaccine. Researchers in Germany and Norway published studies on April 9 suggesting that in very rare cases, the AstraZeneca vaccine caused people to make antibodies that activated their own platelets.

Nevertheless, the regulators argued, the benefit of the vaccine — keeping people from being infected with the coronavirus or keeping those few who get Covid-19 out of the hospital — vastly outweighed that small risk. Countries in Europe and elsewhere continued to give the vaccine to older people, who face a high risk of severe disease and death from Covid-19, while restricting it in younger people.

Both AstraZeneca and Johnson & Johnson use the same platform for their vaccine, a virus known as an adenovirus. On Tuesday, the Australian government announced it would not purchase Johnson & Johnson vaccines. They cited Johnson & Johnson’s use of an adenovirus. But there is no obvious reason adenovirus-based vaccines in particular would cause rare blood clots associated with low platelet levels.

AstraZeneca has not yet applied for an emergency use authorization in the United States.

The Moderna and Pfizer-BioNTech vaccines use a different technology to produce immunity.

The first sign of concern about Johnson & Johnson’s vaccine came on April 9, when the European Medicines Agency announced that it was investigating reports of four cases of blood clots in people who received the Johnson & Johnson vaccine in the United States. One case occurred in the clinical trial that took place before the vaccine was authorized. Three occurred in the vaccine rollout. One of them was fatal, the agency said.

The regulators described these reports as a “safety signal” — a cluster of cases requiring further investigation. But they said it wasn’t clear if the vaccines caused the clots.

Payments Companies Are Playing Hide-the-Crypto

Visa and PayPal introduce stealthy ways to make digital coins part of everyday transactions

By Telis Demos

Visa said it has started piloting settlement of transactions on its own network with digital currency./ PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS

Bitcoin and other digital currencies’ best bet to become major actors in the world of payments might be to stay behind the scenes.

To the extent there is demand to use cryptocurrency holdings to make everyday payments, so far only a niche of merchants are willing to directly take crypto as a payment option. 

Accepting bitcoin or other tokens could introduce a level of risk and complexity that all but a handful of dedicated retailers might consider a big headache.

But now the payments industry is showing a path forward. 

Visa V -1.22% and PayPal Holdings PYPL 0.37% this week made moves that can subtly make blockchain and crypto a part of what otherwise seem to be everyday transactions—without putting any onus on merchants to have to think about accepting newfangled moneys.

PayPal said Tuesday it would begin allowing its users who have bought cryptocurrency to use it whenever they pay with their PayPal wallets. 

In the same way users can select their PayPal balances or credit or debit cards to fund a payment, they will also be able to choose crypto. 

Crucially, the merchant receives the same payment in regular, fiat currency regardless of which funding method the payer chooses.

Similarly, Visa on Monday said it has started piloting settlement of transactions on its own network with digital currency. 

Already some digital-wallet providers, such as, offer debit cards linked to users’ crypto holdings such as bitcoin. 

Again, the merchant receives fiat currency and doesn’t know that the debit card swiped is funded by crypto. 

This previously meant that the wallet provider has to swap cryptocurrency for fiat to settle up with the card network. 

Now, Visa will let settle its Visa debit-card obligations through the ethereum blockchain with U.S.-dollar-denominated stablecoin.

Collectively these moves don’t eliminate translation risk—but they channel it into places where it is wanted, or is more manageable. 

PayPal teams up with Paxos, a digital-asset exchange and custody provider, to handle the swap of fiat and crypto. 

Visa works with the digital-asset platform provider Anchorage to manage the resulting stablecoin Visa receives that can then fund a fiat payment to the merchant. 

A debit-card crypto wallet provider such as might still have to swap bitcoin for stablecoin, but the wallet provider is freed from the complexities of also having to deal in fiat currencies.

Of course, the burden remains on the consumer to decide whether it is worth cashing out of something such as bitcoin to make a payment. 

There are also tax liabilities in the U.S., since bitcoin is treated as an asset by the Internal Revenue Service. 

This means that when bitcoin is used to make a purchase, any gains on it since it was acquired are subject to capital-gains tax. 

PayPal will help out, for example, by generating 1099 forms for users and making receipts and transaction histories downloadable. 

PayPal even invested in a tax-services startup called Taxbit. 

But ultimately that tally is between the consumer and the IRS.

So even hiding bitcoin, dogecoin or the like from merchants won’t overcome all of the hurdles of turning them into a day-to-day payments tool. 

But these moves do lay the groundwork for something—whether it is a central-bank-issued digital coin, a private stablecoin, digital-rewards points or beyond—to start to replace fiat as the grease of commerce. 

It also means that today’s major payments companies are increasingly set up to be tomorrow’s, too.

America’s Third Reconstruction

Republican-controlled state legislatures across the US are enacting new restrictions on voter participation that target non-whites. Since the Civil War, the white supremacist culture – embraced by a shrinking minority in America – has always based its power on violence and voter suppression.

Jeffrey D. Sachs

NEW YORK – America is two cultures in one nation. 

