What We're Reading:
France announces withdrawal of troops from Mali. France and its security partners will withdraw all troops from Mali after nearly a decade of fighting an extremist threat that has surged in recent years and as relations between the West African nation and its former colonial power collapse. (Washington Post)
US says war appears imminent after shelling on Ukraine front line. U.S. President Joe Biden said on Thursday there was now every indication Russia was planning to invade into Ukraine, including signs Moscow was carrying out a false flag operation to justify it, after Ukrainian forces and pro-Moscow rebels traded fire. (Reuters)
A new Iran deal means old chaos. In the last few weeks, many in Washington have concluded that the United States will soon return to the Iran nuclear deal. (Foreign Policy)
China rejects US trade complaint, criticizes Washington. China rejected a U.S. accusation that Beijing is failing to live up to its market-opening commitments in a new round of complaints as companies wait for the two governments to restart talks on ending a tariff war. (AP News)
Turkey keeps key rate unchanged as inflation backlash builds. Turkey’s central bank kept its benchmark interest rate unchanged for a second month on Thursday, as President Recep Tayyip Erdogan’s government struggles to contain price surges that could threaten his two-decade rule. (Bloomberg)
US temporarily bans avocados from Mexico, citing threat. In the United States, where 80% of the avocados consumed come from Mexico and the average price of $1.43 an avocado was already nearly 11% higher than a year ago, analysts said even a two-week ban could sharply reduce availability and further increase prices. (New York Times)
Greek farm protests are a sign of Europe’s inflation anxiety. For weeks, tractors have been parked along the country’s highways, their owners threatening to block traffic. Farmers are desperate for additional financial aid to cope with surging energy prices that are pushing up their costs for fuel and fertilizer, posing a sudden threat to their livelihoods. (AP News)
Northern Black Sea added to war-risk list as tension mounts on Ukrainian border. The London insurance market’s Joint War Committee (JWC), the body that assesses and designates regions of heightened risk for the Lloyd’s and London company market, has added sections of the Ukrainian and Russian northern Black Sea to its master list of areas with an elevated likelihood of war. (Commercial Risk)
China promised Trump a better deal for America; it didn't actually deliver. The trade war is now almost four years old. In 2018, President Trump fired the first shots by imposing tariffs on various Chinese products. China retaliated, imposing tariffs on American products. The war kept escalating—with each side making their tariffs higher and more expansive. (NPR)
Trudeau says protests must end, truckers brace for crackdown. Police poured into downtown Ottawa on Thursday in what truckers feared was a prelude to a crackdown on their nearly three-week, street-clogging protest against Canada’s COVID-19 restrictions. (AP News)
Mexico refining push risks returning to oil imports. Andres Manuel Lopez Obrador’s push to make Mexico self-sufficient in gasoline and diesel risks bringing back as early as next year crude imports that the president once lambasted. (Bloomberg)
How well could Russia’s economy withstand sanctions? Russia has taken steps to buffer itself against the economic blow that sanctions could impose. The country has trimmed its budget, beefed up foreign exchange reserves and sought to diversify its trade portfolio to become less dependent on the EU for export revenues. (WSJ)
No escaping ESG requirements. While its roots were in financing, more of shipping’s stakeholders are being expected to uphold ESG values in broking, chartering, trading, logistics and more. The end goal? A truly sustainable supply chain. (HSN)
Japan Loosens COVID Restrictions amid Stalled Economic Growth
Annacaroline Caruso, editorial associate
Japan plans to soften its border controls put in place originally to slow the spread of Covid-19. Some experts say tight border controls have delayed Japan’s economic recovery, so loosening restrictions is a step in the right direction.
Starting in March, 5,000 people will be allowed to enter the country each day, up from the current 3,500 limit, Prime Minister Fumio Kishida said during a news conference last week. That’s good news for foreign scholars, exchange students and business travelers, but tourists are still not permitted in Japan.
The decision will benefit business travelers who are “vital for ensuring the economic ties” between Japan and other countries, U.S. Ambassador to Japan Rahm Emanuel told the Associated Press.
However, it may still be some time before Japan’s economy catches up. The country slashed its economic growth prediction for the current quarter to near zero, Reuters reports. "The economy continues to pick up, but some weaknesses are observed as severe conditions due to the coronavirus linger," the government said in the February economic report approved by Prime Minister Fumio Kishida's cabinet.
Japanese manufacturers have been hit especially hard. “Japanese manufacturers' business confidence fell to an 11-month low in February as measures to contain the pandemic and high raw material costs hurt sentiment,” the Reuters Tankan poll showed.
Wage growth also is weighing heavily on Japan’s economic recovery. “Japan’s economic growth has been supported by strong job creation over the last decade, but growth has faltered in recent years before the Covid-19 pandemic and the productivity gap has widened relative to peer countries,” a Fitch Ratings report reads.
Without an increase in business productivity, Japan's potential growth is likely to slip to around 0.3% from the 2030s, from the current projected 0.7%, according to Fitch Ratings.
