International Dossier | December 2024

International Dossier | December 2024
Share

INTERNATIONAL ECONOMY – TRENDS

[Bloomberg] China announces bolder stimulus next year as Trump returnsThe last time the Politburo used the phrase ‘moderately accommodative (适度宽松的货币政策) monetary policy’ was in 2008, during the global financial crisis. Hong Kong stock market investors were very enthusiastic after the release of the communiqué, following expressions such as: ‘implement more active macroeconomic policies, expand domestic demand’; ‘stabilise the property and stock markets’; ‘We should implement more active fiscal policy and moderately accommodative monetary policy, enrich and improve the policy toolbox, strengthen countercyclical regulation beyond normal measures, implement a policy mix, and improve the forward-looking, targeted and effective nature of macroeconomic control. We must vigorously boost consumption, improve investment efficiency and expand domestic demand across the board.” The country faces deflation, weak domestic demand and a severe housing crisis, while trade tensions with the US – expected to worsen under Trump’s second term – have hit exports. To address these challenges, Beijing adopted targeted stimulus measures, including liquidity injections, rate cuts and infrastructure spending. In addition, it announced a 10 trillion yuan package to ease the regional debt crisis. These measures triggered a temporary rally in stocks, but the expected policies to boost domestic consumption have not materialised. Looking ahead to 2025, Chinese leaders signalled significant economic support, marking a major shift in tone. The Politburo pledged ‘moderately accommodative’ monetary policy, hinting at further rate cuts, and ‘more proactive’ fiscal policies, suggesting a possible increase in the fiscal deficit. Analysts greeted the message with optimism, but remain cautious about its implementation. The Central Economic Work Conference concluded last week with a positive statement that ‘the main goals and tasks of economic and social development are on track’, the most prominent of these being, of course, the target of a GDP growth rate ‘around 5%’.

[Global Times] China to give least developed countries zero tariff treatment China will give all least developed countries with which it has diplomatic relations zero tariff treatment for 100 per cent tariff lines from 1 December. According to a statement by the Customs Tariff Commission of the State Council in September, the deal is aimed at extending unilateral opening to least-developed countries and achieving common development. For products subject to tariff quota administration, in-quota goods will enjoy zero tariffs, while tariff rates on over-quota goods will remain unchanged. In addition, the country is fostering a more open environment for foreign investment through industrial policies, negative list reduction and service sector reforms, attracting significant foreign direct investment.

[Reuters]  Trump’s threat to BRICS A week after declaring he would impose tariffs on Canada, Mexico and China once he takes office as president, Trump threatened to impose 100 per cent tariffs on BRICS countries if they create a new currency to rival the US dollar. On twitter, he demanded ‘a commitment from these countries that they will not create a new BRICS currency or back any other currency to replace the mighty US dollar or face 100% tariffs and should expect to say goodbye to sales to the wonderful US economy’. Some BRICS members have shown interest in de-dollarising the world economy, while Trump’s economic policy line aims to recalibrate global trade dynamics and reinforce US economic sovereignty. 

[Reuters] Xiaomi to launch new SUV next summer amid growing demand  Xiaomi expects to launch its first SUV, the YU7, next June or July as it moves deeper into the Chinese auto market. The car will run on batteries produced by a CATL unit in China. Last month, Xiaomi raised its electric vehicle delivery target for the third time to 130,000 units this year to meet growing demand. The smartphone and electronics maker entered China’s electric vehicle market in March with the launch of the SU7 series. In October, the company unveiled a luxury variant of the SU7, priced to rival Tesla’s Model S Plaid. Xiaomi reported a 30.5 per cent increase in revenue for the third quarter of this year, beating analysts’ estimates. Car sales in China grew at their fastest pace since January last month, boosted by government-subsidised auto exchanges.

[Brookings] Assessment of Trump’s proposed 25% tariff on imports from Mexico and Canada Trump’s proposal to impose 25% tariffs on imports from Mexico and Canada could undermine the USMCA, affecting confidence in US trade policies and regional cooperation. It could also divert attention from broader strategic challenges, such as competition with China, and undermine key economic integration for North American competitiveness.

