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China and the EU are rushing to meet a year-end deadline to seal a long-awaited investment deal, in a sign of the bloc’s push to build strategic ties with Beijing, even as it revives relations with the US.

The likelihood of the accord being settled soon is rising despite the disruption caused by the coronavirus crisis, officials from both sides have told the Financial Times. Beijing’s shift in the important area of market access has given the process additional momentum, EU officials said.

The EU has long yearned for an agreement to allow its companies wider entry to China’s market, and the two sides last year agreed it should be concluded by the end of 2020.

Securing a deal would be a diplomatic coup for both powers. It would come weeks before the inauguration of US president-elect Joe Biden, which has the potential to foster improved transatlantic trade ties after tensions with the Trump administration. 

Meanwhile, the US Treasury department is attempting to water down an executive order from Donald Trump that bars Americans from investing in Chinese companies with suspected ties to Beijing’s military, as a dispute heats up over one of the last big anti-Beijing policies of the Trump era. (FT)

Coronavirus digest

  • New Zealands “go hard and early” Covid-19 policy is reaping economic rewards.

  • China plans to vaccinate 50m people ahead of the Lunar New Year.

  • Japan is set to receive Pfizer’s application for approval of its Covid-19 vaccine on Friday.

  • Moderna’s Covid-19 vaccine was approved by a Food and Drug Administration advisory committee, setting it up to be the second vaccine approved in the US.

  • French president Emmanuel Macron has tested positive for Covid-19. (FT, WaPo)

Covid-19 economic recovery

Do you pine for lost office rituals — or prefer the new normal? Join the discussion in the comments of our story. Follow our live coronavirus blog for the latest.

In the news

US cyber hack: ‘grave risk’ to critical infrastructure US cyber officials warned that the SolarWinds hack was continuing to affect the government, critical infrastructure and private sector. The US nuclear weapons agency is also thought to be included in the breach. Separately, Washington banned utilities supplying defence facilities from buying Chinese power grid items, citing cyber security concerns. (FT, Politico, Reuters)

Cyber security experts are trying to determine the extent of the damage caused by the breach, which continued for months © Arek

Australia’s China diplomacy sets business on edge This week marks the fifth anniversary of the pair’s free trade deal, which has boosted trade by A$100bn a year. But no one is celebrating in Canberra amid a breakdown in bilateral relations, which has sparked debate about Australian diplomacy and whether Canberra’s approach is hurting the economy. (FT)

Brexit trade talks hit by fresh dispute A row over Brussels’ €750bn Covid-19 recovery package has become a sticking point as UK trade talks go to the wire, after Boris Johnson, UK prime minister, warned that EU-level spending should not be exempt from state-aid restrictions in a post-Brexit agreement. The uncertainty surrounding a possible deal has left employers in limbo. (FT)

Google antitrust cases mount A bipartisan group of 38 attorneys-general took aim at what it claimed were deliberate moves by the company to block rival specialised search services from reaching users. The case came a day after 10 Republican state attorneys-general filed their own lawsuit accusing Google of monopolising adverts and fixing prices to suit itself. (FT)

Luckin Coffee settles in accounting fraud case US regulators have hit the chain with a $180m penalty after finding that the scandal-plagued Chinese group altered bank records and set up a fake database as part of an effort to fabricate its accounts. (FT)

Luckin Coffee was delisted from Nasdaq earlier this year © Bloomberg

Switzerland charges Credit Suisse for money laundering In an indictment put before the country’s Federal Criminal Court on Thursday, investigators said the bank had processed more than SFr140m ($158m) of transactions for a clan of mafiosi and former top-level wrestlers, earned from smuggling tonnes of cocaine into Europe and other illegal activities. (FT)

Toshiba management-investor clash Effissimo, a secretive Singapore fund and Toshiba’s largest investor, called for an extraordinary general meeting and an independent investigation into allegations that a knife-edge shareholder vote was conducted unfairly. Meanwhile, a global chip shortage threatens production of laptops and smartphones. (FT, Reuters)

Toshiba’s chief executive Nobuaki Kurumatani survived a vote on his reappointment with just 58% support © Toru Hanai/Reuters

Bankers enjoy bumper fees from Chinese groups Investment bankers are close to earning record fees from equity deals involving Chinese companies in 2020, underscoring global finance’s growing dependency on the country even as geopolitical tensions rise. (FT)

The days ahead

Interest rate decisions The Bank of Japan announces its policy decision on Friday, with rates likely to stay unchanged. The bank is also set to extend special pandemic support measures for businesses. Russia, meanwhile, has kept the market divided on whether it will cut again or hold on Friday.

