The_Wall_Street_Journal_Asia__September_13_2016

A2| Tuesday, September 13, 2016 THE WALL STREET JOURNAL.

WORLD NEWS

cials. “There was a clear mes-
sage from up top: Let them
fall,” said the official. He said
Chinese companies were mov-
ing employees to Colombia
and Panama for personal-
safety reasons and because
many Chinese-led projects
have ground to a halt.
Since February, at least
three Venezuelan opposition
lawmakers as well as econo-
mists and oil-industry consul-
tants have gone to Beijing at
the invitation of China’s Com-
munist Party to discuss a tran-
sitional government and re-
covery plan to turn around the
world’s worst-performing
economy, according to several
Chinese and Venezuelan peo-
ple familiar with the talks. The
International Monetary Fund
estimates Venezuela’s econ-
omy declined by nearly 6% last
year and will contract 10% this
year.
China is still owed about
$20 billion of the $60 billion it
has lent, these people said, and
is concerned about corruption
and misappropriation of its de-
velopment funds. It also wants
guarantees that its invest-
ments in Venezuela will be re-
spected by the opposition amid
a fast-deteriorating situation
involving food riots and ram-
pant crime.
China’s Foreign Ministry de-
nied in a written statement that
it has been rethinking its rela-
tionship with Venezuela. It said
the Chinese government has re-
peatedly reminded its citizens
and companies in the country
to raise their safety awareness.
The loans Chinese financial in-
stitutions have provided, it
said, were commercially driven
and have “brought about prac-
tical benefits for both sides.”
Venezuela’s foreign ministry
didn’t respond to requests to

ContinuedfromPageOne

icy maker world may be evolv-

ing, but broadly speaking we’re

still dealing with the same un-

derlying fundamentals and

that’s not likely to change,” said

Charlie Diebel, head of interest

rates at Aviva Investors.

Last year’s tantrum came at

a time when investors were

more confident that central

bank’s quantitative-easing pro-

grams would work, particularly

in Europe. That meant that in-

vestors thought the ECB’s bond-

buying was transitory, said Jack

Kelly, an investment director at

Standard Life Investments.

“Skepticism over the effec-

tiveness of QE is more en-

trenched this year and wage in-

to 23290.60, its biggest drop
since February, and Japan’s Nik-
kei Stock Average fell 1.7% to
16672.92. The Stoxx Europe 600
index declined 1% to 342.23.
U.S. stocks, however, turned
higher. The Dow Jones Indus-
trial Average was up 69.
points, or 0.4%, at 18154.85 in
midday New York trading.
The increase in government-
bond yields reverses only a por-
tion of the tremendous drop re-
corded in recent years as
central banks kept interest
rates at record lows, or knocked
them into negative territory,
and some launched huge bond-
buying programs.
At the start of 2016, yields in
the U.S., the U.K., Germany and
Japan were all higher than they
are today.
The recent selloff started on
Thursday after European Cen-
tral Bank President Mario
Draghi declined to commit to
extending the bank’s €80 billion
($89.9 billion) monthly asset
purchases, which are currently
slated to end in March 2017.
Investors are also concerned

ContinuedfromPageOne

Brian Bolke is the president

and co-founder of Dallas bou-

tique Forty Five Ten. An Off

Duty article in the Friday-Sun-

day edition about new fashion

trends inspired by the 1980s

incorrectly said he also is CEO.

CORRECTIONS 

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Readers can alert The Wall Street

Journal to any errors in news articles

by emailing [email protected].

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that the Bank of Japan is near-

ing the limit of its bond-buying

program and may reduce its

purchases of the country’s long-

dated government debt.

That has upended a convic-

tion that has shaped financial

markets over the last two years:

that central banks would keep

on easing monetary policy.

“Nobody has been buying on

[economic] fundamentals, but

on [market] technicals,” said

Mark Dowding, co-head of in-

vestment-grade at BlueBay As-

set Management. “And the

dominant technical has been

central banks being massive

buyers of assets.”

Investors are looking at past

“tantrums” for clues to how

this selloff may play out.

In spring 2015, sovereign

bonds around the world also

fell sharply and Germany was

again the focus. Then, the yield

on the 10-year German bund

rose from just above zero in

late April to just below 1% in

early June as prices plunged.

That selloff wasn’t driven by

any particular market event or

economic reversal. But yields

soon began to fall again.

While the increase in yields

this time around has, so far,

been smaller, investors do ex-

pect it to continue.

Francesco Garzarelli, co-head

of global macro and markets re-

search at Goldman Sachs, pre-

dicts the 10-year Treasury yield

will rise to 2% by year-end.

BlueBay’s Mr. Dowding said 10-

year German yields could rise

another 0.2 to 0.3 percentage

point.

“In relation to expectations

for the economy, these bond

yields are very low. They got

ridiculously low in the after-

math of Brexit,” Mr. Garzarelli

said.

