4 ★ FINANCIAL TIMES Tuesday 27 August 2019A M Y K A Z M I N— NEW DELHIThe Reserve Bank of India has app-
roved the transfer of $24.7bn in divi-
dends and “surplus capital” to the gov-
ernment in an unprecedented payout
that will help Narendra Modi shore up
the country’s fragile public finances
but intensify concerns over the central
bank’s independence.The move follows last year’s confronta-
tion between the premier’s administra-
tion and Urjit Patel, former RBI gover-
nor, whose resistance to what he consid-
ered an attempted raid on the RBI cof-
fers by the government cost him his job.
“The central bank is losing its func-
tional autonomy and essentially becom-
ing a piggy bank for the government,”
said Vivek Dehejia, a Carleton Univer-
sity economics professor, who has fol-
lowed the battle over the reserve issue.
“The medium- and long-term conse-
quences are a loss of the central bank’s
credibility,” he said. “Investors... will
say the central bank is totally under the
control of the government. This can’t
possibly be good for the economy.”The RBI said yesterday it had app-
roved the transfer of $17.3bn as surplus
from the just concluded financial year,
as well as an extra $7.4bn in excess res-
erves. It said the transfer was consistent
with a new economic capital framework
it had just adopted that would ensure its
resilience, “as would be expected of a
central bank of one of the fastest-grow-
ing large economies in the world”.
Tensions over the use of RBI reservesexploded into public view in October
when Viral Acharya, then deputy cen-
tral bank governor, warned of “poten-
tially catastrophic consequences” of
New Delhi’s intensifying efforts to influ-
ence RBI policy, particularly its desire to
commandeer a large chunk of reserves.
Two months later Mr Patel resigned,
paving the way for Mr Modi’s govern-
ment to appoint Shaktikanta Das. Mr
Acharya has returned to academia.
The transfer announcement comes as
Mr Modi’s government is facing mount-
ing pressure to stimulate the faltering
economy after four consecutive quar-
ters of decelerating growth. Questions
have also been raised about the likeli-
hood that it will be able to meet its
reduced fiscal deficit target.
New Delhi has made vast spending
commitments for its social welfare and
income support programmes, yet tax
revenues are falling short of projections
as the economy falters.
The infusion of cash will help p lug the
financial gap and aid the financing of
stimulus measures in the coming days.
Additional reporting by Jyotsna SinghIndia
Modi lifted by central bank’s $24bn payout
Reserve Bank of India: cash infusion
will intensify independence worriesJA M E S KY N G E— HONG KONG
JA M E S P O L I T I— WASHINGTONSenior US senators are demanding that
one of the biggest government pension
funds reverse a decision that is set to
channel billions of dollars into funding
Chinese companies they say support
Beijing’s military, espionage and domes-
tic security efforts.
The call shows how the US-China riv-
alry, which has so far focused mainly on
trade war tension, is spreading furtherinto the arena of financial markets.
Senators Marco Rubio, a Republican,
and Jeanne Shaheen, a Democrat, told
Michael Kennedy, chairman of the Fed-
eral Retirement Thrift Investment
Board, in a letter that his fund is sup-
porting Chinese state-owned companies
with “the paychecks of members of the
US armed services and other federal
government employees”.
The letter, a copy of which was seen by
the Financial Times, said an impending
investment shift by the FRTIB would
mean that about $50bn in US govern-
ment pensions becomes exposed
to the “severe and undisclosed” risks of
being invested in selected Chinese
companies.Yesterday’s letter was copied to US
officials including Mike Pompeo, US sec-
retary of state, and Steven Mnuchin,
Treasury secretary.
“The Federal Retirement Thrift
Investment Board made a short-sighted
and foolish decision to effectively fund
the Chinese government and Commu-
nist party’s efforts to undermine US eco-
nomic and national security with the
retirement savings of members of the
US armed services and other federal
employees,” Mr Rubio said. “The board
should publicly reverse this decision
immediately,” he added.
The FRTIB did not respond to
requests for comment.
