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For Musk and other foreign CEOs visiting China, silence is golden

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For Musk and other foreign CEOs visiting China, silence is golden

A veritable parade of overseas CEOs including Tesla’s Elon Musk and Goldman Sachs’ David Solomon have made their way to a reopened China in the last few months.

One notable common strand: they’ve not talked much in public about their trips which have mostly consisted of meetings with government officials, local staff and business partners. Media events and other public engagements, once frequent before the pandemic, are now rare.

Even Musk, known for his unreserved banter on Twitter, was uncharacteristically silent on a whirlwind trip last week.
In 2020, the billionaire celebrated the delivery of the first cars made at Tesla’s Shanghai plant with a dance on stage that was open to the press. This time around, media were not invited to cover his plant visit.

And while Musk has mentioned the trip in two posts since leaving, he didn’t tweet once while in China.

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Goldman’s Solomon has similarly been more low-key. In 2019, he gave media interviews and participated in several forums. But during his trip in March this year, his only known engagements were closed-door meetings with regulators, China’s sovereign wealth fund and at a university.

The lack of information from Western CEOs and their companies about the trips to China can be attributed to wariness given that US-Sino political and trade tensions have worsened to their lowest point in decades, said senior staff at chambers of commerce and trade associations.

President Xi Jinping’s increasing focus on national security – in particular a recent crackdown on consultancies and due diligence firms – has also left many foreign companies uncertain where they might step over the line of the law, they said.

Noah Fraser, managing director of the Canada China Business Council, said visiting executives are no longer chasing new business opportunities but are concentrating on maintaining existing relationships and will often stipulate no press, big dinners or speaking opportunities.

They appear to be keeping “their heads down and will have private lunches where they can learn from people on the ground what’s happening,” he said.

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Before travelling to China, US CEOs have been seeking advice about how Beijing’s expansion of its counter-espionage law could affect them, according to the head of a U.S. trade association who declined to be identified, citing the sensitive nature of doing business in China currently.

The CEOs also want to know how to deal with Chinese government officials and with questions once the trip becomes public, the association head said, adding it was not in their interest to speak to media and run the risk of being asked to comment on stances taken by Washington and Beijing.

The EU Chamber of Commerce said in a statement that companies operating in China have always exercised a certain level of caution and were now adapting to changes in areas that might be deemed sensitive.

Tesla did not respond to a request for comment while Goldman declined to comment.

China’s foreign ministry said in a statement that the numerous visits from US CEOs were a “vote of confidence” in the Chinese economy. That their trips were relatively low-key stemmed from what it called the US government’s “wrong policy” of containing China, it said.

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With respect to concerns about its counter-espionage law, it was China’s right to safeguard national security through domestic legislation, it added.

The US Department of Commerce declined to comment.

While US President Joe Biden said last month he expected a thaw in frosty relations with Beijing “very shortly”, there is no denying that tensions have soared this year with flashpoints including U.S. export curbs on semiconductors and data security concerns.

That said, after three years of harsh COVID curbs that hampered entry into China, foreign CEOs appear eager to get the lay of the land.

Those travelling here in recent months have included Apple’s Tim Cook, Intel’s Patrick Gelsinger, General Motors’ Mary Barra, Blackstone’s Stephen Schwarzman and JPMorgan’s Jamie Dimon.

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Sixty-seven foreign business leaders attended the high-profile China Development Forum this year, although that is still 20 fewer than in 2019.

“The idea is that you have to show sufficient commitment to the China market if you’re playing there,” said Christopher Johnson, president of China Strategies Group, a political risk consultancy.

At the same time, the CEOs need to do that “without setting off alarm bells with the U.S. government, and it’s a very difficult task,” he added.

JPMorgan and Blackstone declined to comment. Apple, General Motors and Intel did not respond to requests for comment.

The few known comments by foreign CEOs whilst they were in China have been in line with Biden’s stance that he is not seeking to decouple the world’s two largest economies.

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The foreign ministry quoted Musk as saying he was opposed to a decoupling of the U.S. and China economies which he described as “conjoined twins”.

JPMorgan’s Dimon told the JPMorgan Global China Summit last week he favoured East-West “de-risking” rather than decoupling, according to a source from the event.

Daniel Russel, vice president for international security and diplomacy at the Asia Society Policy Institute, said the difference between de-risking and decoupling was a subtle but important one.

It “makes clear that the issue is managing the risk of dependency on China rather than a determination to separate the world into two competing spheres,” he said.