Fed stress tests The US Federal Reserve on Friday will release an unprecedented second set of test results for the country’s largest banks, which will show how well they are equipped to deal with the economic downturn brought on by the pandemic.

US coronavirus aid relief Congressional leaders vowed they would soon complete negotiations on a $900bn fiscal stimulus deal to bolster the country’s economy, although talks could stretch into the weekend to resolve the last sticking points. (FT)

What else we’re reading

MindGeek: the owner of Pornhub and RedTube In the internet era, porn is everywhere. But very little is known about the new group of operators whose pockets are being lined by insatiable demand. No entity exemplifies this more than MindGeek — the owner of Pornhub, RedTube and YouPorn — whose owner’s identity was a secret before this FT investigation. (FT)

Porn pioneered elements of the global online advertising industry such as targeted advertising, pay-per-click and email marketing and is today a substantial part of the internet economy © Dreamstime/FT montage

How this stock market rally differs from past cycles The higher starting valuations in this bear market, the lack of room for interest rates and bond yields to fall and a much higher debt burden compared with the decade after the financial crisis, suggest that over the medium term, returns will be lower, writes Peter Oppenheimer, chief global equity strategist at Goldman Sachs. (FT)

Xi sees Alibaba and Tencent as rising threats The politburo has gone on a crusade against the “disorderly expansion of capital” emanating from the two tech giants. Meanwhile, as Beijing used facial recognition software to track Uighur people, Alibaba has shown customers that its software can do the same. (NAR, NYT)

Simon Schama on John le Carré The spy fiction master ventured well beyond the shadows of espionage to become one of the most perceptive and enduring writers of his age, Simon Schama writes. Until le Carré came along, no writer had nailed nuance with such lethal accuracy. (FT)

© Greg Funnell/Camera Press | John le Carré

The impact of the FinCEN Files Earlier this year, BuzzFeed News and the International Consortium of Investigative Journalists published a report that rocked the financial world: it claimed dirty money was pouring into the world’s most powerful banks in plain view. Here is a look at legislative, regulatory and investigative action that has followed. (BuzzFeed News)

Grandma’s lessons from the shop floor Post-pandemic, jobs in retail could be particularly vulnerable to automation “on steroids”. But recommendations to herd an army of mostly female workers from the high street into the care home, where jobs are in demand, is as shocking as it is well-meaning, Miranda Green writes. (FT)

The challenges of covering 2020 FT columnist Simon Kuper assesses the methods, biases and blind spots that he brought to his commentary of 2020 — the “most dystopian and utopian” period he has lived through: “Readers rightly accuse me of bias against Trump and Brexit. Both movements offend my cosmopolitan instincts.” (FT)

© Harry Haysom

Podcast of the day

The best and worst of 2020 Gideon Rachman talks to Roula Khalaf, FT editor, and Martin Wolf, chief economics commentator, about the extraordinary events of 2020, including Covid-19, the US election and signs of reconciliation between Israel and Gulf states. (FT)

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Emerging Markets

Hong Kong dropped from economic freedom index after crackdown




Hong Kong has been dropped from a prominent index of the world’s freest economies, underlining growing concerns over Beijing’s tightening grip on the Asian financial centre after it introduced a national security law last year.

The announcement from the Heritage Foundation, a conservative US think-tank, came as the majority of a group of 47 pro-democracy politicians were refused bail in a case that critics say shows the rapid decline of civic freedoms in the city.

The Heritage Foundation also dropped the Chinese special autonomous region of Macau, a casino hub and former Portuguese colony, from the rankings.

The foundation in recent years has been aligned with the administration of former US president Donald Trump.

“No doubt both Hong Kong and Macau . . . enjoy economic policies that in many respects offer their citizens more economic freedom than is available to the average citizen of China,” the Heritage Foundation said. “But developments in recent years have demonstrated unambiguously that those policies are ultimately controlled from Beijing.”

Beijing imposed the national security law on Hong Kong last year in response to anti-government protests that engulfed the city in 2019.

The measures are part of a clampdown on civil and political freedoms guaranteed to the city for 50 years following its handover from the UK to China in 1997. Authorities are targeting anyone viewed as disloyal to the Chinese government in politics, education and the media.

The Hong Kong government has long taken pride in studies showing its economy to be one of the most liberal in the world, with the city marketing itself as an international business haven given its low tax rates and open port.

