Why forcing countries to choose sides in a trade war could benefit China, not the US

scmp.com | April 15, 2018

In a China-US trade war, many countries around the world would come under pressure to take sides. We pray it does not come to this. But let’s say it does. Whose side will they take? Even five years ago, that question would have been a no-brainer – the US, by a mile.
But today? The answer would be trickier, and not at all comforting to US consumers, companies or the trade war battle team assembled around the White House.
To help gauge an answer, I looked at the world’s top 20 economies. Then for good measure I looked at the 21 Asia-Pacific Economic Cooperation (Apec) economies. I browsed each of these economies’ 2017 export and import numbers to discover how important the US and China were to these economies, either as sources of imports or as leading destinations for their exports. I looked at just goods trade, omitting the services trade which is messier to compute.
The results were perhaps not unexpected, but were sobering nonetheless. As for the world’s 20 largest economies, China is the leading source of imports for 11. It is the second most important source of imports for a further four. For only two countries – France and Switzerland – is China not one of their top five sources of imports.

By contrast, the US is the major source of imports for just two – Canada and Mexico, and is in the top five for just 13 more. That means that for five of the world’s top 20 economies, the US was not among their top five sources of imports.
Now look at China as an export destination, and it is the most important export market for seven of the top 20, and one of the top five export markets for seven more. Of the other six economies for which China is not in their top five destinations, five are European economies (France, the UK, Italy, Spain and the Netherlands) and the sixth is Turkey. Since Europe’s economies mainly trade among themselves, this is not surprising.
And the US? It is the main export destination for six of the world’s top 20 economies, and in the top five destinations for a further 12. Only for Russia and Spain does the US fall outside their top five export destinations.
In sum, for 11 of the world’s top 20 economies, China is more important as a source of imports than the US, with just Canada and Mexico being more heavily reliant on the US. And even as an export destination – where the Trump administration would argue that flagrant exploitation of the openness of the US market has allowed foreign companies to trample US competitors underfoot – China has risen close to a point where it is just as important as the US market.
The picture for the Apec member economies, which obviously captures more accurately trade relations around the Pacific, shows even more starkly the rising importance of China to the region. The Apec list includes eight of the world’s biggest economies, and then 12 smaller regional economies (Hong Kong, Malaysia, Papua New Guinea, Peru, the Philippines, Singapore, South Korea, Thailand, Taiwan, Vietnam, Brunei and Chile). Of the Apec list, China is the most important source of imports for 15, and the second source for another four. Only Thailand has less reliance on China as a source of imports, and even here it is Thailand’s third most important source.
As an export destination, China is the number one market for 12 of the region’s economies, and is in the top five for six more – just Thailand and oil exporter Brunei are outside.
Compare the US: Canada and Mexico remain the only two markets for which the US is the main source of imports, with a further 15 having the US in its top five. As an export destination, the US is number one for just four (Peru and China join Canada and Mexico), and is in the top five for a further 13 economies (Russia, Thailand and Brunei fall outside).
So I ask the question a second time: if economies are forced to choose, which way will they flip? A country like the Philippines seems already to have made its choice. As investment from China’s “Belt and Road Initiative” begins to flow in, and plans take shape for joint exploitation of marine resources in jointly claimed areas of the South China Sea, President Rodrigo Duterte has seen what side his bread is buttered on.
For economies like Japan, the conflict is less easy to manage. China is its most important source of imports and its most important export market, but the US is number two both for imports and exports. So too for South Korea, whose main import sources are China, Japan and the US, in that order, with China, the US and Vietnam its three leading export markets. And Chile, which counts China, the US and Japan as its three leading export markets, in that order. There are similar stresses for New Zealand and Australia.
In short, this is not a choice anyone wants to be forced to make. But as China’s consumer market continues to grow strongly, and as Trump’s behaviour undermines confidence in the US’s commitment to rules-based behaviour, in particular through the World Trade Organisation, the temptation to keep friendly lines open to China must get steadily stronger.
For Canada and Mexico, the painful experience of US pressure to renegotiate Nafta to make it more favourable to the US has created impossible strains. Despite their huge interconnectivity with the US economy, they must surely be looking to dilute their reliance on an increasingly unpredictable and pugilistic partner. Trump’s initiatives to hurt its closest trading partners (include Germany and Japan) must surely be counterproductive, and must surely be putting in jeopardy the goodwill that has been built over seven decades of Pax Americana.
This is a trade war that is yet to start. It might end up being no more than bluff and bluster aimed at strengthening a negotiating position that is weakening over time. A rational China will stay cool, continue to liberalise – even if more slowly than most of us would like – in line with multilateral rules and commitments, confident that time is on its side. A rational US … where on Earth has that disappeared to?