Mr Rubio, a senior member of theSenate foreign relations committee and
a China hawk, has led a push against
Chinese companies with ties to its intel-
ligence and military. Mrs Shaheen is on
the Senate armed services committee.
The FRTIB manages about $578bn in
assets in its Thrift Savings Plan and has
about 5.5m participants, ranking as one
of the US’s largest retirement funds.
Under a 2017 decision to change its
strategy, a key portfolio is set to be shif-
ted next year into the MSCI All Country
World ex-USA Investable Market Index
(ACWI ex-US IMI), which includes sev-
eral controversial Chinese companies.
When funds invest in an index, they
tend to mirror the selection of stocks
that comprise the index. Some 7.6 percent of the ACWI ex-USA IMI is of Chi-
nese companies.
The senators said the MSCI ACWI or
its sub-indices include Hong Kong-
listedAviChina Industry and Technol-
ogy, an arm of AVIC, which develops
equipment and weapons systems for the
People’s Liberation Army Air Force. It
added that the index includedChina
Mobile, which the US Federal Commu-
nications Commission voted to bar from
entering the US market on national sec-
urity grounds earlier this year.
HangzhouHikvision, a state-owned
company that sells surveillance cam-
eras to detainment camps, is also part of
the index, or its sub-indices, the letter
said.Senators’ letter
Pension fund warned on China plans
Politicians fear US workers’
retirement pots will boost
Beijing security strategiesR O M A N O L E A R C H Y K— LVIV
JA M E S S H OT T E R— WARSAW
The dilapidated façade of Lviv’s interna-
tional bus station is draped with a ban-
ner advertising the new developments
that are mushrooming across the prai-
ries of western Ukraine as cash from
locals abroad floods into the property
market.
Ukraine is Europe’s biggest recipient
of remittances in proportion to the size
of its economy. More than 11 per cent of
Ukraine’s gross domestic product comes
from remittances and its 5m-strong
workforce abroad last year sent home a
record $14.4bn through wire transfers
and cash carried across the border.
The lion’s share of these workers are
from Ukraine’s western regions around
Lviv, the 1m-strong provincial capital an
hour’s drive from Poland, where there is
a two-decade-old tradition of working
both seasonal and long-term jobs across
the border, from construction to vegeta-
ble picking.
A widespread distrust of local banks
means that workers abroad are pouring
their cash into other assets, particularly
property. High-rise apartment com-
plexes are sprouting up around Lviv and
developers say migrant labourers are
some of their biggest customers.
“I purchased a brand-new apartment
last year... paying $42,000 in cash,”
said 27-year-old Serhiy before he
boarded a bus back to Warsaw. For
nearly three years he has earned $1,
a month by cooking in a Polish restau-
rant, nearly triple what local venues
pay.
“I would never have been able with
the local salary to buy a flat of my own
for my wife and baby,” he said.
“I’m going back now after a two-week
visit to my family as I need money to do
the interior... [but] I want to ulti-
mately live and work at home, maybe
opening up my own restaurant.”
Between 1m and 2m Ukrainians work
in Poland, drawn by a combination of
linguistic ties, geographical conven-
ience, higher wages and better eco-
nomic prospects. Salaries are three
times higher than back home, and gaps
left by young Poles heading to western
Europe have caused labour shortages.
As western Ukrainian emigrants pushintroduced in 2017 and free trade and
association agreements with Brussels
made it easier for workers to go abroad.
“We are integrating with the EU,
including the labour market... This
is creating pressure to raise salaries,”
he said.
Investment Capital Ukraine analyst
Mykhaylo Demkiv emphasised the ben-
efits of working abroad: the experience
has a “very important educational
effect” that increased productivity of
the workers that returned, he said.
That view is echoed by Ukraine’s
workers too. Back on Mykolaiv’s out-
skirts, construction workers hired to
erect brick pillars for a new home’s
fence ponder how to return to Poland.
Both are close to finishing new family
homes of their own.
“It’s good that [migrant labourers]
are bringing this money back and build-
ing these homes because it creates jobs,
but we get paid several times more for
this line of work in Poland,” said Roman.