[Financial Times] Trump and the Fed: battle lines. Following the US Federal Reserve’s (Fed) announcement, it announced, as the market was projecting, a further cut in interest rates of 25 basis points, bringing the range to 4.25% – 4.50%. Given this change, FT wonders to what extent the elections altered the committee’s outlook. Have Fed members been mistaken in thinking they know what Trump’s policies will be and how they will affect the path of rates? And in doing so, did they show any political bias? Everyone seems to think they know what the second Trump administration will do. But the president’s mercurial leadership style, his heterogeneous cabinet choices and his party’s narrow margins of control in both houses of Congress mean that confidence on this issue is foolish. Arguments that tariff and immigration policy must cause persistent inflation are a bit shaky, compound the problem of overconfidence and smack of motivated reasoning.

[CNN] China extends visa-free transit policy to 10 days to attract more foreign tourists In a continuing bid to boost tourism, the Chinese Communist Party has extended the visa-free travel period for citizens of 50 countries, including the United States, to 10 full days. Passport holders from nearly 40 other countries can stay for a full month. Since the end of Covid restrictions, foreign visitors have flocked to the country: In the first 11 months of this year, arrivals rose 86% to almost 30 million people.

INTERNATIONAL SYSTEM

[CNBC] New French Prime Minister Macron named his centrist ally François Bayrou as prime minister, who has advocated for France to tackle its growing debt and budget deficit. Some analysts believe Bayrou’s long-standing position in French politics could help when it comes to new attempts to get far-left and far-right lawmakers to agree on a budget for 2025. But the new prime minister faced his first setback within hours of being appointed: credit rating agency Moody’s downgraded the country’s credit rating to ‘Aa3’ from ‘Aa2’ citing concerns about political fragmentation. Moody’s said the divisions will damage attempts to solve France’s budget deficit and debt, adding that the country’s public finances will be substantially weakened in the coming years. Uncertainty gripped the country since the summer, when after parliamentary elections Macron installed conservative Michel Barnier as prime minister who lasted three months after French lawmakers rejected his government’s budget plans for 2025. Bayrou is believed to have a narrow window of opportunity to enact a 2025 budget. 

[DW] Germany: Olaf Scholz loses confidence motion Although it was known that parliamentarians would not support him, as he does not have a majority in the legislature after the collapse of his coalition government, the German chancellor lost a confidence motion in front of the German parliament. In the run-up to early general elections in February, Scholz appealed to the public to opt for a policy of ‘moral maturity’, ‘decency’, ‘good sense’ and ‘seriousness’, both to revive the ailing economy and to achieve peace in Ukraine. 

[Politico] Trilateral meeting: Trump, Zelensky and Macron Macron hosted the first face-to-face meeting between the Ukrainian president and the US president-elect, in Trump’s first trip abroad since winning a second presidential term. After the meeting Zelenskyy posted on X:  We all want this war to end as soon as possible and in a just manner. We talked about our people, the situation on the ground and a just peace. We agreed to continue to work together and to keep in touch. Peace through strength is possible’. Shortly after the meeting Trump demanded an immediate ceasefire and the start of negotiations on his networks, and claimed that Ukraine would like to reach an agreement. But Zelensky contradicted Trump’s claim and said that the war with Russia ‘cannot end simply with a piece of paper and a few signatures. A ceasefire without guarantees can be re-declared at any time, as Putin has done in the past’.   

[Financial Times] TikTok fails to stop law that could lead to ban in US A US appeals court upheld a law that requires TikTok’s owner, ByteDance, to sell the platform or face a ban next year. The unanimous ruling by the US Court of Appeals for the District of Columbia Circuit said the law was constitutional and did not violate First Amendment free speech protections, as TikTok had claimed. While the political future of the law is uncertain, the decision puts TikTok in a precarious position in one of its largest markets. On the campaign trail before his re-election, Trump said he opposed banning the platform and promised to ‘save’ the app, although he also alluded to data protection. In this regard, after claiming at a press conference at Mar-a-Lago that China and the US can work together to ‘solve all the world’s problems’,  Trump met with TikTok CEO, Chew Shou Zi. The meeting coincided with the company’s emergency appeal to the US Supreme Court to temporarily suspend the ban, which would take effect if it fails to secure a non-Chinese buyer on 19 January, a day before Trump officially takes the White House. 