The Heritage Foundation last year replaced Hong Kong at the top of its “Index of Economic Freedom” with Singapore, toppling it from a position it had held for 25 years, but still included the territory in the rankings in second place.

The Hong Kong government said it was ‘dismayed’ by the Heritage Foundation’s decision and said it was “politically biased”.

The case against the 47 pro-democracy lawmakers and activists has been seen as a test of whether the city’s legal system can withstand pressure from Beijing.

Authorities charged the group with subversion, alleging they aimed to topple the government by staging an unofficial primary vote to select candidates to run for election to the city’s legislature. Subversion is punishable with up to life imprisonment under the national security law.

The bail hearings, presided over by a judge appointed to oversee national security cases, entered their fourth day on Thursday.

Victor So, the judge overseeing the case, only granted bail to 15 out of 47 defendants under harsh conditions, but the prosecution immediately appealed the ruling, returning them to custody until the appeal hearing takes place. 

On top of the usual bail conditions, the court ordered the defendants to not participate in elections or make any public political statements.

Sessions have often stretched late into the evening, including one that continued until 3am before the defendants were hauled back before the court the next day. At least one defendant collapsed inside the courtroom and six others were sent to hospital for treatment.

As they exited the court, some defendants shouted: “Political criminals are not guilty, Hong Kongers will not die!”

Simon Young, a law professor at the University of Hong Kong, said the treatment of the defendants was “most unsatisfactory”. Jerome Cohen, a Chinese law expert at New York University, said the way the hearing was conducted “makes a farce of procedural fairness”.

Some of the defendants have faced multiple trials simultaneously and were forced to shuffle between courtrooms.

The defendants’ lawyers said on Tuesday their clients had not bathed in three days, forcing the judge to delay the hearing to allow them to wash.

Hong Kong has tight restrictions on reporting the substance of bail hearings.

Hundreds of supporters have queued each day in an attempt to watch the proceedings in person. Many held placards and chanted banned political slogans, risking prosecution under the security law.

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Pakistan’s finance minister ousted in surprise defeat for Imran Khan




Pakistan’s prime minister Imran Khan suffered a major political setback on Wednesday, when his finance minister was defeated in a contest for a seat in the country’s senate.

Khan must now appoint a successor to the cabinet post by June 11 under Pakistani law. The surprise defeat of finance minister Abdul Hafeez Shaikh, a respected economist and former world bank official who led the country’s negotiations with the IMF for a $6bn loan, comes amid an escalating campaign by main opposition parties to have the prime minister removed from office.

Elected officials vote to fill vacated seats in the senate every three years. Following the result, the government announced it would “take a vote of confidence in parliament” to prove that the prime minister retained a majority of support.

Business leaders have warned that Shaikh’s departure creates uncertainty over the future of Pakistan’s fiscal policies as the country battles the pandemic’s fallout on the economy.

“Right now, it was essential to give a message of confidence to a range of stake holders within and outside Pakistan on the state of our economy. Now, people will be left asking questions,” the president of a private Pakistani bank told the Financial Times.

An 11-party opposition alliance, the Pakistan Democratic Movement (PDM), has accused Khan of using the powerful military to tip the 2018 election result in his favour — which leaders from the prime minister’s party have denied — and for failing to revive the moribund economy.

The PDM has announced a March 26 deadline for Khan to step down or face widespread opposition protests.

Though some opposition leaders have said they plan to follow up Wednesday’s defeat with a vote of no confidence against Khan, analysts said it was too early to predict his downfall ahead of the end of his five-year term in 2023.

“It’s a major upset for Imran Khan and his PTI (Pakistan Justice Party),” said Huma Baqai, a political commentator at the University of Karachi. “The government from hereon will face further pressure as the opposition continues to step up its campaign.”

The vote count suggested a break in Khan’s PTI party, with as many as 16 party members either voting for the finance minister’s opponent, former prime minister Yusuf Raza Gilani, or spoiling their ballots.

Shaikh’s defeat “will not automatically lead to the prime minister’s downfall. Some PTI members clearly changed sides [for this vote]. But it will be much harder for them to agree to removing the prime minister,” an opposition leader told the FT.

Faisal Javed, a PTI leader, claimed some representatives had been bribed by the opposition. “There has been a major corruption. There has been horse-trading. People have been sold,” he told the local ARY news channel on Wednesday. Opposition leaders have denied this.

The electoral college for the senate consists of members from legislatures of Pakistan’s four provinces as well as the lower house of parliament in Islamabad known as the national assembly.