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SBP categorically denies reports about issuance of plastic banknotes

SBP categorically denies reports about issuance of plastic banknotes

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The State Bank of Pakistan (SBP) has rejected the reports regarding issuance of polymer (plastic) notes as baseless and without substance. There is no such plan or suggestion currently under consideration regarding change in the substrate of banknotes from paper to the polymer, the central bank said in a statement. “SBP uses cotton based paper substrate which is manufactured locally by the Security Papers Limited, using primarily local raw materials,” it said. The response comes a day after various news portals claimed that SBP was planning to replace the paper currency with plastic banknotes to prevent fake currency in the country.

The State Bank of Pakistan (SBP) has rejected the reports regarding issuance of polymer (plastic) notes as baseless and without substance.

There is no such plan or suggestion currently under consideration regarding change in the substrate of banknotes from paper to the polymer, the central bank said in a statement.

“SBP uses cotton based paper substrate which is manufactured locally by the Security Papers Limited, using primarily local raw materials,” it said.

The response comes a day after various news portals claimed that SBP was planning to replace the paper currency with plastic banknotes to prevent fake currency in the country.

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Bank of Japan leaning toward exiting negative rates

Bank of Japan leaning toward exiting negative rates

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Bank of Japan leaning toward exiting negative rates

A growing number of Bank of Japan policymakers are warming to the idea of ending negative interest rates this month on expectations of hefty pay hikes in this year’s annual wage negotiations, four sources familiar with its thinking said.

Upon ending negative rates, the central bank is also likely to overhaul its massive stimulus programme that consists of a bond yield control and purchases of riskier assets, they said.

But an imminent shift is a close call as there is no consensus within the nine-member board on whether to pull the trigger at its upcoming March 18-19 meeting, or hold off at least until the subsequent meeting on April 25-26, they say.

Many BOJ policymakers are closely watching the outcome of big firms’ annual wage negotiations with unions on March 13, and the first survey results to be released by labour umbrella Rengo on March 15, to determine how soon to phase out their massive stimulus.

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Significant pay hikes will likely heighten the chance of action in March, as the offers by big firms usually set the tone for those by smaller firms nationwide, the sources said on condition of anonymity due to the sensitivity of the matter.

The BOJ hopes that solid wage increases will coax consumers to spend more, boosting demand and prices after years of economic stagnation and deflation.

“If the spring wage negotiation outcome is strong, the BOJ may not necessarily need to wait until April,” one of the sources said, a view echoed by another source.

But the BOJ may hold off until April if many board members prefer to wait for next month’s “tankan” business sentiment survey and the bank’s regional branch managers’ report on the nationwide wage outlook, before making a final decision, they said.

The yen has been rising against the dollar on growing speculation that the BOJ could end negative rates soon, and bets of imminent rate cuts by the U.S. Federal Reserve. It rose to 146.95 to the dollar on Friday, its highest level since early February.

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WEAK DATA A RISK

The BOJ has long targeted inflation at 2% and has guided short-term rates at -0.1% and the 10-year bond yield around 0% under a policy dubbed yield curve control (YCC).

With inflation exceeding the target for well over a year and prospects for sustained wage gains heightening, many market players expect the central bank to end its negative interest rate policy this month or in April.

Upon pulling short-term rates out of negative territory, the central bank is likely to ditch its 10-year bond yield target, the sources said.

To avoid an abrupt spike in long-term rates, the BOJ will likely commit to intervening in the market when needed to stem sharp rises, or offer guidance on the amount of government bonds it will keep buying, they said.

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Japan’s Jiji news agency reported on Friday the BOJ is considering replacing YCC with a new quantitative framework that will show in advance how much bonds it will buy in the future.

Prospects of continued solid wage growth, driven by rising living costs and an intensifying labour shortage, have heightened momentum for an end to negative rates in March.

Japan’s largest trade union group Rengo said on Thursday average wage hike demands hit 5.85% for this year, topping 5% for the first time in 30 years.

BOJ board member Naoki Tamura, a former commercial bank executive, has been the most vocal advocate of an early exit from negative rates, signalling in August last year that the bank could take such action by March 2024.

Fellow board member Hajime Takata also called for an overhaul of the BOJ’s stimulus programme last week, saying that Japan was finally seeing prospects for durably achieving the bank’s inflation target.

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If a majority of the nine-member board vote in favour of ending negative rates, it would pave the way for Japan’s first rate hike since 2007.