Having recently worked in a Polish
coal mine, his co-worker Ihor con-
curred: “I’m awaiting a fresh invitation
to work again in Poland.”
This is part of a series on remittances. For
previous articles go to ft.com/cash-trailsTO M H A N C O C K— SHANGHAIInvestments by US companies in China
have grown this year despite the wors-
ening trade war between Beijing and
Washington, with American busi-
nesses lured by the country’s expand-
ing consumer market.US companies invested $6.8bn into
China in the first half of the year, up 1.
per cent from the average during the
same period over the past two years,
according to the Rhodium Group, a con-
sultancy.
Most of that total went into greenfield
projects, such as electric vehicle maker
Tesla’s factory in Shanghai, which will
be the first wholly foreign-owned auto
plant in China. Other large deals
included US fundBain Capital’s $570m
investment in data centre provider Bei-
jing Qinhuai.
“Companies we speak to are still
investing and many are expanding to
second and third-tier cities,” said Ker
Gibbs, head of the American Chamber
of Commerce in Shanghai. “They tell us
that the China consumer growth story is
still strong.”
The data underline the conflict
between the strategy of many US busi-
nesses and the rhetoric of President
Donald Trump, who on Friday said he
had “ordered” American companies to
leave China.
The Rhodium Group said that most of
the US investment this year had come
from multiyear construction projects. It
said there had been some drop in the
value of newly announced projects, par-
ticularly in the information and com-
munications technology sector this
year, in part due to the trade war.
The Rhodium Group figures differed
from official data from China’s Ministry
of Commerce, which estimated that US
FDI fell 15 per cent in the first half of this
year, down from $1.9bn a year earlier.
However, analysts said the Ministry of
Commerce figures missed a number of
projects while the Rhodium methodol-
ogy was considered more reliable.
“Our experience is that local govern-
ments are still very welcoming of Amer-
ican and other foreign investment. They
often go out of their way to help compa-
nies,” said Amcham’s Mr Gibbs.
Commercial real estate has become
popular with foreign investors as fund-
ing constraints on domestic developers
reduce valuations in the sector. Foreign
investors announced deals worth $6.7bn
in the first half of this year, according to
consultancy CBRE, up from $2.6bn in
the same period last year.
While many manufacturers once saw
China as an export hub, an increasing
number are producing for domestic
consumers.
According to an Amcham China sur-
vey in May, 35 per cent of US companies
in China said they were adopting an “in
China, for China” strategy to cope with
the impact of tariffs.
Nikesaid in June it would “expand
production in China for China”, while US
chemical companyDowin June broke
ground on a new silicone resin plant in
eastern China to meet growing needs for
high-performance materials in China.
“Fortune 1000 companies in any-
thing to do with high-end manufactur-
ing... are doing deals and expanding
their China operations,” said James
McGregor, greater China chairman at
consultancy Apco. “They know that
China will continue to be the world's
most active manufacturing centre.”Consumer market
Investment by
US companies
belies Beijing
trade dispute
FT series. Cash Trails
Ukrainians abroad pile into property back home
Five million migrant workers
returned a record $14.4bn last
year, boosting housebuilding
across the street to an imposing villa
with columns at its entrance and a castle
tower.
She added: “That one is being built by
a young couple working in France. The
owners of that house make money in the
Czech Republic... the one across the
street, they also work in Czech Republic.
“The one over there, they worked for
years in Russia but now are going to
Europe for work to finish the house. The
first one on the street over there is built
on money earned in Poland.”
Some residents did not want to talk to
journalists as they feared drawing tax
office attention to their overseas
income, Ms Fedoriv added.
With so many Ukrainians working
abroad, manufacturers who have built
Ukrainian factories to try to benefit
from the country’s low cost of labour are
struggling to find enough hands.
“The migration of Ukraine’s work-
force has both positive and negative eco-
nomic and social consequences,” said
Ukraine’s social policy ministry, citing
domestic labour shortages and hard
currency inflows.
Andriy Beyzyk, managing partner of
Western Ukrainian Management Con-
sulting, said a regional visa-free regimedeeper into Europe in search of higher
wages, they are being followed by a sec-
ond wave of migrant workers fleeing
Ukraine’s war-scarred east. Govern-
ment forces’ battle with Russia-backed
separatists has reached its fifth year.