David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view

Jessie Joe Parker has two milestones in his sights for Whitehaven

timesandstar.co.uk | April 14, 2018

JESSIE Joe Parker will reach one milestone on Sunday – and should make it to another.

Jessie Joe Parker: Need one more to record his 100th career try.

The popular, laid-back Papua New Guinea centre will make his 150th appearance for Haven against West Wales.
If he gets over the Raiders’ line it will be to record his 100th career try.
Seventeen of those tries were scored for his first English club Featkherstone in only 15 appearances during the 2010 season.
After a brief spell with Wakefield in 2011 he joined Haven the following year and has been a fixture in the team ever since.
Parker was on the score-sheet on Sunday at Coventry for his 99th career try.
His eyes will light up when he sees that Sunday’s visitors West Wales have conceded 204 points in just three League One games.
On their last visit to west Cumbria they crashed 72-6 at Workington Town, playing the whole game with just one option from the inter-change bench.
Already seen as the League One whipping boys, the Raiders are desperate for a good result to kick-start their season.
Haven player coach Carl Forster is mindful of the Raiders’ poor record, but insists there will be no complacency.
“It won’t be a question of going into the game with one eye on Rochdale Hornets in the Challenge Cup tie the following week.
“We will be completely focused on West Wales and on ensuring we get the points to maintain our top four push,” he said.
Bradford’s defeat at Workington on Sunday suggests it is going to be a really open league this season.
At least half of the 14-strong league look capable of putting in a challenge for the top four, especially now the season is played out over home and away fixtures.
As it is likely to be so close, points differential could come into the equation, which is why teams like West Wales will be seen as ideal opportunities to bolster that particular column.

Papua New Guinea Defence Force buys 4 P-750s from troubled New Zealand planemaker

nzherald.co.nz

For staff at Hamilton planemaker Pacific Aerospace, the work day has become a waiting game.

