Posts Tagged ‘Indonesia’

Japan, Vietnam urge US to rejoin Pacific trade deal

September 13, 2018

Japan and Vietnam on Thursday urged the United States to rejoin a sprawling Pacific trade deal, almost two years after President Donald Trump’s withdrawal dealt a major blow to what would have been the world’s largest free trade pact.

Trump pulled out of the Trans-Pacific Partnership (TPP) deal in one of his first post-election moves as part of his “America First” clarion call, declaring the 12-nation trade pact a “job killer”.

The 11 remaining countries have pledged to move ahead with the deal, which could go into effect by the end of this year, although in a significantly watered-down version without the US.

They have kept a door open for Washington’s return, and have also not ruled out allowing other non-Pacific countries to join the deal.

Japan’s foreign minister on Thursday encouraged the US to come back to the pact, speaking at a regional World Economic Forum (WEF) where concerns over trade protectionism have dominated discussions.

© POOL/AFP | Japan’s Foreign Minister Taro Kono and his Vietnamese counterpart Pham Binh Minh encouraged the US to come back to the Pacific trade pact

“We believe TPP is still the best option for (the) United States,” Taro Kono said.

“It will be very attractive for American industries, American farmers to join it.”

Japan, the largest remaining economy in the TPP, has led the charge to keep it alive.

The newly rebranded deal, dubbed the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and which forms a market of 500 million people, could go into effect by the end of 2018, Kono added.

Vietnam’s foreign minister Pham Binh Minh echoed Kono’s appeal, calling the deal “a very high-standard agreement”.

Vietnam stood to be the biggest winner from US involvement before Trump’s withdrawal from the pact, which would have opened access to US markets for its cheap manufactured goods — from shoes and shirts to mobile phones and computer processors.

For smaller signatories like Vietnam, unfettered access to US markets was a major draw.

In its original iteration, the free trade bloc would have made up 38 percent of the global economy. Today, the remaining signatories comprise about 13.5 percent.

Japan and Vietnam’s comments come after Trump said in April the US could re-enter the agreement if it was a “better” deal.

Leaders at this year’s regional WEF summit for the Association of Southeast Asian Nations (ASEAN) have railed against protectionism and called for breaking down trade barriers.

Trade in the region has grown at breakneck pace in the past decade, transforming some of Southeast Asia’s poorest countries into fast-growing export economies.

Earlier at the summit, which closes Thursday, Indonesia’s President Joko Widodo compared trade disputes to “infinity wars” — a reference to the latest Avengers movie — vowing to fight protectionism.

“Not since the Great Depression of the 1930s have trade wars erupted with the intensity that they have today,” said the leader, who is seeking re-election next year.

“But rest assured I and my fellow avengers stand ready to prevent Thanos from wiping out half the world population,” he said, referring to the film’s villain.

AFP

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China warns of ‘serious hazard’ of protectionism at WEF meeting

September 12, 2018

China warned Wednesday that protectionism poses a “serious hazard” to growth and cautioned “individual countries” against isolationism, in a veiled reference to the deepening trade spat between Washington and Beijing.

The comments from China’s vice premier comes as the world’s top two economic powers edged closer to an all-out trade war after imposing tit-for-tat tariffs on billions of dollars of imports.

Tensions were heightened last week when President Donald Trump threatened to hit all China’s exports to the US, worth more than $500 billion as he doubles down on “America First” agenda he says aims to protect jobs and industries from overseas competition.

But without directly naming Trump or the United States, Hu Chunhua warned on Wednesday against countries going it alone and upending the globalised trading system.

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Hu Chunhua (left)

“Some individual countries’ protectionist and unilateral measures are gravely undermining the rules-based multilateral trading regime, posing a most serious hazard to the world economy,” Hu said at the World Economic Forum in Hanoi.

“Self-isolation will lead nowhere and only openness for all represents the right way forward,” he added.

The escalating trade spat between Washington and Beijing is being closely watched in Southeast Asia where some export-focused economies may be set to gain from the fallout.

Rising labour costs in China have already precipitated a push into countries such as Vietnam and Cambodia where Adidas shoes, H&M T-shirts and Samsung phones are made on the cheap.

But the trade war has accelerated that process, with several Chinese firms turning to the region to produce items from bike parts to mattresses in a bid to avoid the US tariffs.

“ASEAN countries don’t want to count their chickens before they hatch,” Fred Burke, managing partner at Baker McKenzie in Vietnam, told AFP.