[Financial Times] Green technology strengthens China’s ties with Saudi Arabia Chinese exports and investment are pouring into Saudi Arabia as demand for green technology deepens a relationship once defined by oil sales and challenges trade ties with its traditional Western partners. Chinese exports to Saudi Arabia are on track to reach a record $40.2 billion in the first ten months of the year, up from $34.9 billion in the same period last year. China has also become the largest source of foreign direct investment in new areas in Saudi Arabia, with investments from 2021 to October this year totalling $21.6 billion, of which about a third went into clean technologies such as batteries, solar and wind power. This compares with $12.5 billion from the United States, the next largest investor. Strengthening ties between Saudi Arabia and China could complicate the prospects for the incoming Trump administration in any deal with Riyadh.  

[Reuters] South Korea starts impeachment review of Yoon. South Korea’s Constitutional Court began impeachment or reinstatement proceedings against President Yoon Suk-yeol on Monday after lawmakers voted on Saturday to remove him from office over his decision to invoke martial law on December 3. The court has up to six months to decide, with the first public hearing scheduled for 27 December. Yoon is not required to attend that hearing. Also on Monday, the country’s authorities continued their criminal investigation into whether Yoon incited the insurrection, a charge that would carry the death penalty or life imprisonment for those considered ringleaders. A team comprising Seoul’s defence ministry, an anti-corruption agency and local police tried on Monday to question Yoon on charges of rebellion and abuse of power. However, the president’s office and residence refused to forward the request to Yoon, and staff at the presidential secretariat said they were unsure whether such actions were part of their duties. Yoon has vowed to fight the insurrection investigation against him. In a national address last Thursday, he defended his decision to enforce martial law as vital to protect the country from ‘anti-state’ opposition parties.

CLIMATE CHANGE

[Financial Times] The climate money that won’t come COP29 concluded with an agreement on climate finance, criticised for being insufficient and full of vague commitments. India, despite its questionable record, denounced the deal.

International Dossier | December 2024

 

Proposals such as airline ticket taxes show potential, but have limitations. Ajay Banga, president of the World Bank, dismissed private finance as a universal solution, although he highlighted its role in renewable energy projects. Meanwhile, speculation about Trump’s economic team reveals contradictory policies on tariffs, dollar strength and Fed independence.

 

 

 

ARTIFICIAL INTELLIGENCE

[Financial Times] OpenAI explores advertising as revenue drive rises OpenAI is discussing plans to introduce advertising into its artificial intelligence products, as the ChatGPT maker seeks new revenue streams as it restructures as a for-profit company. The group is reportedly hiring advertising talent from big tech rivals such as Meta and Google. OpenAI is stepping up efforts to generate revenue from its products, such as its AI-powered search engine, as it seeks to capitalise on its early lead in the burgeoning AI sector. Its smaller rival, Perplexity, is already testing advertising on its AI-powered search engine. The huge costs associated with developing ‘frontier’ AI models mean that OpenAI anticipates spending considerably more than the company spends each year in the near term. One of OpenAI’s biggest sources of revenue comes from access to its application programming interface (API), which allows companies and developers to build with its technology, as well as from the sale of individual and enterprise licenses for ChatGPT. 

CHIPS and SEMICONDUCTORS

[Financial Times] US targets China’s chip industry with new export controls The United States has introduced new export controls to limit China’s ability to build an advanced semiconductor industry and curb its development of artificial intelligence with military applications. The export restrictions on critical semiconductor manufacturing tools will affect both US companies and foreign firms that use US technology in their chip-making equipment. The United States will also prevent the export of advanced high-bandwidth memory (HBM), a crucial component in the chips artificial intelligence, to China. The Commerce Department added 140 Chinese groups to a blacklist that requires US companies and others to apply for export licences that are expected to be virtually impossible to obtain. The targets included chipmakers, such as Semiconductor Manufacturing International Corporation and Huawei, as well as Chinese companies that produce chip-making equipment. The rules restrict the export of 24 types of chip-making tools that were not previously covered by the rule. To make them more effective, the US will in many cases apply an extraterritorial measure called the foreign direct export rule, which will affect non-US companies that have US chips in their tooling, which are the vast majority. Following this latest US offensive against China’s chip sector, China banned exports to the US of the minerals gallium, germanium and antimony, which have broad military applications. The restrictions reinforce the enforcement of existing limits on exports of critical minerals that Beijing began implementing last year. The move raises concerns that Beijing may target other minerals such as nickel or cobalt. 

