20230922

Russian Diesel Ban Lifts Prices in Asia as Traders Gauge Fallout

Asian diesel prices climbed on Friday after Russia’s surprise export ban, even as a host of market watchers predicted that the curb wouldn’t remain in place for very long.

The prohibition — which took effect from Thursday with some near-term exceptions — looks set to exacerbate existing tightness in global fuels markets, with demand set to rise in the winter months just as many of the world’s refiners have little means to ramp up production any further. In Asia, there’s the added complication that China’s aviation recovery is also gaining pace, lifting the consumption of jet fuel — a product with similar properties to diesel.

The export curb imposed by Moscow is the latest jolt suffered by energy markets since Russia’s invasion of Ukraine in 2022 upended worldwide crude and product flows. Diesel is a mainstay product for the global economy, powering trucks, ships and trains, and so far this year, Russia’s been the world’s biggest seaborne shipper, according to data from Vortexa Ltd.

To be sure, Russian diesel has been redirected to markets such as Turkey, Latin America, and even the Middle East since an earlier Group of Seven ban on Russian fuels came into force. While a loss of Russian flows won’t be felt immediately in Asia as the region is home to a substantial refining industry, it could serve to tighten an already volatile global diesel market.

EK: Energy war is on.

JPMorgan Is Adding India to Its Emerging-Markets Bond Index

JPMorgan Chase & Co. will add Indian government bonds to its benchmark emerging-market index, a keenly awaited event that could drive billions of foreign inflows to the nation’s debt market.

The move follows the Indian government’s introduction of bonds that can be fully owned by foreigners in 2020, as well as steps to aid foreign portfolio investments, the team led by the firm’s global head of index research, Gloria Kim, said in a statement. Almost three-quarters of benchmark investors surveyed were in favor of India’s addition to the index, they said.

India’s milestone is a stark contrast to many emerging-market peers, not least neighboring China, whose economic woes and struggling financial markets have become a source of frustration for global investors. In fact, those troubles have only burnished India’s appeal.

On the equities side, India has been one of the top investment destinations among major emerging markets this year, with its fast-growing economy and solid corporate earnings pushing the nation’s equity benchmark near an all-time high. Developing-market money managers are most overweight on India in their Asia portfolios, Goldman Sachs Group Inc. analysts wrote in a report earlier this month.

Still, authorities in India have been largely uncompromising in making changes to tax policies that would make it easier for the securities to be added to global indexes. Korea, another large emerging market, signed an agreement to open an omnibus account with Euroclear Bank SA, helping foreigners’ access.

EK: Just now? After three years?? India may be a better market for bonds than China given the level of political stability. I didn’t know Korea can be still called an emerging market, by the way.

The Hidden Threat to US Energy Security

The modern solar cell—the basis for today’s solar panels—was an American invention. Back in 1954, researchers at Bell Laboratories demonstrated the first version of this technology that was efficient enough to be economically viable.

But 69 years later, the vast majority of solar panels are made in China. In fact, the Asian nation now has enough capacity to manufacture 70 times as many solar panels as the US, according to BloombergNEF. As the world pivots away from fossil fuels and toward renewables, solar has taken on outsize significance, and America’s failure to keep pace with China has become a growing strategic liability.

The manufacture and use of solar technology is top of mind this week in New York during Climate Week NYC, the annual gathering of business leaders, scientists and politicians ahead of the year-end United Nations summit on climate change, or COP28. At COP28, participants are to seek a tripling of renewables by the end of the decade—and solar energy is likely to be the biggest single contributor to meeting that goal.

EK: China’s being a leapfrog.

China Seeks to Facilitate Capital Flows to Woo Foreign Investors

China repeated rules to ensure free cross-border money transfers for foreign businesses in its two most important cities amid efforts to win back companies as overseas investment slumps and the economy slows.

In Shanghai’s pilot free-trade zone and Lingang area, officials should make sure foreign investors can freely transfer their investment-related funds in or out of China without delay if the money is “real and compliant,” authorities in the financial hub said in a set of rules that took effect on Sept. 1.

Expatriates of foreign companies based in those areas, including staff from Hong Kong, Macau or Taiwan, can freely move their wages and other legal incomes out of the country according to the law. The currency type, amount or frequency of the remittances won’t be restricted by an organization or individuals, according to the Shanghai notice.

The repeated emphasis on rules governing non-Chinese companies’ money flows comes as President Xi Jinping’s government is ramping up measures to reverse the nation’s foreign investment slump. The State Council issued a 24-point plan in August to court overseas firms with pledges to offer them better tax treatment and make it easier for their workers to obtain visas.

Western firms in China are now the gloomiest they’ve been about the future in decades, largely due to geopolitical risks, according to a recent survey by the American Chamber of Commerce in Shanghai. Persistent tensions with the West, coupled with China’s economic slowdown, have sparked a $188 billion exodus from Chinese stocks and bonds from a December 2021 peak through the end of June this year, diminishing the market’s clout in global portfolios.