© AFP | The trade row looms over a regional World Economic Forum (WEF) kicking off in the Vietnamese capital Wednesday morning

“But I think they see it on a net basis as a gain for them because it means shifting manufacturing into Southeast Asia that was… (earlier) in China.”

– Protectionist woes –

Although there could be a short-term boon to Southeast Asia, some analysts warn the long-term may be less rosy.

The region is “very export-driven…. so any shift toward more trade barriers… is not good”, Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, told AFP.

ASEAN trade increased by a value of nearly $1 trillion between 2007 and 2014, according to WEF, as the bloc has enthusiastically embraced trade liberalisation — in contrast to the policies promoted by Trump.

In one of his first post-election moves, the US president pulled out of the sprawling 12-nation Trans-Pacific Partnership (TPP), calling it a job killer.

The current edition of the WEF, which closes Thursday, is officially themed “Entrepreneurship and the Fourth Industrial Revolution”, with a focus on how economies should adapt to so-called “disruptive technologies” like automation and artificial intelligence that threaten to replace human jobs.

Several regional leaders are slated to attend the forum, including Indonesian President Joko Widodo, Cambodia’s newly re-elected strongman Prime Minister Hun Sen and Myanmar’s de facto leader Aung San Suu Kyi, who faces fresh global scrutiny over the Rohingya crisis.

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Cambodia’s Prime Minister Hun Sen

She is scheduled to speak at the forum Thursday, though organisers have not said whether she will discuss last week’s ruling by the International Criminal Court that allows its chief prosecutor to investigate the forced deportation of 700,000 Rohingya Muslims by Myanmar’s military as a possible crime against humanity.

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Aung San Suu Kyi

Myanmar has also faced international censure over the decision to jail two Reuters journalists for seven years for their coverage of a Muslim massacre, under a draconian state secrets law.

South Korean and Japanese foreign ministers will also host a session touching on tensions with North Korea and regional security issues Thursday.

AFP

Report says China operates Uighur ‘detention camps’ — “It’s about brainwashing.” — “This is beneath the dignity of a great nation.”

September 10, 2018

China is reportedly targeting Muslim Uighurs and Kazakhs in the northwestern Xinjiang region. Under the guise of combating terrorism, it has put an estimated one million people in reeducation camps. DW met witnesses in neighboring Kazakhstan.

In this March 24, 2017 file photo, A police officer checks the identity card of a man as security forces keep watch in a street in Kashgar, Xinjiang Uighur Autonomous Region, China.

In this March 24, 2017 file photo, A police officer checks the identity card of a man as security forces keep watch in a street in Kashgar, Xinjiang Uighur Autonomous Region, China.   | Photo Credit: Reuters

Video:

https://www.dw.com/en/report-says-china-operates-uighur-detention-camps/av-45427362

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Armed police keep watch in a street in Kashgar, Xinjiang Uighur Autonomous Region, China, March 24, 2017. REUTERS/Thomas Peter

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An executive at Human Rights Watch told Peace and Freedom, “Like the Uighurs in Xinjiang, the Rohingya are in the way of China’s Belt and Road. And nobody seems to care.”

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Ethnic Uighur children in the old town of Kashgar, in the far western Xinjiang province © Getty

  (Academic Freedom Chinese Style)

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China: “Forced political indoctrination” for Muslims

September 10, 2018

The Turkic mostly Muslim Uighur minority in China’s Xinjiang region face arbitrary detentions, daily restrictions on religious practice and “forced political indoctrination” in a mass security crackdown, Human Rights Watch said on Monday.

In this March 24, 2017 file photo, A police officer checks the identity card of a man as security forces keep watch in a street in Kashgar, Xinjiang Uighur Autonomous Region, China.

In this March 24, 2017 file photo, A police officer checks the identity card of a man as security forces keep watch in a street in Kashgar, Xinjiang Uighur Autonomous Region, China.   | Photo Credit: Reuters

The United Nations human rights panel said in August that China is believed to be holding up to 1 million ethnic Uighurs in a secretive system of “internment camps” in Xinjiang, in China’s far west, where they undergo political education.

Beijing has denied that such camps are for “political education” and says they are instead vocational training centers, part of government initiatives to bolster economic growth and social mobility in the region.

China has said that Xinjiang faces a serious threat from Islamist militants and separatists who plot attacks and stir up tensions between Uighurs who call the region home and the ethnic Han Chinese majority.

Uighurs and other Muslims held in the camps are forbidden from using Islamic greetings, must learn Mandarin Chinese and sing propaganda songs, according to a report by Human Rights Watch based on interviews with five former camp detainees.