The first culture brought slavery, the genocide of Native Americans, “Jim Crow” laws enforcing white supremacy, and former President Donald Trump’s bullying, lying, and cruelty, which culminated in the January 6 insurrection at the Capitol. 

The second culture brought emancipation, the civil rights movement, President Barack Obama, and now the election of Joe Biden. 

The white supremacist culture – embraced by a shrinking minority in America – has always based its power on violence and voter suppression. 

This is why the current battle over voting rights is a battle for America’s future.

The battle of the two cultures is now playing out across the country and in Washington, DC. 

Biden’s victory has stirred white supremacists to double-down on voter suppression. 

The Republican Party knows that it cannot hold national power in a fair vote. 

Thus, Republican-controlled state legislatures are enacting new restrictions on voter participation that target non-whites. 

In Washington, on the other hand, the inclusive culture is advancing in Congress the most significant voting rights reforms since the 1960s, intended to ensure access to polls for all Americans.

Voter suppression is a long-standing instrument of white supremacy in America. 

The story has been told most vividly by W.E.B. Du Bois in Black Reconstruction in America, published in 1935. 

Du Bois describes in harrowing and comprehensive terms how African-Americans fought heroically for their freedom in the US Civil War (1861-65) and – through education and hard work – for full emancipation as citizens in the Reconstruction years (1865-77). 

Yet that emancipation was cruelly cut short by Southern whites’ violence and terrorism, together with the indifference or racism of many Northern whites. 

At the core of the South’s Jim Crow regime after Reconstruction was the suppression of African-American voting, in flagrant violation of the Constitution.

The civil rights movement of the 1960s gave rise to what is known as the Second Reconstruction, as it aimed once again to reconstruct American democracy by ending Jim Crow. 

But heroic advances, including the 1964 Civil Rights Act and the 1965 Voting Rights Act, provoked another racist backlash. 

When Northern Democrats in Congress bucked the opposition of Southern segregationist Democrats to pass the legislation, the Democratic Party split in two, and the Republican Party, led by Richard Nixon, adopted the infamous “Southern Strategy” to win over white racists in the 1968 election.

White Southerners switched from the Democratic to the Republican Party in droves, while the racism itself remained. 

The Southern Strategy was followed by new tactics for mass voter suppression, this time relying heavily on the mass incarceration of people of color for minor infractions, or often for no real infractions at all, thereby taking away their vote – often for life.

But the white supremacists’ hold on American power is in long-term decline. 

The 2008 election and 2012 re-election of Obama, and the 2020 election of Vice President Kamala Harris – the first woman and person of color to hold the post – prove the point. 

In response, Trump brazenly attempted to keep power by subverting the outcome, first by trying to convince state Republican officials to falsify their election tallies, and then by trying to prevent Congress from certifying the results.

As the Brennan Center for Justice at New York University Law School is carefully documenting, Trump’s defeat has led to a wave of voter suppression bills – more than 250 in 43 states – advanced by Republican legislators. 

The Brennan Center sums it up this way: “These proposed bills will make it harder to vote, target voters of color, and take aim at the very election changes – such as mail voting – that made the 2020 election,” conducted during a pandemic, “not only successful but possible.”

Biden has rightly called the new law by Georgia’s Republican-controlled legislature to restrict voting in the state a clear case of “Jim Crow in the twenty-first century.” 

Thus, exactly 160 years after southern slave states seceded to preserve and extend slavery and white supremacy, the United States now finds itself in its Third Reconstruction. 

The first was needed to end slavery; the second to end American apartheid; and the third to end voter suppression and mass incarceration. (One of the leaders of the Third Reconstruction, Reverend William J. Barber II, has written an eponymous book that vividly describes the challenges.)

American racism dies hard, but it is dying. 

The US House of Representatives has just passed and sent to the Senate the most significant voting rights and political reform legislation since the Voting Rights Act. 

This legislation, S.1 in the Senate, would create national standards to facilitate voter registration and voting, including early voting and mail voting; enforce federal laws against voter discrimination; and restore voting rights in federal elections to convicted felons who are out of prison. 

The legislation would also take several important steps to reform campaign financing.

The Senate will soon take up S.1 and the Republican senators representing white supremacy will try to kill it through the filibuster, which requires a bill to win 60 votes rather than a simple majority of 51. 

This is the same tactic the segregationists used to thwart civil-rights bills until the 1960s, and tried unsuccessfully to use in the 1960s. 

Their attempt will likely fail again. 

The Democrats, in the quest to bury white supremacy once and for all, will not sit by idly while racists try again to suppress the votes of people of color. 

The Senate will most likely change the rules to prevent the filibuster of this crucial legislation in order to ensure that fair voting for all Americans is finally secured – more than 230 years after the adoption of the US Constitution.

Jeffrey D. Sachs, University Professor at Columbia University, is Director of the Center for Sustainable Development at Columbia University and President of the UN Sustainable Development Solutions Network. He has served as adviser to three UN Secretaries-General, and currently serves as an SDG Advocate under Secretary-General António Guterres. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, Building the New American Economy, A New Foreign Policy: Beyond American Exceptionalism, and, most recently, The Ages of Globalization.