China is facing its biggest capital flight in years, creating concern for authorities as it worsens pressure on the beleaguered yuan.

The exodus, spurred by sputtering growth in the world’s second-largest economy and a widening interest-rate gap with the US, helped push the yuan to a 16-year low. The risk is that accelerated money outflows weigh more on the currency, sapping the market’s appeal and in turn resulting in further capital flight that can destabilize financial markets.

EK: China needs foreign blood – lifting the great wall. Lots of carrots.

China’s Ultra-Rich Gen Zs Flock Home as Global Tensions Rise

For years, the Harvard College China Forum brought business moguls en masse to the university’s oak-paneled rooms, including Alibaba Group Holding Ltd. founder Jack Ma, Xiaomi Corp.’s Lei Jun, Blackstone Inc.’s Stephen Schwarzman and Bridgewater Associates LP’s Ray Dalio. There at the invitation of students, some of whom also happen to be the children of Chinese billionaires, the moneyed classes of the world’s two largest economies would hobnob every year in a lively exchange of ideas, demonstrating wealth’s power to bridge geopolitical rifts.

Such scenes are now fewer and far between. US-China tensions are so fraught, even the world’s richest are struggling to bring the two sides together. Only a handful of executives from mainland China came in person to this year’s China Forum in Cambridge, Massachusetts. As for the elite students who lifted the profile of the China Forum in the past, many are gravitating home.

“It almost feels like you have to pick a side or commit to one part of the world at this point,” said Zhang, who asked that her father not be identified. In the end, she felt China had more to offer. “Understanding Chinese society, economy and government better is kind of a necessary thing for our generation, especially people who have links to China,” she said.

And while China is facing the world’s biggest exodus of millionaires and growing capital outflows, rising geopolitical tensions and the perception of increasing hostility abroad toward Chinese nationals are changing the calculus.

Born during the heyday of US-China relations with globalization firmly ascendant, China’s Generation Z is now coming of age in a very different, protectionist world. Manufacturers are shifting production away from China; the US and its allies are restricting China’s access to its cutting-edge semiconductors; Beijing is tightening the flow of information; and potential accusations of technology theft hound Chinese executives and academics alike in the US. That decoupling of the world’s two biggest economies is upending the lives of China’s most ambitious students who now face rejected visa applications abroad and growing youth unemployment at home.

The country’s most privileged and cosmopolitan youths are shielded from much of the economic fallout and have far more options at hand, thanks to their wealth and family connections. Still, many are choosing to throw their lots with Beijing for now — even though some hold green cards or have backup plans for immigration. The safety nets and economic resources available to them mean they are willing to stomach reverse culture shock and deal with the persistent risk of sudden crackdowns on the affluent.

“Gen Zs understand the difficulty of being in China, but they feel like there’s more opportunity if they were to try to grow their business in Asia,” said Marshall Jen, principal advisor at family business advisory G. Li & Co. Jen, who also comes from wealth — his father owns one of the largest international school operators in China — and who now mentors other second-generation clients. “They wouldn’t want to go to Europe or North America either.”

In choosing life in China, many rich twenty-somethings face minute scrutiny in a precarious world. Beijing is tightening its grip on wealth as inequalities widen and China’s much-vaunted social mobility loses steam. Images on social media of fuerdais burning money, buying Apple Watches for pets and crashing Ferraris have added to the simmering resentment, and Chinese netizens stand ready to flag any sign of bad behavior or disloyalty, which could have serious repercussions for the families of well-to-do Gen Zs.

The mantra now is “stay humble, stay quiet,” said Jen, the family business adviser. And while money and privilege continue to open doors in a society that emphasizes guanxi, or connections, it’s now increasingly imperative to keep signs of privilege hidden or prove that it’s being channeled for the greater good.

Still, most of the super-rich are wary of association with conspicuous consumption and cautious about political activism.

For all the scrutiny at home, many of China’s richest new grads are turning their backs on their lives abroad. Sometimes, they’re responding to the lure of China’s potential. Other times, it’s the alienation they feel overseas.

Their choices have graver consequences, however. The repatriation of these hyper-connected individuals deprives the US and its allies of intimate knowledge about the inner workings of the world’s second-largest economy. The deterioration in understanding runs both ways: polls show younger Chinese have a more negative image of America than their parents, with the telling exception of those who’ve studied in the US.

For China, the cumulative effect is to undermine the country’s goal to exert more influence globally at a time when its President Xi Jinping’s “no limits” partnership with Russian President Vladimir Putin, tensions in Taiwan and clampdowns on Hong Kong threaten to isolate the country further from the US and its allies.

EK: Anti-sentiments both ways. Provoked the Chinese ego.