Russian, their commonly spoken lan-
guage, is increasingly heard in Warsaw
and other Polish cities.
“The percentage who come here from
eastern and southern Ukraine has
increased,” said Myroslava Keryk, head
of Fundacja Nasz Wybor, a Warsaw-
based foundation that supports Ukrain-
ians in Poland.
“Previously it was mainly western
Ukrainians. Usually they go back and
forth [across the border].”
On the outskirts of Mykolaiv, a town
of 14,000 in western Ukraine’s farming
country where generations grew up in
traditional one-storey homes, many
luxurious new properties are under con-
struction. Roma Fedoriv, a local resi-
dent, estimated that half of them were
being financed by workers abroad.
“This one is Italy... the woman
worked for many years in Italy to sup-
port her family here, then married an
Italian and this house started to go up
about five years ago,” she said, pointingRural retreat:
a cow passes
through the
west Ukrainian
village of
Krups’ke, where
a new home is
being built using
money from
workers abroad,
next to a
traditional
cottage
Gaelle Girbes‘We are
integratingwith the EU,
includingthe labour
market.This is
creatingpressure
to raisesalaries’
I N T E R N AT I O N A L
JA M I E S M Y T H— SYDNEYAustralia’s opposition Labor party has
become embroiled in a controversy
over claims it attempted to conceal a
A$100,000 donation from Huang
Xiangmo, a billionaire who was been
barred from the country over his
alleged links to Beijing.The disclosure at a corruption inquiry
yesterday is the latest in a series of high-
profile cases involving donations by Chi-
nese billionaires to political parties in
Australia, a trend that has caused alarm
withinsecurity circles and prompted
the government to pass new laws to curb
foreign influence last year.
The inquiry heard yesterday that Mr
Huang, a property developer, delivered
a shopping bag stuffed with A$100,
in cash to the New South Wales Labor
party’s headquarters shortly after a fun-
draising dinner in 2015. The party later
reported the donation was from numer-
ous separate donors, including several
employees of a Chinese restaurant
where the dinner was held.
But the Independent CommissionAgainst Corruption of New South Wales
is investigating whether the party delib-
erately concealed the true identity of
the donor to circumvent political dona-
tion laws that bar developers from
donating to politics.
In a tragic twist on the opening day of
public hearings, the inquiry heard how
one of the potential witnesses, Leo Liao,
deputy general manager ofWu Interna-
tional, a property developer, had com-
mitted suicide on the weekend before he
was due to give evidence.
In 2016, Mr Huang was at the centre of
a previous scandal involving Sam Dast-
yari, a Labor party MP who accepted
thousands of dollars in donations from
Mr Huang’sYuhu Group, after it
emerged the former lawmaker had
called for Australia to respect China’s
territorial claims in the South China Sea,
a position contrary to that of his party.
Mr Dastyari resigned following a
political storm. In February, the Aus-
tralian government cancelled Mr
Huang’s permanent residency visa in a
move that reflected Canberra’s increas-
ing concern about Beijing’s attempts toinfluence domestic politics, in effect
stranding the property developer in
Hong Kong.
Mr Huang made his fortune in prop-
erty development in China, before mov-
ing to Australia in 2011. Since then he
has given more than A$1m in donations
to the Liberal and Labor parties, either
directly or in payments made by family
members, his company or Yuhu staff.
He is a former president of the Aus-
tralian Council for the Peaceful Reunifi-
cation of China, a group with links to
China’s Communist party. Mr Huang
has previously told the Financial Times
that media claims that he had strong
links to the CCP were “mischievous and
grossly exaggerated”.
The NSW Australian Labor party said:
“The NSW ALP is doing everything it
can to assist the commission with its
inquiries. If any breaches of the law by
party officers emerge, these are not con-
doned by the ALP and appropriate
action will be taken.”
Yuhu Group Australia did not imme-
diately respond to a request for Mr
Huang to comment.Corruption inquiry
Australia Labor party accused over donation
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