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US warns Beijing over incursion into Taiwanese air defence zone

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The US has urged China to stop intimidating Taiwan after Chinese fighter jets and bombers flew into the country’s air defence zone, in the second warning to Beijing since Joe Biden became US president on Wednesday.

“We urge Beijing to cease its military, diplomatic and economic pressure against Taiwan and instead engage in meaningful dialogue with Taiwan’s democratically elected representatives,” the US state department said.

Taiwan said four Chinese J-16 fighter jets, six H-6 bombers and one anti-submarine aircraft had entered its “air defence identification zone” on Saturday. Taiwanese media on Sunday reported that another group of Chinese military aircraft had also harassed the country’s air defences.

Ned Price, state department spokesperson, said the US was concerned about China’s “pattern” of intimidating Taiwan — and other neighbours — and reminded Beijing that the US relationship with Taipei was “rock solid”.

The warning came three days after the US presidential inauguration, which was attended by Hsiao Bi-khim, Taiwan’s representative to the US. The invitation marked the first time that a de facto Taiwanese ambassador to Washington had attended an American presidential inauguration.

Saturday’s incursion was the largest in more than four months. It included the biggest number of Chinese bombers entering Taiwan’s air defence identification zone in several years. It was the most significant since China sent 16 fighters, accompanied by bombers and spy planes, across the unofficial median line in the Taiwan Strait for two straight days in September when Keith Krach, a then senior US official, was visiting Taipei.

The state department statement marked the second time the Biden administration has criticised Beijing, underscoring how the US-China relationship will be one of the biggest challenges for the new president. The White House his week criticised Beijing for sanctioning 28 Americans, including Mike Pompeo, the former secretary of state. 

Ahead of the US election, some critics had expressed concern that Mr Biden would not take an assertive stand towards China. But his team has already shown signs it will take China to task over a range of issues, including the repression of Muslim Uighurs in Xinjiang, the intimidation of Taiwan, and Beijing’s clampdown on the pro-democracy movement in Hong Kong.

Last month, Jake Sullivan, now national security adviser, said he was “deeply concerned” about the arrests of pro-democracy activists in Hong Kong, and accused China of conducting an “assault on Hong Kong’s freedoms”.

Appearing before the US Senate for their confirmation hearings this week, Tony Blinken, the nominee for secretary of state, and Avril Haines, the newly installed director of national intelligence, said Washington needed to take a harsher stance towards China. Mr Blinken said he disagreed with the way Donald Trump had implemented his hawkish China policy but that the former president “was right in taking a tougher approach”.

China, which claims sovereignty over Taiwan and threatens to invade the island if Taipei refuses indefinitely to submit to its control, started crossing the Taiwan Strait with military aircraft regularly in March 2019, something both sides had largely avoided for the preceding two decades.

Over the past year, the PLA has started flying almost daily sorties into the south-western corner of Taiwan’s air defence identification zone, an important transit area between the Chinese coast, the western Pacific and the South China Sea.

But according to reports from Taiwan’s defence minister, the vast majority of the sorties are by one to three surveillance or anti-submarine warfare aircraft. Only during visits by then US secretary of health Alex Azar and Mr Krach last year did China send larger number of planes including fighters.

Taiwanese observers believe China’s latest sortie might be a signal of its displeasure over Ms Hsiao’s invitation to the inauguration.

Follow Demetri Sevastopulo and Kathrin Hille on Twitter

*This article has been amended to correct Jake Sullivan’s name





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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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