Waiting for a judge to hand down a sentence for illegal indirect exports to North Korea, waiting to hear who is leaving next, waiting for news of some firm orders, waiting for the redundancy rumours to turn to fact.
Sources say the privately-owned Waikato business icon, which traces its origins back to the 1950s, is a workplace riddled with uncertainty, the worst atmosphere they can recall on a site which, by the very nature of its industry, has survived plenty of ups and downs.
The chief financial officer and the commercial general manager left within a month of each other this year. Since late last year, say sources, other staff have been heading for the door, either squeezed out or seeking better job security elsewhere. Only one complete aircraft has been rolled out of the Hamilton hangar since February last year, said one source.
Chief executive and shareholder Damian Camp concedes cashflow has been "tight" and that last year was challenging. But he says the future is "positive", with solid orders in the pipeline and a new aircraft type soon to be rolled out.
The company is known for its multi-purpose P-750 XSTOL (extreme takeoff and landing) aircraft. The planes are believed to sell for about $2 million apiece, though the exact price depends on the specifications of each plane.
"Tight cashflows are not unusual for us, at times it gets pretty bumpy," says Camp. "It's about timing deliveries and payments against those deliveries. It's normal stuff."
Underpinning staff jitters is a joint venture with Chinese state-owned aviation juggernaut Beijing Automotive, promoted in 2016 as solving Pacific Aerospace's historic cashflow troughs and peaks once and for all.
Back then, Camp said "a $30 million company that's been pottering along" would, thanks to the joint venture, double annual production and delivery of its P-750 aircraft from 2017, with at least 20 planes to be made that year. Half would go to China and the rest to markets Pacific Aerospace had established itself before the partnership with the Chinese, he said. Forty aircraft a year would soon be rolling out of Hamilton.
But all manufacturing staff could see was their jobs disappearing, says one source.
"We felt like Fisher & Paykel [Appliances], we'll ride it to the end and then we all lose our jobs."
Today, some staff see no reason to change that opinion, with a factory in China now assembling P-750s, a regular one-way flow of information from Hamilton to China and a Chinese workforce having been trained at Hamilton, says another source.
Camp has confirmed the exits of CFO Paul Hornell and commercial general manager Steve Peters this year, but says there have been no redundancies. He says Hornell had moved with his family to Christchurch after five-and-a-half years with the company. "Big deal". Sources say Hornell's departure was a shock because he was the de facto chief executive.
Asked whether other staff have left, Camp says: "As with any company that employs 180 people there are people that leave and there's people who come."
But sources say there are fewer than 180 staff now and because Auckland-based Camp is rarely seen at the Hamilton site, he would be unlikely to know staff numbers.
In 2016 Camp said Pacific Aerospace had 135 staff. Wages are being paid with no problems, say sources.
The Herald sent follow-up questions to Camp, asking him to clarify staff numbers and to respond to allegations about credit lines and aircraft completion challenges.
Camp's emailed reply said that, because Pacific Aerospace is a private company, and the breadth and commercial sensitivity of the questions, he would have to consult the board of directors before saying any more than:
• Pacific Aerospace had 11 confirmed P-750 orders for 2018, with a "good number" of additional contracts under negotiation and/or subject to finance applications.
• It had contracted the sale of its first E350 aircraft and expected to ship in it about four months. (The E350 is a smaller aircraft than the P-750. The intellectual property and assets for it were bought from a Canadian company which went broke.)
• The Papua New Guinea defence force was collecting the first of four P-750s at the end of this month.
• A second P-750 sale to Poland had just been dispatched.
• The Chinese joint venture had received its production certificate from Civil Aviation China and had completed its first P-750 from a kit supplied from Hamilton. A second kit would be shipped in coming weeks.
• A skydive aircraft with a larger, more efficient engine had begun trials and deliveries were expected to start next year.
Camp earlier said the 11 ordered P-750s were for China and some would be completed in that country.
"It's exactly why we've partnered with the Chinese to achieve that, so it's all going very well. The idea is that most of the assembly work for the Chinese aircraft will be done in China."
Asked if the North Korean issue had put the business under pressure, Camp says "no, none whatsoever".
"We're working closely with all our major US suppliers and have no issue with them at all."
In October last year, Pacific Aerospace pleaded guilty to indirect export of aircraft parts to North Korea. Customs NZ laid charges against the company in August for three breaches of the United Nations sanctions against North Korea and one charge under the Customs and Excise Act. The company also pleaded guilty to that charge.
The charges came after a New Zealand-made P-750 aircraft was identified at a North Korean military airshow in September 2016. The 10-seater plane, which had a North Korean flag on its tail, is popular with skydiving companies. It had been sold to a Chinese company earlier in 2016, Camp said at the time.
Customs NZ said a chain of emails suggested Pacific Aerospace knew the aircraft was in North Korea when it was asked by the Chinese owner for parts and training.
The company's latest annual report for the year ended December 2016 shows it received a government growth grant of $479,000. It is eligible for two grants under the Callaghan Growth and NZ Trade and Enterprise international growth funds.
Pacific Aerospace is owned 50:50 by Pacific Aerospace Group and BAIC International (Hong Kong), according to Companies Office records. BAIC is a Chinese government-owned company which in 2016 had annual revenue of US$56 billion ($77b).
Pacific Aerospace Group, in turn, is 33 per cent owned by PAHL Ltd, whose shareholders are Damian Camp and his brother Joshua Camp, and interests, and 67 per cent by Auckland property and agribusiness investor Nicsha Farac.

Chinese Foreign Minister says Papua New Guinea an important member of Asia-Pacific family

 By Li Ying

Chinese Foreign Minister Wang Yi exchanged views on bilateral, regional and international issues with Papua New Guinea (PNG) Foreign Minister Rimbink Pato at the Diaoyutiai State Guesthouse in Beijing on Friday.
Wang told his counterpart that the two countries have made substantial progress in joint endeavours over the past 42 years of diplomatic relations.
He emphasised that Papua New Guinea is an important member of the Asia-Pacific family and that China strongly support the upcoming APEC leaders meeting set to be held in the Pacific island nation in November.

Chinese Foreign Minister Wang Yi speaking during the meeting. /CGTN photo

Chinese President Xi Jinping is expected to attend the gathering, which will be an opportunity for the two sides to strengthen exchanges and mutually beneficial cooperation in different fields. China has pledged to continue to assist the reconstruction of Papua New Guinea after a devastating earthquake in February.
Pato said Papua New Guinea will provide more support for the development of bilateral relations under the One-China Principle, and would like to cooperate with China to speed up the development of the Belt and Road Initiative in the Pacific island region.

Bondholders in Denis O’Brien’s Digicel seek reassurance after rough ride

irishtimes.com | April 13, 2018

For bondholders in Irish billionaire Denis O’Brien’s mobile empire, it has been a roller coaster few months. Now, they’re looking for reassurance that the rough ride is almost over.

Within the next month, Digicel Group executives will brief investors worldwide, introducing them to its new management and beginning to lay the ground for an eventual $2 billion (€1.6 billion) refinancing of a bond maturing in 2020, according to a person familiar with the matter. The so-called “non-deal roadshow” comes after the 2020 yield rose as high as 15.4 per cent from 8.5 per cent – making it the worst emerging markets performer this year.