[Financial Times] Intel chief Pat Gelsinger resigns from US chipmaker amid crisis Pat Gelsinger has resigned as chief executive of Intel, being temporarily replaced by chief financial officer David Zinsner and executive vice president Michelle Johnston Holthaus. Gelsinger described his departure as ‘bittersweet’, noting that the last year was challenging and full of difficult decisions to adjust Intel to current market dynamics. Intel has lost almost half its value by 2024, in contrast to the significant rise of Nvidia, which has boosted its position in the artificial intelligence chip market. Pressure on Gelsinger increased due to the perception that Intel was falling behind in the development of artificial intelligence chips. The company has dealt with the departure of top executives and a fall in its share price. Analysts highlight restructuring and asset impairment charges of $18.7 billion as part of an effort to improve competitiveness. With Gelsinger’s departure, more restructuring and possible asset sales are expected.

ELECTROMOBILITY

[Reuters] BYD on track to surpass its 2024 sales target and overtake Ford and Honda Thanks to strong sales in China, BYD is on track to surpass its annual sales target of 4 million vehicles, which would put it ahead of Honda in Japan and Ford by 2024. The company delivered 3.76 million vehicles in the first 11 months of the year, including 506,804 units sold in November. BYD gained ground on rivals as auto sales in China grew in November at their fastest year-on-year pace since January, thanks to government-subsidised car exchanges. Its efforts to increase its scale have helped it outpace growing rivals, better control costs and win a brutal price war in China that has put pressure on many foreign automakers. BYD has also asked dozens of its suppliers to cut prices. In addition, the company is discussing production plans in destinations such as Brazil. In this regard, BYD plans to produce its first electric vehicle in Brazil in March 2025. In turn, through this project, it aims to generate 10,000 direct jobs by the end of 2025 and 20,000 direct jobs by the end of 2026. Stella Li stated that this plant will be the largest and most modern electric vehicle production plant outside China. The production capacity of the plant will be 150,000 vehicles by the end of 2025, increasing to 300,000 vehicles by the end of 2026. The main objective of the production is to supply the Brazilian and South American markets. Stella Li reported that BYD is renovating its plant in Camaçari, Bahia state, and plans to establish a large technical research centre there. 

[Council on Foreign Relations] Will China take over the global auto industry? China is rapidly expanding its automotive industry, with a growing focus on electric vehicles (EVs). By 2025, its EV production capacity could reach 25 million units, cementing its position as a global leader. In addition, China is focusing on international markets, with vehicle exports rising from 1 million in 2020 to 6 million in 2024, suggesting that it could dominate the global automotive market. Overcapacity in the Chinese automotive sector is, in fact, not so new. China’s traditional automotive sector was dominated by joint ventures (‘JVs’) formed by large foreign companies and their (usually state-owned) Chinese partners. Chinese demand for cars took off after the global financial crisis, and global companies responded by massively expanding their production capacity in China, as only German luxury markets were interested in paying the 25% tariff and supplying the Chinese market from abroad. But China held on and, over time, its electric vehicle industry reached critical mass and now produces most of the world’s electric vehicles (and nearly half of all Teslas). As in the United States and Europe, China’s electric vehicle industry initially received significant state support. Chinese EV manufacturers benefited from subsidies that enabled the development of China’s battery and battery chemical industry, as well as access to the world’s cheapest steel. Electric vehicle companies benefited from cheap state financing, both capital injections from a myriad of state-backed funds and loans from state-owned banks that (still) have to meet loan quotas. In addition, China was protectionist in the application of its subsidies to “consumer” electric vehicles. Only electric vehicles that were on state lists of eligible vehicles were eligible for the subsidy, and the subsidy was only granted to cars fabricated in China.

[AP News] General Motors to sell stake in Lansing, Michigan, battery plant to LG Energy Solution General Motors (GM) has reached an agreement to sell its stake in a nearly completed electric battery plant in Lansing, Michigan, to its joint venture partner, LG Energy Solution of South Korea. The sale is expected to close before the end of March, although financial details were not disclosed. GM has invested about $1 billion in the factory and anticipates recouping its investment. The company will rely on joint venture factories in Warren, Ohio, and Spring Hill, Tennessee, to supply components for seven electric vehicles currently on sale in the U.S. Despite slowing growth in electric vehicle sales, which are up only 7.2% through September, sales this year are expected to surpass last year’s record. In addition, GM announced an agreement with LG to jointly develop prismatic battery cells for electric vehicles, which can store more energy and offer benefits in terms of size, weight and cost compared to the pouch cells GM currently uses.

