Summary for the 15th of March 2019


The trade meeting between the US president, Donald Trump and the President of China, Xi Jinping has been postponed to April, and possibly longer. The US trade representative, Robert Lighthizer said in the congressional testimony that there were still challenges in the trade negotiations, the US hadn’t been able to get a breakthrough on some of the trade issues. Trump had said that in the next three to four weeks, there would be more news about the trade talk, and that China had been very responsible and very reasonable.

The fact that the parties have gotten more time for the trade talk should be seen as positive. There are many challenges the two countries must agree on. It is also quite demanding for China to have to change their economic structure about trade and business without deviating too much from its economic goals, which could give a shock in the Chinese economy. China has so far been agreeing on less challenges issues, like buying more goods and services from the US, and to give more rights to US companies that doing business in China (able to establish business without joint venture with Chinese companies). More business sectors will also be more open for foreign companies.

On the other hand, there are still many more issues that the two parties have to agree on. Like China’s business policy about letting state-owned companies to operate with large deficit. Xi has been saying for the past years that he wants to reform the state-owned companies to follow more to the rule of the open market. The state owned companies that are in deficits increases to 43%, a large increase from previous years. Return on equity from these companies has been -4.8% on average vs-3.4% in 2010.

State owned companies are one of Chinas’ fiscal policy instruments, they can be used in an economic downturn, where they can initiate investments where other companies won’t, thus stabilizing the labor market.

The goal for Xi is turning the state owned companies to be more competitive in the global market. To achieve that, these companies have to grow larger and able to affecting the global prices, thus even though some of these companies are in deficits, the total profit is still positive for China.

Also, it is difficult for China to protect the intellectual properties of foreign companies. The main issues here are the legal system that favors Chinese companies. To change this would take more time.

Not all of these issues needed to be solved for the two countries to come to an agreement, as long as the market response is positive. Many believe that this is a good opportunity for the USto improve economic relationship with China, and that this opportunity might never come again.

The US Senate has voted not to fund Trump’s wall at the Mexico border. 59 voted against and 41 voted for the funding. Trump’s first tweet after the vote was to veto the resolution.

In UK, the British parliament has voted to postpone the Brexit (Article 50). There is still no news about how long the postpone will be, mostly likely for a couple of months.

Indices for 15th of March:
Dow: Unchanged (14th of March)
S&P 500: -0.1% (14th of March)
Nasdaq: -0.2%(14th of March)
Nikkei: +0.9%  (15th of March)
Chinese indices: Between +0.7% (15th of March)
STOXX Europe 600 Index: +0.68% (15th of March)

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