“We’ve now passed the most

extreme valuation levels, but

we’re still at levels that look

quite dire relative to the macro

outlook.”

But many investors don’t ex-

pect the sort of big move in

yields that happened in spring

last year.

That is because the factors

that have encouraged central

banks to act—slow growth and

low inflation—haven't gone

away, particularly in the euro-

zone and Japan. Central-bank

bond buying is aimed at boost-

ing growth and inflation by

pushing investors into riskier

assets, and prodding banks into

lending more.

“Yes the [central bank] pol-

flation is simply not coming

through,” he said.

The depth of the current

move in bond markets will de-

pend on central banks, the in-

stitutions that inspired the

original reaction.

Investors are particularly

concerned over the Bank of

Japan’s Sept. 21 meeting, when

officials will reveal their assess-

ment of the central bank’s cur-

rent policies.

Analysts are watching to see

whether the bank will defend or

backtrack on its policy of nega-

tive interest rates, which was

announced in January this year

and has helped keep yields low.

The U.S. Federal Reserve is

meeting on the same day. Inves-

tors will be watching closely for

clues as to whether the Fed will

increase rates before the end of

the year.

Themos Fiotakis, co-head of

fixed-income strategy at UBS,

believes that yields will rise “a

little further” but predicts that

the current era of low yields

will continue.

Markets, though, “can still

move violently,” Mr. Fiotakis

added. “Any hint that the ECB

may not be quite as dovish as

the market thinks is enough to

cause a selloff.”

BONDS

$50.

0.

10.

20.

30.

40.

trillion

2013 ’14 ’15 ’

Global stock of

negative-yielding debt

10-year government-

bond yields

Moving Higher

Bond yields are on the rise as investors question whether the stock

of global negative-yielding debt has grown too much.

Japan

Germany

Source: Bank of America Merrill Lynch (negative yields);

Thomson Reuters (bonds, as of 9:30 a.m. ET) THE WALL STREET JOURNAL.

Positive-yielding

Negative-yielding

0.

–0.

–0.

–0.

0.

0.

%

June July Aug. Sept.

comment. Venezuelan President

Nicolás Maduro recently told a

visiting Chinese business delega-

tion: “We value very much this

extraordinary relationship with

the People’s Republic of China.”

Security risks are growing for

Chinese expatriates, a long-estab-

lished merchant class here. They

have become targets for kidnap-

pers and extortion rings, prompt-

ing many to leave the country.

Venezuela has the world’s

second-highest murder rate, ac-

cording to the independent

Venezuela Violence Observa-

tory. Many recently arrived

Chinese state workers rarely

venture out from where they

live and work.

“At all levels in China,

there’s a huge worry about

what is happening in Venezu-

ela and an understanding that

a change in government is

needed,” said one person fa-

miliar with the discussions in

Beijing.

How China plays its Venezu-

ela hand could have ramifica-

tions across Latin America and

Africa, where resources-rich

countries turned to Chinese fi-

nancing during the commodi-

ties boom, said Diego Moya-Oc-

ampos, analyst with the risk

consultancy IHS.

Bilateral talks in Caracas in

August produced a commit-

ment from China for only a few

thousand vans and trucks to

help ease shortages, the Vene-

zuelan government announced,

but no big loans.

During the meetings in

China, Venezuela’s opposition

offered assurances that Beijing’s

loans would be recognized, hop-

ing to keep the door open to

more credit if a new govern-

ment comes to power, said the

people familiar with the talks.

“We can’t afford to lose the

privileged relationship we’ve de-

veloped with China,” one said.

The Chinese government and

Venezuela’s opposition both

want to make future invest-

ment deals more transparent

and subject to approval from

Venezuela’s president as well as

the opposition-controlled Na-

tional Assembly—a bid to en-

sure their survival should the

opposition take over.

Relations blossomed under

former President Chávez. Cheap

Chinese mobile phones, motor-

cycles and home-building mate-

rials helped Venezuela’s gov-

ernment win support among

the poor. Venezuela welcomed

thousands of Chinese techni-

cians to work on infrastructure

ventures, largely paid for with

shipments to China of 600,

barrels of oil a day. China was a

crucial lender of last resort as

investors in international debt

markets charge Venezuela some

of the highest borrowing rates

in the world.

Then security emerged as a

concern. Warnings distributed

by the Chinese embassy here to

Chinese nationals, reviewed by

The Wall Street Journal, refer

to attacks against foreigners.

“As Asian people, to the

greatest extent possible, you

should avoid traveling by your-

selves,” read one advisory from

the local office of China’s state-

owned Sinohydro Corp.

“At the same time, you

should also avoid traveling in

groups, which can easily draw

the attention of criminals,” it

said. Kidnappings increased

60% in 2015, the notice said. It

advised workers to avoid giving

out personal information, such

as living arrangements, to Ven-

ezuelan colleagues.