People in Xinjiang with relatives living abroad in one of 26 “sensitive countries”, including Kazakhstan, Turkey and Indonesia, have been targeted by the authorities and are often held for several months, without any formal procedure, the group said.

Punishments for refusing to follow instructions in the camp could mean being denied food, being forced to stand for 24 hours or even solitary confinement, it said.

China foreign ministry spokesman Geng Shuang declined to give a detailed response to the report and said that Human Rights Watch was a group “full of prejudice” against China that distorts facts.

Measures in Xinjiang aim to “promote stability, development, unity and livelihoods”, while also cracking down on “ethnic separatism and violent terrorist criminal activities”, he told a regular briefing.

Security conditions in Xinjiang outside the camps had also intensified markedly and now bear “a striking resemblance to those inside”, Hong Kong-based Human Rights Watch researcher Maya Wang said, based on interviews with 58 former Xinjiang residents now living abroad.

Wang and her team only spoke with people who had left Xinjiang due to a lack of access to the region and to avoid endangering those still living there.

New security measures described by interviewees include proliferating checkpoints that make use of facial recognition technology and sophisticated police monitoring systems, such as each house having a QR code that, when scanned, shows the authorities who the approved occupants are.

Monitoring of Islamic religious practices, such as asking people how often they pray and the closure of mosques, as well as regular visits by party officials to rural parts of Xinjiang, mean that practicing Islam “has effectively been outlawed,” Wang said.

Reporting by Christian Shepherd and Ben Blanchard, Editing by John Ruwitch and Michael Perry

Reuters

China engages in Australia’s largest maritime drill for first time

September 9, 2018

China is participating for the first time in Australia’s largest maritime exercise as more than 3,000 personnel from 27 countries engage in joint training off the strategic northern port of Darwin.

Exercise Kakadu is hosting 23 ships and submarines from across the Indo-Pacific region, enabling them to establish familiarity which helps to prevent conflict on the high seas and to coordinate disaster relief efforts.

Commander Anita Sellick of the Australian frigate HMAS Newcastle said two Royal Australian Navy sailors were accepted onto China’s naval frigate Huangshan during the drill.

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China guided missile destroyer Huangshan

“Two of our Australian navy sailors are across actually, right now in the Chinese ship. So they’ve both been able to integrate within each other’s navy and learn a little bit of what life is like for them today in Exercise Kakadu,” Sellick told Reuters on Saturday.

Commander of the Australian Fleet, Rear Admiral Jonathan Mead, told reporters in Darwin in a televised interview on Friday that there were mutual benefits in building understanding and trust during the exercise.

The joint military practice, which will continue until Sept. 15, is supported by the Royal Australian Air Force and involves 21 aircraft.

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Royal Australian Navy sailors stand with officers from the Chinese Navy aboard the Royal Australian Navy frigate HMAS Newcastle during Australia’s largest maritime exercise ‘Exercise Kakadu’ being conducted off the coast of Darwin in northern Australia, September 8, 2018. Picture taken September 8, 2018. REUTERS/Jill Gralow

Darwin, on the doorstep of Asia, is Australia’s most strategically important city and has been home to a contingent of U.S. Marines since 2011 making it the logical place for the exercise.

Integrating the People’s Liberation Army Navy into the biennial training with American, Australian, New Zealand and Canadian forces for the first time has given China an opportunity to improve its working relationship with those countries, which has been tense at times.

In April, three Australian warships had a challenging encounter with China as they passed through the South China Sea. Then in May, the United States disinvited China from joint naval exercises off Hawaii in response to what it called China’s militarization of disputed areas of the South China Sea, an allegation Beijing rejects.

The participating countries in Exercise Kakadu are: China, Japan, South Korea, Thailand, Indonesia, Bangladesh, Brunei, Cambodia, Canada, Chile, Cook Islands, Fiji, France, India, Malaysia, New Zealand, Pakistan, Papua New Guinea, The Philippines, Singapore, Sri Lanka, East Timor, Tonga, United Arab Emirates, U.S., Australia, and Vietnam.

(Reporting by Alison Bevege; editing by Grant McCool)

Emerging market sell-off and trade worries jolt stocks — “Contagion”

September 6, 2018

European equities follow Asia lower as currency crises fuel contagion fears

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Deutsche Bank’s action has boosted Deutsche Börse’s ambition to steal business from LCH after the UK leaves the EU next year © Bloomberg

Kate Allen in London and Edward White in Taipei

“There is contagion taking place, but we think contagion should be shortlived,” said JPMorgan Asset Management portfolio manager Ayaz Ebrahim.

