The Economist - USA (2019-11-02)

66 Finance & economics The EconomistNovember 2nd 2019

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allocatedtoAmericaproduceonly$527m

inannualprofit.

Thebank’smanagementhassofarde-

clinedtoprovideanyguidanceastowhere

newlyreleasedcapitalmightbesent.hsbc

isalreadythelargestcorporatelenderin

Asiabymarketpenetration,accordingto

GreenwichAssociates,a researchfirm.And

gettingmoredeeplyintoChinamayprove

tricky.InAugusthsbcwasomittedfroma

listofbankshelpingBeijingseta newin-

terest-ratebenchmark.Thatsuggeststhe

Chineseregulator maybe shunning the

bankoveritsroleinassistinganAmerican

investigationintoa keyexecutiveatHua-

wei,aChinesetelecomsfirm.Other dy-

namicmarkets,likeVietnamandIndone-

sia,aretinybycomparison.

Therearealsolimitstohowmuchhsbc

canrejigitsvariouslinesofbusiness.Its

strengthintradefinancehassofarfailedto

translateintocloutininvestmentbanking.

Globalcapitalmarketsaremorelucrative,

butvolatile.In 2018 hsbclauncheda new

motto,“TogetherWeThrive”.Itsdifficul-

tiesmayhavemoretodowiththisgrand

ambitionthanwithexternalforces.Bytry-

ingtodotoomuchfortoomanypeoplein

toomanyplaces,ithasseenitsreturnsdi-

luted.Yetevenforitscandidinterimboss,

thatconclusionmayberathertooblunt. 7

A

s trade talks continue between

America and China, old fights are rum-

bling on. On October 28th China asked the

World Trade Organisation (wto) to allow it

to retaliate against $2.4bn of imports from

America, as part of a long-running dispute

over American treatment of Chinese ex-

ports. The final sum will be set by an arbi-

trator, and will be small in the broader con-

text of the two countries’ escalating trade

war. But the symbolism will make it sting.

The dispute concerns two of America’s

biggest gripes: China’s economic model

and the wto’s inability to constrain it.

America accuses China’s government of

bloating its private sector with subsidies,

which spill over to affect businesses

abroad. If state-owned banks make cut-

price loans, or state-owned electricity

companies sell cheap energy, Chinese ex-

porters have an unfair advantage, it says. By

last year America had imposed tariffs on al-

most 7% of Chinese imports, citing such

subsidies and the need to defend itself.

Americans argue that if Chinese state

institutionsholda majority stake in a com-

pany, this strongly suggests it is a “public

body” and therefore capable of giving sub-

sidies. But the wto’s appellate body has

generally disagreed. It has also often

backed China’s stance that America’s de-

fensive duties are too harsh.

The United States Trade Representative,

America’s main trade negotiator, attacked

the most recent such judgment, in July.

Such decisions, it said, illustrated its con-

cerns with the way that the wtoresolves

disputes. In an attempt to force a change of

approach, it is blocking appointments to

the wto’s appellate body. But bringing the

body to a standstill would do nothing to

solve the rows that have brought America

and China before it again and again. That

would require them to agree on what

counts as a public body, and when defen-

sive tariffs are allowable. Even better would

be a deal to limit subsidies, which might be

added to the wto’s rules.

Unfortunately American and Chinese

negotiators, who are currently trying to

strike a “phase one” deal that could bring a

ceasefire in the broader trade war, are not

even discussing these thorny issues. Mean-

while American sanctions against Huawei,

a Chinese telecoms firm, have amplified

those voices within China that are calling

for even more subsidies.

In the long run subsidies are hard to

tackle bilaterally, since any benefits can be

undone if an unconstrained third country

boosts its handouts in response. American

officials have been discussing what new

multilateral rules could look like with

European and Japanese officials, but with-

out much visible progress. And even if the

trio agreed on something, China might not

play along. On October 26th a forum that

was supposed to address steel subsidies

collapsed, in part because the Chinese

withdrew. Tariffs it is, then. 7

WASHINGTON, DC

Despite talk of a trade ceasefire,

America and China spar at the wto

Another trade fight

Spilling over

Going nowhere

T

urkey’s president, Recep Tayyip Er-

dogan, once called high interest rates

“the mother of all evil”. Murat Uysal, its

new central-bank governor, must then be

close to angelic. Since Mr Erdogan sacked

Mr Uysal’s predecessor four months ago for

refusing to slash interest rates, he has cut

three times, by a cumulative ten percent-

age points (see chart). The latest cut, of 2.5

percentage points on October 24th, was

more than double market expectations.

After last year’s aggressive tightening,

easing now makes some sense. Inflation is

back in single digits, after passing 25% last

autumn. The lira has partially recovered

from a battering that had pushed domestic

prices up. In early October America threat-

ened sanctions in response to Turkey’s of-

fensive in Syria. The lira slumped, but after

America brokered a ceasefire deal on Octo-

ber 17th, it steadied again. It strengthened

further when Turkey’s and Russia’s presi-

dents signed a similar agreement. That

gave the bank room for the most recent cut.

Turkey crawled out of recession at the

start of the year, but credit growth is still

weak. Companies with hard-currency debt

have been unable to borrow, and banks sit-

ting on $20bn-worth of non-performing

loans (npls) have been reluctant to lend.

Monetary policy alone will not fix the

economy, says Selva Demiralp of Koc Uni-

versity: “Turkey needs to find a solution to

the npl problem first.” In September the

government ordered banks to reclassify

debt of 46bn lira ($8bn) as bad loans. But

doubts remain as to how banks will clear

these loans from their balance-sheets.

The economy remains vulnerable to

outside shocks. On October 29th America’s

ISTANBUL

Inflation has come down, but the

economy remains vulnerable

Turkey’s tottering economy

By a thousand cuts

Sorry decline

Sources: Haver Analytics; Central Bank of the Republic of Turkey

Tu r ke y

2018 2019

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Policy interest rate, %

Consumer prices,

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