An embassy email from

March recommended buying

guard dogs and installing GPS

systems in cars to make ab-

ductees easier to locate.

The Federation of Chinese

Associations here, which keeps

a registry of 23 social clubs

across Venezuela, estimates

that more than 30,000 Chinese

have left the country since 2014.

More than 100,000 remain.

—Brian Spegele

contributed to this article.

CHINA

The crisishashurt theshop run by Gustavo Ian Wu, above.

MIGUEL GUTIERREZ FOR THE WALL STREET JOURNAL (2)

MANILA—Philippine Presi-
dent Rodrigo Duterte called
for the U.S. to withdraw its re-
maining military advisers,
warning that their presence in
a southern island makes them
a valuable target for the ex-
tremist Abu Sayyaf militant
group.
The remarks on Monday by
Mr. Duterte, known for his
blunt speech, are likely to fur-
ther complicate his already
prickly relationship with the
U.S. The Obama administra-
tion last week canceled a
meeting with Mr. Duterte at a
regional summit after he re-
ferred to President Barack
Obama as a “son of a whore”
and railed against the colonial
history of the Philippines. The
slur against Mr. Obama was
lobbed in the broader context
of Mr. Duterte’s approach to
human rights in his high-pro-
filewarondrugs.
“For as long as we stay
with America, we will never
have peace,” Mr. Duterte said

Monday during a swearing-in

ceremony for public officials

here. “We might as well give it

up.”

He warned that the contin-

ued presence of U.S. personnel

in the Philippines risks inflam-

ing an already volatile cam-

paign to track down members

of Abu Sayyaf, whom security

experts estimate to number

around 300 fighters.

Abu Sayyaf will kill Ameri-

cans, Mr. Duterte said. “They

will try to kidnap them for

ransom,” he said.

The comments sparked crit-

icism from other Philippine

politicians.

Sen. Antonio Trillanes IV, a

former navy officer, said Mr.

Duterte was letting emotion

cloud his judgment.

“The anti-U.S. bias of Presi-

dent Duterte should not be the

basis of the recrafting of our

security policies,” Mr. Tril-

lanes said in a statement. “The

U.S. special operations forces

have been instrumental in the

development and increased ef-

fectiveness of our [Armed

Forces of the Philippines].”

The U.S. Embassy in Manila

couldn’t be reached to com-

ment. Philippine military offi-

cials also couldn’t be reached

to comment.

U.S. forces have been sta-

tioned in the southern Philip-

pines since 2002, training and

advising Filipino troops in

their campaign against Abu

Sayyaf, an affiliate of al

Qaeda that has earned a

grisly reputation for kidnap-

ping and beheading Western-

ers. More recently the group

has declared allegiance to Is-

lamic State. Abu Sayyaf said

its supporters were responsi-

ble for a bombing in Davao

City this month that killed 14

people. Mr. Duterte previously

served as mayor of Davao

City.

At its peak, the U.S.-Philip-

pine operation involved more

than 1,000 Americans before

officially ending in 2015. A few

advisers and technical-support

teams remain.

Mr. Duterte’s remarks raise

further questions about the

relations between the U.S. and

the Philippines, traditionally

one of America’s strongest al-

lies in the Asia-Pacific region.

He has said close ties with the

U.S. are important, but he is

also adamant in holding Amer-

ica to account for what he

sees as its past excesses.

On Monday, before calling

for the remaining U.S. forces

to leave, he displayed pictures

from the early 20th century

showing American soldiers

standing over a mass grave of

Muslims in the southern Phil-

ippines during the U.S.’s long

campaign to pacify the region

after the Spanish-American

War.

Mr. Duterte’s spokesman,

Ernesto Abella, subsequently

issued a statement saying that

the Philippine president’s re-

marks were aimed at empha-

sizing how the country is now

attempting to craft an inde-

pendent foreign policy. Mr.

Abella also said Mr. Duterte

wants the U.S. to atone for

what he perceives as the injus-

tices inflicted on Muslim Fili-

pinos in the southern Philip-

pines, which Mr. Duterte has

singled out as one of the roots

of the continuing insurgency

there.

“The American silence on

the matter lacks congruence

with its ‘moral’ position, in the

light of actions taken in the

past by the Germans who con-

fessed and made atonement

for the Holocaust, and Japan,

which made reparations for

the atrocities it perpetrated

among the peoples they con-

quered,” Mr. Abella said.

Under previous leader Beni-

gno Aquino III, the Philippines

had worked to expand its mili-

tary relations with Washing-

ton.

BYCRISLARANO

Duterte Calls for U.S. Advisers to Leave

Philippine leader says

American military’s

presence invites

attacks by Abu Sayyaf

President Duterte cited accounts of U.S. troops killing Muslims during thePhilippines’ colonial era.

TED ALJIBE/AGENCE FRANCE-PRESSE/GETTY IMAGES

China appears to be recalculating its alliance withVenezuela. A Chinese market in Caracas, above.

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