[Nikkei] Honda Motor and Nissan Motor will begin talks toward a merger, Nikkei has reported, pooling their resources to better compete against Tesla and Chinese electric vehicle makers in a rapidly changing auto industry.

MIDDLE EAST CONFLICT

[Financial Times] The West must not succumb to cynical regret over Syria The fall of Bashar al-Assad, the Syrian dictator, has raised concerns in the US and Europe, who fear that instability will persist. Although Assad has been ousted, the group that defeated him, Hayat Tahrir al-Sham (HTS), is classified as a terrorist group by several countries, adding to uncertainty. Despite concerns, Assad’s fall is seen as a positive development, as his rule was one of the most brutal in the region, responsible for more than 500,000 deaths and the creation of a refugee crisis that affected Europe and Turkey. Assad’s figure was also a pillar for Russia and Iran in the region. The regime’s defeat means a blow to the influence of both countries, especially Iran, which has seen its allied forces weakened. However, the future remains uncertain. If Iran loses its proxy network, this could lead to a quest for nuclear weapons and generate more conflict in Syria. However, some Western NGOs that have worked with HTS suggest that the group is pragmatic and organized, which contradicts the idea that they resemble al-Qaeda. The international community’s fear reflects the disappointment following the 2011 Arab Spring, but it must also be recognized that the fall of a brutal regime should be seen as a positive development, despite future challenges that may arise.

[BBC] Palestinian negotiator tells BBC Gaza cease-fire talks are in final phase Israel and Hamas will shortly agree terms on a cease-fire to end the 14-month war in Gaza, according to a “senior Palestinian official” quoted by the BBC on Tuesday. The official said the negotiations have reached a “decisive and final phase.” Israeli officials have made similar comments to reporters. This time, hopes appear well-founded.Hamas, and its ally Hezbollah in Lebanon, have taken a beating. The details of the deal are still being haggled over, but it appears that the cease-fire would unfold in stages. First, Hamas would release dozens of Israeli civilians and female soldiers it is still holding hostage, and Israel would withdraw its troops from Gaza’s cities, its coastal highway and the corridor on Gaza’s border with Egypt. In a second phase, Hamas would release its remaining hostages and more Israeli troops would be withdrawn from Gaza. Finally, the details of a longer-term cease-fire would be worked out. More than 100 Israeli hostages have already been released, either through negotiations between Israel and Hamas or through Israeli rescue operations. 

MERCOSUR-EU AGREEMENT

[Reuters] EU and Mercosur approve free trade deal but potential obstacles exist At a press conference in Montevideo, European Commission President Ursula von der Leyen and her Mercosur counterparts announced the agreement after 25 years of talks, citing the need for free trade in the face of growing protectionism worldwide. European officials and proponents of the agreement say it offers a way to reduce dependence on trade with China, as well as insulate EU nations from the impact of potential trade tariffs threatened by U.S. President-elect Donald Trump.  The agreement must be legalized, translated and approved by member countries and could be blocked, with France being the main opponent. The French government, which has been rallying countries to oppose the pact, named Austria, Belgium, Italy, the Netherlands and Poland as other wary states that share French concerns about the deal. For Macron, the deal remained “unacceptable” in its current state and he stressed that governments have yet to see “the final result” of the negotiations. “The agreement has not been signed or ratified. This is not the end of the story,” officials in his office said, adding that France is demanding additional safeguards for farmers and commitments on sustainable development and sanitary controls. To enter into force, the pact must also be approved by the European Parliament. The agreement included modifications to government procurement, auto trade and critical mineral exports from a version agreed in 2019. It also included an annex on environmental measures to calm South American fears about EU protectionism. European farmers have repeatedly protested against an EU-Mercosur deal that they say would lead to cheap imports of South American products, particularly beef, that do not meet EU green and food safety standards.

By Dafne Esteso (@dafnech_esteso) y Brenda Vladisauskas (@bvladisa)