Hot topic
European equities are edging lower in early trading after a sell-off in Asia amid sustained fears over global trade rhetoric.

London’s FTSE 100 index of leading shares is down 0.3 per cent. Chinese equities have dropped and the dollar has pulled back as worries persisted over emerging markets and the next stage of the US-China trade dispute.

The emerging market sell-off worsened overnight with developing world equities falling back into a bear market, fuelling concerns of a broader crunch.

The Hang Seng index in Hong Kong is down 1.5 per cent and hovering at around its lowest level for more than a year, while the CSI 300 index of major Shanghai and Shenzhen stocks is down 1.3 per cent and the Hang Seng China Enterprises index is off 1.5 per cent.

Tokyo’s Topix is down 0.7 per cent. In Sydney, the S&P/ASX 200 is 1.1 per cent lower.

Investors are bracing for the next signal from the White House on its proposed next round of tariffs on $200bn of Chinese imports, with public consultation on the plan ending today.

While the effects of the US-China tariff dispute have so far been limited, that “may be about to change as the countries escalate their rhetoric — and their actions — in what could soon be a full-blown trade war,” according to a note from rating agency S&P Global.

Sovereign debt and foreign exchange trading is steadier with a small decline in the US dollar taking some heat out of the market.

The US dollar index, measuring the greenback against a basket of peers, is flat on the day.

The Indonesian rupiah is 0.3 per cent firmer at 14,888 against the dollar, though still hovering near its lowest level since the Asian financial crisis 20 years ago.

The Indian and Indonesian markets have been in particular focus among Asian emerging markets because both countries have current account and fiscal deficits.

The pound and the euro are edging higher, at $1.2915 and $1.1635, respectively.

In China, the onshore renminbi exchange rate, which moves within a trading band of 2 per cent either side of a daily midpoint set by the People’s Bank of China, is 0.1 per cent weaker at Rmb6.8358.

The yield on US 10-year Treasuries is steady at 2.902 per cent, and the Japanese equivalent is flat at 0.109 per cent.

Italian debt has opened at lower yields after the country’s Treasury announced a buyback of short-dated bonds.

It is the fourth such market operation since Italy’s markets were first hit by a sell-off in late May when an inexperienced coalition government took power. Since then, Italy has seen successive waves of selling, which have driven its bond yields to multiyear highs.

Commodities

Brent crude is down 0.1 per cent at a $77.22 a barrel and gold is 0.2 per cent higher at $1,197 an ounce.

For market updates and comment follow us on Twitter @FTMarkets

https://www.ft.com/content/049e2636-b174-11e8-99ca-68cf89602132

Textbook Emerging-Market Crisis Brewing, Starting With Turkey and Argentina

September 3, 2018

Argentina and Turkey look like outliers but the rot could spread fast.

Truck drivers strike in Buenos Aires: The ripples are widening.

Photographer: Sarah Blesener/Bloomberg

Emerging-market stresses have been building since at least 2013. Investors may have forgotten the effect of the “taper tantrum” on the so-called Fragile Five – Brazil, India, Indonesia, Turkey and South Africa – a term coined by Morgan Stanley to describe their vulnerability to capital outflows. Monetary accommodation, lower current-account deficits and growth disguised the underlying challenges, attracting more capital to those markets.

The textbook recipe for an emerging-market crisis requires a large dose of debt and an associated domestic credit bubble, including misallocation of capital into uneconomic trophy projects or financial speculation. Then add: a weak banking sector, budget deficits, current-account gaps, substantial short-term foreign-currency debt and inadequate forex reserves. Season with narrowly based industrial structures, reliance on commodity exports, institutional weaknesses, corruption and poor political and economic leadership.

Based on these criteria, the number of emerging markets at risk extends well beyond Turkey and Argentina. Like Chekhov’s families, each nation has different sources of unhappiness.

Total emerging-market borrowing increased from $21 trillion (or 145 percent of GDP) in 2007 to $63 trillion (210 percent of GDP) in 2017.Borrowings by non-financial corporations and households have jumped. Since 2007, the foreign-currency debt – in dollars, euros and yen – of these countries doubled to around $9 trillion. China, India, Indonesia, Malaysia, South Africa, Mexico, Chile, Brazil and some Eastern European countries have foreign-currency debt between 20 percent and 50 percent of GDP.

In all, EM borrowers need to repay or refinance around $1.5 trillion in debt in 2019 and again in 2020. Many are not earning enough to meet these commitments.