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China Pledges to Reduce Coal Consumption but Recent Actions Say Otherwise
Bryan Mason, editorial associate
Advanced economies and developing countries that rely on China’s coal trade and investments may take a hit if the country makes good on its announcement to reduce carbon emissions and promote renewable energy sources. Actions by the country continue to send mixed messages. Some news reports refer to its claims of moving toward carbon neutrality as greenwashing—a marketing spin to persuade others of its efforts to achieve environmentally friendly practices.
“China has played a particularly big role [in coal usage]—the country provided half of overseas public finance to coal-fired power plants between 2013 and 2018,” according to Boston University’s Global China Initiative.
“As the world's second-largest economy and its largest climate polluter, China is a key player in the international struggle to limit climate change, facing criticisms and calls for action,” NPR reported. Last fall, China announced its “plans to abandon building new coal power plants abroad. The announcement has been seen as the ‘death knell’ for overseas funding of coal, and its ramifications could be huge,” the BBC relayed. China helped boost power capacity and economic growth in many African and Asian countries by contributing massive foreign investments in coal production plants within these regions.
Chinese banks recently declined funding a 700-megawatt coal-fired power plant in Bosnia and Herzegovina, reported China Dialogue. “This is the first time the Chinese commitment to exit from overseas coal has been applied retroactively to a project announced before Xi Jinping made his pledge in September 2021. And it opens a realm of possibilities to move away from other coal projects in the Western Balkans,” Wawa Wang, director of Just Finance, an NGO advocating for transparency in public financing, told the organization.
China consumes 3 billion tons of coal a year, while the U.S. consumes 600 million, said Alex Turnbull, a fund manager based in Singapore, on a Bloomberg Odd Lots Podcast. Russia, the U.S. and Canada also would see significant loss because after China stopped importing coal from Australia and Mongolia, it purchased coal from these regions, Turnbull said.
China recently indicated it is trying to enforce inventory levels on coal mines and power plants to promote decarbonization with the intention to use more renewable energy and become more self-sufficient over time, Turnbull said. Issues with renewable energy sources have recently been addressed and coal prices may potentially be fixed to become significantly higher—making renewable energy a more competitive market and the preferred source of energy, he continued.
In the short term, however, China has increased its use of coal to avoid power shortages, per NPR. The economic fallout from the pandemic has interfered with the country’s move toward cleaner energy sources, and “Chinese regulators have backed off on some requirements to help factories recover losses and respond to new surges in demand,” NPR said.
"Coal supply will be increased and coal-fired power plants will be supported in running at full capacity and generating more electricity, so as to meet the electricity needs for production and residential consumption," according to China's state-run Xinhua news agency.
Additionally, the eastern Chinese coastal province of Zhejiang recently approved the construction of a new $1.10 billion coal-fired power plant, according to Reuters—further displacing them from the pledge to limit the country’s consumption of coal. “China has been under fire for continuing to approve new coal plants. The world’s biggest source of climate-warming greenhouse gas will not cut coal use until after 2025, according to a pledge by President Xi Jinping last year.”
Ukraine-Russia Tensions Clash with Insurance Coverage in Region
Bryan Mason, editorial associate
Airspace and sea lanes are feeling the impact of tensions between the Ukraine and Russia. Ukraine International Airlines’ insurers have pulled coverage on flights in Ukrainian airspace, and the Joint War Committee (JWC) has added Russian and Ukrainian territorial waters in the Black Sea and Sea of Azov to its high-risk list, according to multiple news reports.
“The JWC high-risk areas are used by war risk and other marine underwriters in calculating premium,” TradeWinds reported. The JWC, the marine insurance advisory board comprised of underwriting representatives from Lloyd’s Market Association (LMA) and International Underwriter Association, added sections of the northern Black Sea “amid increasing naval operations in the region and the continued threat of an invasion of Ukraine by Russia.” The high-risk designation points to an elevated likelihood of war, piracy or terrorism.
JWC characterized the move as precautionary so that insurers and shipowners can properly negotiate their exposures, said Neil Roberts, head of marine and aviation for LMA, in a statement to Reuters. "We would be remiss if we did not advise the market now and give it the ability to react. With the increased naval activity, the possibility for a miscalculation is definitely there."
Although airspace over the territory of Ukraine remains open, “Dutch airline KLM—part of Air France—said it would stop flying to Ukraine and Germany's Lufthansa said it was considering suspending flights,” U.S. News reported.
Airlines will need to negotiate insurance for Ukrainian flights with their insurers, according to news reports. Leading insurers have taken steps to limit their exposure in the event of a war between Russia and Ukraine, Reuters reported. Insurers have notified airlines that they will withdraw war risk coverage for Ukrainian airspace, but are still providing cover on a rolling 24-hour or 48-hour basis.
According to the Middle East Institute (MEI) confrontation between Russia and the Ukraine also could impact the Middle East and North Africa (MENA) in three key areas:
- Energy, disruptions to natural gas supplies
- Agriculture, extensive conflict or a blockade would limit trade for grain and agricultural imports
- Humanitarian support, an increase in refugees would further tax humanitarian resources
“The ties between the conflict in Ukraine and the MENA region are more complex than they may seem at first glance,” MEI said. “Regional states have a direct interest in preventing escalation and, in the case of heightened conflict, in minimizing its consequences as quickly as possible.”
Week in Review Editorial Team:
Diana Mota, Editor in Chief and David Anderson, Member Relations