“What needs to happen is for the company to come out now with something positive,” said Till Moewes, an analyst at Schroder Investment Management, which holds a share of the debt. “They need to produce some new positive news to stop this negative chain reaction.”

Digicel has a history of refinancing early, and some investors might have hoped the company would move to redeem the 2020 bond this year. While no final decision has been taken, that probably won’t happen any time soon should yields remain close to their current level, even after a recent dip, according to the person familiar, who asked not to be identified as deliberations are continuing.

O’Brien built his mobile empire, which stretches from Haiti to Papua New Guinea, on high-risk, high-yield debt. Since 2001, Digicel has accumulated about $6.5 billion of borrowings, mostly to build out networks across 31 regions. More than two years after the company shelved a planned share sale in New York that was in part designed to pay down debt, and with recent earnings disappointing investors, bondholders want a positive catalyst. Digicel faces a $1.3 billion maturity in 2021, as well as the 2020 payment.

“We expect Digicel to address that with anticipation,” said Marie Fischer-Sabatie, an analyst at Moody’s Investors Service. “If the company doesn’t make material progress in 2018 and does not start to address the issue by the middle of this year, then we could start to see some pressure on ratings.”

Widening spread
The extra yield, or spread, over Treasuries investors demand on Digicel’s 2020 bonds has widened by 358 basis points, or 3.58 percentage points this year, while emerging-market bond spreads widened 13 basis points. The drop in its bonds pushed the spread above 1,000 basis points, or 10 percentage points.

Meanwhile, momentum at Digicel has stalled. Underlying revenue in its fiscal third-quarter dropped about 3 per cent from the year-earlier period to about $580 million, according to a source. Adjusted earnings before interest, taxes, depreciation and amortization were about $246 million, down around 3 percent.

A number of issues were at play, according to the source. Among these were delays in signing some corporate contracts, new incentives to drive data use which hurt short-term earnings and persistent weakness in Papua New Guinea’s economy, a key market for the company.

Digicel, which declined to comment for this article, faces no immediate pressure, as its next big bond maturity is over two years away and it has pushed out its timetable to reduce borrowings, which amount to about 6.5 times earnings.

Progress is needed, said Moody’s Fischer-Sabatie, who described Digicel’s debt level as “high” for its B2 rating. O’Brien laid out plans last year to dismiss 1,500 workers, and appointed Alexander Matuschka as chief executive.

“We still anticipate that Digicel will see some growth in Ebitda over the next 12 to 18 months, in particular because the company will see the benefits of its transformation programme,” said Fischer-Sabatie. “So we expect a gradual reduction in leverage.” – Bloomberg

Papua New Guinea: Highlands Earthquake Situation Report No. 7 (as of 13 April 2018)

reliefweb.int | April 13, 2018

This report is produced by the National Disaster Centre and the Office of the Resident Coordinator in collaboration with humanitarian partners. It was issued by the Disaster Management Team Secretariat, and covers the period from 5 to 11 April 2018. The next report will be issued on or around 19 April 2018.

Background

270 000 people are in need of assistance across four provinces of Papua New Guinea’s highlands.

11, 041 households (55,205 people) remain displaced in nine care centres.

91 per cent of health facilities are open, but almost 55 per cent have no water.

15,726 students in 105 schools assessed as partially or completely damaged have had their access to education affected by the earthquake.

Humanitarian operations in and around Tari, provincial capital of Hela province, remain suspended since 28 March, but inter-communal tensions reportedly abated during the reporting period.

194 aftershocks have occurred since the initial 26 February earthquake, of which six were of a 6.0 or greater magnitude.

270,000 people in need of assistance

$62M funding required

10,000 callers listened to messages containing lifesaving information per cent of health centres open metric tons of relief items transported

Situation Overview

On 26 February 2018, a 7.5 magnitude earthquake hit the Highlands Region of Papua New Guinea (PNG), affecting an estimated 544,000 people in five provinces – Enga, Gulf, Hela, Southern Highlands and Western provinces, with Hela and Southern Highlands the most affected. More than 270,000 people, including 125,000 children, have been left in immediate need of life-saving assistance. Since the initial 26 February earthquake, 194 aftershocks have occurred, of which six were of a 6.0 or greater magnitude.

The latest tracking figures available from the Displacement Tracking Matrix (DTM) implemented as part of the Shelter Cluster response, indicate that 11,041 households (approximately 55,205 people) remain displaced due to the earthquake, of which 1,250 households remain in nine care centres while 9,879 households remain within their communities.