Turkey and Argentina have twin deficits (combined budget and current-account gaps as a percentage of GDP) of 8.7 percent and 10.4 percent, respectively, that require financing. Pakistan has a twin deficit well above 10 percent. Brazil, India, Indonesia, South Africa and Ukraine are at or above 5 percent on that basis. In India, if state governments are included the number approaches double figures. Those gauges are rising in China, Malaysia, Mexico, Colombia, Chile and Poland.

Then look at reserve coverage – foreign-exchange holdings divided by 12-month funding needs for the current account, short-term debt maturities and amortization of long-term debt – which measures the capacity to meet immediate foreign-currency obligations. Turkey and Argentina score 0.4 and 0.6 respectively, meaning they can’t cover their needs without new borrowings. Pakistan, Ecuador, Poland, Indonesia, Malaysia and South Africa have reserve coverage of less than 1. Chile, Hungary, Colombia, Mexico and India have coverage of less than 2. Brazil and China come in at 2.5 and 3.1 times, respectively.

Even where reserve coverage appears adequate, caution is warranted. Long-term debt becomes short term with the passage of time or an acceleration event. Forex holdings may not be readily accessible. Much of China’s $3 trillion of reserves is committed to the Belt and Road infrastructure initiative. The ability to turn U.S. Treasury bonds and other foreign assets into cash is limited by liquidity, price and currency effects. Reserve positions are notoriously opaque: In 1997, the Bank of Thailand was found to have grossly overstated available currency holdings.

China and India face well-documented difficulties in their financial systems. The true level of Chinese non-performing loans may be several times the official 1.75 percent. India’s NPL ratio is around 10 percent of all loans.

Events in Turkey and Argentina show how these weaknesses become exposed. Global liquidity tightening, led by the U.S. Federal Reserve increasing rates and unwinding its bond purchases, reduces capital inflows and increases the cost of borrowing. Trade tensions, sanctions, the breakdown of the global institutional structure and rising geopolitical risks exacerbate those stresses.

Weaknesses in the real economy and the financial system feed each other in a vicious cycle. Capital withdrawals undermine currencies, driving down prices of assets such as bonds, stocks and property. The reduced availability of finance and higher funding costs add to pressure on over-extended borrowers, triggering banking problems that feed back into the economy. Credit rating and investment downgrades extend the cycle.

Policy responses can make things worse. Higher interest rates to prop up currencies (60 percent in Argentina) may be ineffective. They reduce growth and aggravate the debt burden. Weaker currencies import inflation. Supporting the financial system and the economy pressures government finances. IMF remedies, which aren’t always effective, impose financial and human costs that many nations find unacceptable, prompting political and social breakdown. And the IMF’s capacity to assist may be constrained by concurrent crises.

Investors are assuming that critical vulnerabilities have been addressed.

Important changes made after the 1997 Asian crisis created different risks, however. Floating exchange rates and unrestricted foreign-exchange movement increase currency volatility and allow capital flight. While local-currency debt has increased, unhedged foreign-currency debt remains significant.

Higher returns on local-currency debt attracted foreign investors to India, China, Malaysia, Indonesia, Mexico, Brazil, South Africa and Eastern Europe. But weakening currencies may drive them to exit, hurting all assets.

Turkey and Argentina may be special cases. But given the fundamental problems, other emerging markets are likely to come under pressure. As Herbert Stein’s 1976 law states: “If something cannot go on forever, it will stop.”

https://www.bloomberg.com/view/articles/2018-09-03/we-may-be-facing-a-textbook-emerging-market-crisis

Why China’s Tech Darlings Are Losing Their Fangs — China Cracks Down on Video Games, Gaming

August 31, 2018

Tencent and Alibaba have started underperforming the likes of Apple and Amazon, and the gap may be here to stay.

Board games. Photographer: Qilai Shen/Bloomberg

Not all tech stars are equal. While U.S. giants from Apple Inc. to Amazon.com Inc. march to or through the $1 trillion valuation mark, China’s darlings are getting dumped.

The groups started to diverge two months ago, and the big American tech stocks have outperformed their Chinese counterparts by 19 percentage points since then. With more than $18 billion of bets now standing against Alibaba Group Holding Ltd., the e-commerce leader is the world’s most shorted stock. Tencent Holdings Ltd. shares dropped as much as 5 percent in early Hong Kong trading Thursday after reports that China plans further curbs on gaming.

