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America’s disarray is China’s opportunity

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On January 20 1961, John F Kennedy, America’s youngest ever elected president, gave his inaugural address from the steps of the Capitol. Exactly 60 years later Joe Biden, America’s oldest ever president, will be sworn in at the same place — just days after it was stormed by a riotous mob.

Kennedy used the magisterial backdrop of Congress to proclaim that the “torch has passed to a new generation”. Mr Biden is the representative of an older generation — one that now fears the torch of liberty is in danger of being extinguished, even in the US itself.

Watching Kennedy’s address again, it is striking how much of it was addressed not to the American people, but to the leaders of the Soviet Union. JFK was speaking at the height of the cold war. Much of the American elite now believes that the US is on the brink of a second cold war — this time with China. But, unlike Kennedy, Mr Biden cannot promise to “pay any price, bear any burden” to ensure the “survival and success of liberty” around the world.

The president-elect and his advisers know that their most important task is to ensure the survival and success of liberty in the US itself. The country is reeling from the twin impact of a pandemic and the Trump presidency — as well as a generation’s worth of festering social and economic problems.

America’s disarray is China’s opportunity. As part of a planned pushback against China, Mr Biden had planned to call a summit of the world’s democracies. But, after an attempted coup d’état by a sitting president, America may lack the credibility to act as convener of the free world. Mr Biden’s democracy summit is likely to be quietly shelved in favour of a D10 meeting of 10 democracies, brought together by the UK.

A large part of America’s emerging struggle with China will be a battle for economic influence around the world. When 2019 ended, 128 of 190 countries in the world already traded more with China than with the US. China’s centrality to the global trading system will increase this year — with the World Bank projecting the Chinese economy to grow at around 8 per cent compared to 3.5 per cent for the US.

The Americans are also in a struggle with China to shape the technical standards and regulations that govern the world economy. The US needs new tools that go beyond the coercive power of sanctions.

But the Biden team, alarmed by the rise of populism and protectionism within the country, have made it clear that America is unlikely to sign any new trade deals for a while — which will make it harder to expand US influence.

China, by contrast, has recently signed two major new trade deals. The EU-China investment deal was agreed in December. The Regional Comprehensive Economic Partnership (RCEP) — a free-trade deal between 15 Asian nations, including Japan and South Korea — was agreed in November.

The battle for influence and prestige — or soft power — is also likely to be reshaped by the recent scenes in Washington. On the night of the storming of the Capitol, Richard Haass, the president of the Council on Foreign Relations, the epitome of the American establishment, tweeted despairingly that: “No one in the world is likely to see, respect, fear, or depend on us in the same way again. If the post-American era has a start date, it is almost certainly today.”

China’s own prestige and popularity have also suffered badly over the past year, as a result of the coronavirus pandemic, and its aggression towards countries such as India and Australia. Last week, the advocacy group Human Rights Watch reported that the past year has been “the darkest period for human rights in China since the 1989 massacre that ended the Tiananmen Square democracy movement”. The report highlighted the crackdown in Hong Kong, internment camps in Xinjiang and increased repression of dissidents, in the wake of the pandemic.

But while China may not be much loved overseas, it looks relatively confident and stable compared with the US — an image that will be carefully burnished by this year’s celebrations to mark the centenary of the foundation of the Chinese Communist party.

The contrast between the current states of China and America brings to mind Osama bin Laden’s sinister aphorism: “When people see a strong horse and a weak horse, by nature they will like the strong horse.”

Many political liberals, horrified by the rise of an authoritarian superpower, argue that the Chinese horse is actually much weaker than it appears. That may prove to be true. But there is also an element of wishful thinking in that view. A dispassionate assessment of world affairs, as it stands, cannot avoid the conclusion that the US is currently in deep trouble — and China is well placed to take advantage of that.

It is not just in China that the principles of political liberty, so stirringly championed by Kennedy, are under assault. This weekend’s arrest of Alexei Navalny, the Russian opposition leader, on his return to Moscow — illustrates the sense of impunity felt by President Vladimir Putin in Russia.

President Donald Trump has been notably reluctant to speak out against human-rights abuses by Mr Putin and others. Mr Biden will not be so reticent. But his voice is unlikely to carry the strength and conviction of John F Kennedy’s clarion call of 60 years ago.

gideon.rachman@ft.com





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Emerging Markets

Bond sell-off roils markets, ex-Petrobras chief hits back, Ghana’s first Covax vaccines

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The yield on the benchmark 10-year Treasury exceeded 1.5 per cent for the first time in a year and the outgoing head of Petrobras warns Brazil’s President Jair Bolsonaro against state controlled fuel prices. Plus, the FT’s Africa editor, David Pilling, discusses the Covax vaccine rollout in low-income countries. 

Wall Street stocks sell off as government bond rout accelerates

https://www.ft.com/content/ea46ee81-89a2-4f23-aeff-2a099c02432c

Ousted Petrobras chief hits back at Bolsonaro 

https://www.ft.com/content/1cd6c9fb-3201-4815-9f4f-61a4f0881856?

Africa will pay more for Russian Covid vaccine than ‘western’ jabs

https://www.ft.com/content/ffe40c7d-c418-4a93-a202-5ee996434de7


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Petrobras/Bolsonaro: bossa boots | Financial Times

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“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

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South Africa’s economy is ‘dangerously overstretched’, officials warn

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South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 



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