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Australia’s treasurer warns global stimulus threatens financial stability




Australia has warned that unprecedented global stimulus efforts during the coronavirus pandemic are creating financial stability risks that will only intensify when interest rates inevitably rise.

Canberra has also defended tough new foreign investment rules that have led to a collapse in Chinese investment, arguing the number of proposed deals motivated by strategic, rather than purely commercial gain, was increasing.

Josh Frydenberg, Australia’s treasurer, said the Pacific nation was in a strong economic position as its net debt to gross domestic product was about half that of other advanced economies, even as it begins unwinding fiscal stimulus.

“There is no doubt elevated debt levels will create challenges for many countries. While global interest rates are low those debt levels can be serviceable — but there will be a time when the monetary policy settings change,” he told the Financial Times.

Frydenberg’s comments on the risks posed by global stimulus followed a similar warning delivered last week by Peter Costello, a close political ally and former Australia treasurer.

Australia will be among the first advanced economies to taper off Covid-19 fiscal stimulus with the closure of its A$90bn (US$70bn) JobKeeper wage subsidy scheme this month.

Canberra has argued that the recovery is already under way, citing a fall in unemployment to 6.4 per cent in January and a 3.3 per cent economic expansion in the three months to September last year.

Frydenberg, who counts Margaret Thatcher and Ronald Reagan among his role models, said the government’s A$250bn stimulus was required to stabilise the economy during the pandemic. But he said JobKeeper, which supported 3.6m workers at its peak, was no longer needed as the recovery could be supported by tax cuts, which were announced last year.

Asked if he thought the economic policies of Thatcher and Reagan were still relevant, he said: “[Reagan and Thatcher] achieved a lot when they were in office and they were committed to lower taxes. They were committed to cutting regulation and that’s certainly what I’ve been committed to as well.”

But trade unions and businesses that are still suffering as a result of border closures and restrictions, particularly in the tourism and entertainment sectors, have warned that the scheme’s closure will dent the economy.

“JobKeeper should be extended for those businesses that are still affected by coronavirus. [Through] no fault of their own, they are suffering that downturn,” said Sally McManus, secretary of the Australian Council of Trade Unions, last week. “And we say that because that will save jobs.”

Josh Frydenberg, Australia’s treasurer, is a rising star in the country’s conservative government and is tipped as a future prime minister © AP

Frydenberg, who was the architect of foreign investment rules aimed at countering rising Chinese influence, said he made no apologies for putting “national interest” at the heart of Australia’s investment policies.

Chinese investment fell 61 per cent last year to A$1bn, down from A$2.6bn in 2019 and a peak in 2016 of A$16.5bn, data showed. Frydenberg was instrumental in blocking two potential deals: China Mengniu’s A$600m bid for Japan-owned Lion Dairy and China State Construction Engineering Corp’s A$300m bid for Probuild, a South Africa-owned construction company.

“We absolutely reserve the right to make decisions around foreign investment based on national interest and having put in place an explicit national security test allows us to do that,” he said.

“Increasingly we’ve seen foreign investment proposals that have been motivated not by purely commercial gains but more strategic ones. When those foreign investment proposals potentially compromise the national interest, then we reserve the right to say no.”

Frydenberg said Australia was not alone in tightening its rules, noting that other countries shared Canberra’s views on national sovereignty and foreign investment.

“Obviously we have had some challenges with China,” he said when asked about Beijing’s imposition of trade sanctions on a range of Australia’s exports following Canberra’s call last year for an inquiry into the origins of Covid-19 in Wuhan.

Frydenberg insisted that Australian ministers were prepared to sit down with their Chinese counterparts to discuss the bilateral relationship but only on a “no conditions attached” basis.

“It is a mutually beneficial trading relationship — we supply the bulk of their iron ore and that iron ore has helped underpin their economic growth,” he said.

Frydenberg is a rising star in Australia’s conservative government and is tipped as a future prime minister.

Last week, he shot to global attention following several days of negotiation with Facebook’s Mark Zuckerberg over the social media company’s decision to block news on its platforms in Australia in response to a law forcing it to pay news publishers.

On Friday, Facebook “refriended Australia” and returned news to its Australian platform following amendments that may make it easier for the company to avoid the toughest elements of the law.

“Trying to negotiate with these guys is a bit like playing chess against a chess master,” said Frydenberg, who joked that he spoke to Zuckerberg more than his own wife last week.

“The reality is they are massive companies with huge balance sheets and global reach. If this was easy other countries would have done it [made Big Tech pay for news] long ago.” 

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