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There are several reasons for the swoon. In June, the U.S. trade war started to undermine the confidence of Chinese consumers, on whom internet companies rely. The latest earnings season was ugly, with second-quarter profit growth slowing to 16.2 percent, from 47 percent a year earlier.

But there are reasons to believe the divergence is structural and here to stay.

Take a look at the valuations of Tencent and Alibaba. Despite weak earnings, the pair are trading within their historical price-earnings range. On a price-to-sales basis, though, they’ve fallen off a cliff.

In other words, investors no longer believe that a dollar of sales from China tech can trickle down to shareholders the way it did in the past.

China tech’s spending spree is alarming. This year, Alibaba, Tencent and JD.com Inc. have already splashed out more than $37 billion on stakes in startups. You hardly see this kind of venture-capital generosity from Amazon or Apple.

While U.S. companies like Amazon and Netflix Inc. still believe in entering new markets on their own, China Inc. seems to have decided that a strategic investment in a startup is a more attractive option. The Chinese firms may be taking their cue from long-time patrons: Small investments two decades ago by South Africa’s Naspers Ltd. and Japan’s SoftBank Group Corp. became $130 billion-plus stakes in Tencent and Alibaba, respectively.

But we’ve ended up with a dizzying overlap of investments.

Ofo and Mobike are the top bicycle-sharing brands in China, the former backed by Alibaba. Mobike, initially supported by Tencent, was recently acquired by Meituan Diaping, an online food-delivery service provider that in turn is 20 percent-owned by Tencent.

Or look at Indonesia. Lured by the Southeast Asian nation’s youthful population, Alibaba, Tencent and JD.com now back four of the top six online e-commerce players there.

Naspers and SoftBank kept out of each other’s way while seeding startups in China, favoring different areas of the consumer internet. Not so with China’s new online conglomerates. The increase in overlap can only lead to fierce competition, greater cash burn, and eroding returns on invested capital.

Worrying signs are already appearing in earnings. New businesses, such as cloud computing and entertainment, are dragging on Alibaba’s profit, as my colleague Tim Culpan noted. The situation at JD.com is worse: Research and development expenses ballooned by 80 percent to 2.8 billion yuan ($410 million) last quarter. Yet JD isn’t expecting faster sales growth — at the top end of its guidance, the company sees a 17 percent increase.

Relentless expansion is nice, but investors need regular reminders that it brings rewards.

https://www.bloomberg.com/view/articles/2018-08-31/why-china-tech-stocks-are-falling-behind-u-s-peers

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Australia’s east coast drought to intensify as dry weather to linger for months

August 30, 2018

Australia’s east coast will experience dry weather for at least the next three months, the country’s meteorological bureau said on Thursday, intensifying a drought that has wilted crops and left farmers struggling to stay in business.

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Australian farmer shovels feed to sheep. FILE photo, ABC

In its latest three-month outlook, the Bureau of Meteorology said there was only a 30 percent chance rainfall would exceed average levels over much of the country’s east coast during spring, which runs from September to November.

If the drought gets worse, Australia’s agricultural sector will suffer further crop losses, while farmers will also be forced to slaughter livestock in greater numbers as they struggle to find enough food or water to keep them alive.

The bureau also raised the prospect of dry weather in the country’s west, which has so far escaped drought conditions, bringing new concerns for Australian food manufacturers.

Unable to source enough grain from the east coast, some food producers have started to import supplies from Western Australia, where recent favorable weather had encouraged farmers to sell leftover supplies.

But the bureau said the west coast – the country’s largest agricultural producing region – will also experience drier than average weather over the next three months, tightening national supply yet further.

“East coast farmers have largely written off wheat crops this year, but the issue could be the situation in the west,” said Phin Ziebell, agribusiness economist, National Australia Bank.

“Some had been calling for a crop in excess of 10 million tonnes (in Western Australia), but if the forecast materializes, the figure will be under threat.”

Production of wheat from the world’s fourth-largest exporter is already expected to hit a decade low this year, although output from the west is expected to cushion the decline in the east.

The bureau also said it saw a 50 percent chance of an El Nino weather event, which can bring warmer weather and dry conditions to Australia and could extend the dry weather into 2019.

“An El Nino basically means that as we get into summer there’d be less chance of having those recovery rains that we need and we may have to wait till autumn in 2019 to start seeing some recovery rains in the drought areas,” said Andrew Watkins, manager of long range forecasts at the Bureau of Meteorology.

Reuters

Reporting by Colin Packham in Sydney, additional reporting by Sonali Paul in Melbourne; editing by Joseph Radford and Richard Pullin