But there is uncertainty on whether any proposal to end negative rates in March would gain enough votes, as some board members may feel cautious about exiting amid recent weak signs in consumption and the broader economy.

Preliminary data suggested Japan’s economy slipped into recession in the fourth quarter due to weak domestic demand, though more recent readings pointed to stronger capital expenditure that will likely lead to an upgrade when revised gross domestic product figures are published on March 11.

Household spending also dropped 2.5% in December from a year earlier, extending its decline for a 10th month, due to supply disruptions of cars and continued declines in real wages.

Board member Seiji Adachi has said it might take until after the April 2024 start of the next fiscal year to determine whether conditions are conducive to ending negative rates.

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Two other members, Toyoaki Nakamura and Asahi Noguchi, have also voiced caution over a premature withdrawal of monetary support.
Sources have told Reuters earlier that the BOJ will downgrade its assessment on consumption and output, nodding to recent weak signs in the economy. 

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Singapore’s PCG to reopen fund for luxury Japan ski resort

Singapore’s PCG to reopen fund for luxury Japan ski resort

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Singapore's PCG to reopen fund for luxury Japan ski resort

Patience Capital Group, the Singapore-based investor behind a $1.42 billion luxury ski project in northern Japan, is in talks to reopen its fund to new investors eager to get in before tightening by the Bank of Japan.

PCG’s initial 35 billion yen ($237 million) fund, announced last year to transform Myoko Kogen in Japan’s Niigata prefecture into a winter sports destination at par with Aspen and Whistler, may grow to 60 billion yen as new money from domestic and foreign investors piles in, said PCG founder Ken Chan.

Japan is riding twin booms in investment and inbound visitors, boosted by a weak yen that makes the country a bargain for foreigners. Chan set up PCG in 2019 to benefit from both, investing in accommodation and resort properties.

The BOJ is expected to move as early as next week, beginning a lengthy normalisation from about two decades of easy money policy. That shift, along with possible interest rate cuts by the Federal Reserve, is likely to drive the yen up from the near three-decade lows it trades at now, Chan said.

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“It’s clear from a macro perspective, this year is a very important year to put funds into yen assets because the yen is too cheap right now,” said Chan, who founded PCG after 19 years with Singapore’s GIC sovereign wealth fund, where he acted as its Japan head.

“I think in the next few months, you will continue to see investors coming in to take an investment position in this market,” he added.

Chan, who was born in Japan and spent his early childhood there, last year sketched out a plan to turn the Myoko Kogen area into a high-end winter paradise that can attract wealthy, globe-trotting snow fans.

His fund, which caters to institutional and high-net-worth investors, has bought about 350 hectares of land which includes two existing ski slopes.

Chan is also working with the Tokyu group, which owns the nearby Madarao Tangram resort, to manage the mountain there as one operation. He added that if any resorts in the vicinity were willing to sell, PCG would be happy to consider taking them over.

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Although the full build-out will take about a decade, Chan aims to have the first two luxury hotels ready by 2028. That is a year later than originally planned due to a major earthquake on the Noto peninsula on Jan. 1 that has pulled away construction resources.

PCG expects to raise money for the project in two additional funds around 35 billion yen size, with the spending power of all funds doubled through borrowing leverage.

Total spending is still benchmarked at the 210 billion yen level, but it could “absolutely go beyond (that figure) because there’s so much land waiting to be developed,” Chan said.

LABOUR CRUNCH

Although Japan enjoys annual dumps of some of the best powder snow in the world, much of the nation’s ski industry is suffering from aging infrastructure and a shrinking base of domestic customers.

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The number of Japanese skiers and snowboarders fell by about 75% from its peak in 1998 as of 2022, according to the Japan Productivity Centre. Global warming has also led to less snow in all but the most northern parts of the country, leading to seven ski resort bankruptcies in 2023.

Myoko is about 200 km (125 miles) northwest of Tokyo, and cold winds coming off the Sea of Japan produce some of the deepest snow in the world. But the area has so far missed out on the attention and investment seen in nearby Hakuba or Niseko on Japan’s northernmost island of Hokkaido.

Another hurdle for PCG or any other would-be developer is Japan’s tight labour market. The retail and hospitality sectors have not recovered from an exodus of workers during the pandemic. Skilled, multi-lingual staff needed by high-end resorts is in short supply.

Chan hopes to solve that problem by building dormitories and housing in the Myoko area and making it an attractive township that will draw in foreign and domestic workers through multiple seasons.

“The local, liveable area is something that we need to address right from the beginning,” he said. 

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