The Shelter Cluster has proposed to adopt common definitions of settlement types defining a care centre as a displacement site where people are hosted away from their community or area of origin, and affected community as a community where people are still living within their community, even if displaced locally from their damaged/destroyed home. Two shelter response options and recommended packages have been proposed for cluster members’ endorsement corresponding to the two target groups defined above: (1) IDP household ShelterNFI return kit (for those in care centres); and (2) community reconstruction toolkit (for affected communities).

More than 90 per cent of health facilities in Hela and Southern Highlands (79 of 86) are now open and functional, but 13 of these health facilities sustained severe structural damage that continues to pose serious occupational threats to all users. Refurbishment of earthquake related structural damages remains a challenge. In particular, 55 per cent of health facilities urgently need access to safe water sources.
Traditional water sources were destroyed by earthquake-induced landslides and landslips. Water quality testing is already underway. The continual lack of access to safe drinking water significantly increases risks of waterborne diseases outbreak among affected and displaced persons. There have been sporadic reports of increasing cases of diarrheal diseases and gastrointestinal infections at health facilities in Hela and SHP due to consumption of contaminated surface water.

Since 28 March, humanitarian programmes in and around Tari, the provincial capital of Hela province, have been suspended due to increased tension and inter-communal fighting. Many partners have temporarily relocated humanitarian staff to other locations, including to the Southern Highlands provincial capital, Mendi, in view of the situation. Humanitarian partners aim to resume relief work as soon as the security situation allows. In the past week, the situation appears to be stabilizing in and around Tari, with ongoing efforts to negotiate an end to the inter-communal violence deployed by national authorities.

On 9 April, a joint team of UNICEF and Provincial Department of Education staff returning from distribution of Safe Temporary Learning Space (STLS) materials in Nipa/Kutubu district encountered a roadblock in Nipa town, manned by a group of armed men and boys. One UNICEF staff member sustained a minor injury due a rock thrown and breaking the window of his vehicle. Provincial and district officials, as well as local community representatives, have publicly apologized for the incident, and committed to ensure the safety of humanitarian staff and operations in the province. UN humanitarian operations are ongoing in Southern Highlands province.

UPDATE 2-ExxonMobil resumes quake-hit PNG LNG production ahead of schedule

uk.reuters.com
April 13, 2018

* Resumption of output, exports comes weeks ahead of expectations

* Announcement expected to drag on spot Asia LNG prices near term (Adds comment, detail, prices)

MELBOURNE April 13 (Reuters) - ExxonMobil Corp has resumed production at the Papua New Guinea liquefied natural gas (LNG) project a fortnight ahead of schedule after it was shut down in the wake of a deadly earthquake in February, its Australian partners said on Friday.
Production at the PNG LNG project was halted after a 7.5 magnitude earthquake hit Papua New Guinea’s energy-rich interior on Feb. 26, causing landslides, damaging buildings and killing 100 people.
Australia’s Oil Search Ltd and Santos Ltd said they had been advised that one train at the LNG plant near Port Moresby has re-started operations and the second train is expected to resume as gas production ramps up.
LNG exports, which were expected to resume shortly, will come weeks ahead of schedule and may put pressure on spot LNG prices, traders said. Exxon Mobil Corp had earlier advised that production would restart in May 2018.
“The recommencement of operations at the PNG LNG Project, ahead of ExxonMobil’s previously guided eight week timeframe, is a major achievement by the operator,” said Oil Search Managing Director Peter Botten.
Exxon Mobil was able to restart production earlier than expected because damage to hundreds of kilometres of pipelines that run through the mountains between gas output facilities and the LNG terminal was much less than initially feared, a source involved with the project told Reuters.
Santos is a foundation partner and holds a 13.5 percent interest in PNG LNG. Oil Search has a 29 percent stake.
Exxon Mobil declared force majeure on exports from PNG in March and the resulting uncertainty over supply drained liquidity from Asia’s spot LNG markets, traders said.
“At the time the project was halted in late February, it was a time in the year when LNG prices were to gradually fall down as demand eases,” said one industry source in Tokyo.
“The halt did have some impact in that it took longer for (Asian benchmark) prices to fall, but the impact was rather limited because demand was weak at the time,” he said.
Asian spot LNG prices LNG-AS have lost almost 70 percent from their 2014 peak to around $7 per million British thermal units (mmBtu), driven lower by a global supply overhang that developed as new production came online, especially in Australia and the United States.
Worry about the surplus has been tempered somewhat by unexpectedly strong demand out of China, India and Southeast Asia, especially over this past winter.
Before the quake, the PNG LNG project had been producing at around 20 percent above its rated capacity of 6.9 million tonnes a year.
Another trader said that although the announcement would likely weigh on prices, any fall “will be limited by summer demand expected soon from Asia.”