Tag: Finance and economics

THE manufacture of airliners may be the world’s most globalised industry. Only two firms make big civil jets: Boeing of America and Airbus of Europe. Most of their revenues—55% for Boeing and 70% for Airbus—are earned outside their home territory. Both source parts from dozens of countries. But a ruling by the World Trade Organisation (WTO) on subsidies in the industry could deal another blow to the beleaguered international trading system.

On May 15th the WTO’s final appeals body upheld parts of a previous ruling, finding that the European Union wrongly provided subsidies to Airbus to develop new aircraft. That, it concluded, had hit sales of Boeing’s jets. As soon as the WTO gives the go-ahead America will have the right to impose retaliatory tariffs on EU imports. Trade experts warn they could be the highest in the WTO’s history.

Boeing crowed that the ruling showed that the EU had given $22bn in “illegal subsidies” to Airbus. But Tom Enders, Airbus’s chief executive,…Continue reading

WHEN people stop working, they need a retirement income. Some are lucky enough to have an employer-provided pension linked to their salary. Everyone else faces a difficult choice.

Some keep their pension pot in cash and watch as it is eroded by inflation. Others use savings products with high fees and risk being hurt by a stockmarket downturn. A third option is an annuity, which guarantees a lifelong income but vanishes at death, even if that is a week after retirement.

Lionel Martellini of EDHEC, a French business school, and Robert Merton of the Massachusetts Institute of Technology (a Nobel laureate in economics) have come up with an alternative. Workers would buy government-issued bonds while in employment; these would pay no interest until retirement. Over the next 20 years (the typical life expectancy on retirement) bondholders would receive payments comprising interest plus the return of the capital. These would be linked to inflation, or another measure such as average…Continue reading

AS FAR back as the campaign trail, President Donald Trump had promised to renegotiate or rip up the North American Free Trade Agreement (NAFTA). But Paul Ryan, the Speaker of the House of Representatives, has said that if this Congress is to have time to approve a new version, it needs word that a deal is going ahead by May 17th. As The Economist went to press, that deadline seemed unlikely to be met.

Negotiations seemed to stall on May 11th over rules relating to carmaking. After a brief meeting between ministers, and despite reports that momentum has been building in recent weeks, wide differences remained. Representatives of the Mexican car industry had planned to return to Washington on May 14th to resume talks, but were told by their government not to bother.

The impasse is over “rules of origin”, which must be satisfied if a car is to qualify for tariff-free export within the trade bloc. Such rules normally set minimum requirements for the…Continue reading

NOT long ago China was a leading culprit in global economic imbalances. Whether blame was ascribed to its undervalued yuan or its frugal people, the problem seemed clear. China was selling a lot abroad and buying too little back. One data-point summed this up: its currentaccount surplus reached 10% of GDP in 2007, well above the level that is generally seen as reasonable. Far less attention has been paid to its steady decline since then. In the first quarter of 2018 China ran a current-account deficit, its first since joining the World Trade Organisation in 2001. Just as its massive surpluses of yore had big consequences for the global economy, so does this swing in the opposite direction.

China still exports many more goods than it imports, to the tune of nearly $500bn annually. But its share of global exports appears to have peaked. At the same time its trade deficit in services is getting bigger, largely thanks to all its tourists venturing abroad (see chart).

At bottom, a current-account…Continue reading

FEW banks can match the quaint serenity of Banco Delta Asia’s headquarters in Macau. Housed in a pastel-yellow colonial building opposite a 16th-century church, its entrance is flanked by tall vases, depicting sampan gliding between karst hills. In the tiled square outside, men laze under a banyan tree and an elderly woman peels a boiled egg for lunch.

But in 2005 this backwater bank incurred the wrath and might of the world’s financial hegemon. America’s Treasury accused it of laundering money for North Korea, prompting depositors to panic, other banks to keep their distance and the Macau government to step in. The Treasury subsequently barred American financial institutions from holding a correspondent account for the bank, excluding it from the American financial system.

Macau is over 8,000 miles from Washington, DC. But it is hard to escape the long arm of the dollar. Its dominance reflects what economists call network externalities: the more people use it, the more useful it…Continue reading

IN A British television show, “Doctor Who”, the titular character is able to travel anywhere in time and space in his Tardis police box. Given access to that technology, what useful message would this columnist impart to his previous self, nearly 12 years and 550 columns ago?

The first lesson would be to avoid confusing the economy with the financial markets. If you looked at share prices alone, you might assume the intervening period had been calm; the S&P 500 index is around double its level when this column began in September 2006. But though the markets have long since recovered their sangfroid after the crisis of 2008-09, the trend growth rate of developed economies has never regained its strength. That is a bitter irony given that the crisis originated within the financial sector, bringing to mind a teenager who crashes their parents’ car and leaves them with the bill.

In part, the market’s resilience was owing to the remarkable strength of corporate profits,…Continue reading

WITH the exception of a few governments big enough to run their own auctions, anyone wishing to issue bonds must seek bankers’ help. A hefty fee will buy assistance in calibrating the size, structure and timing of a bond issue, as well as connections to lots of buyers. And once a bank has agreed to underwrite an issue, it bears the risk of failing to get a good price for the bonds. But the process is old-fashioned and inefficient (the head of bond origination at one American bank jokes that “not a lot has changed since 1933”), and the accuracy of the advice is hard to gauge. Overbond, a financial-technology startup in Toronto, wants to change all that.

Investment bankers responsible for bond issuance still operate largely by feel, calling up asset managers to get a sense of demand, rather than by crunching numbers. Rules against insider trading mean they cannot talk directly with their trader colleagues. Data on existing bonds are more abundant. In America, for instance, information on the price,…Continue reading

Still pretty interesting

THE Indonesia Stock Exchange greeted its latest listing on May 9th: that of BRIsyariah, the Islamic arm of state-controlled Bank Rakyat Indonesia, the country’s biggest bank by assets. The initial public offering (IPO) of 27% of BRIsyariah’s equity raised around 1.3trn rupiah ($92m). Islam outlaws the payment of interest, the basis of conventional banking. Yet despite being home to an eighth of the world’s Muslims—225m, in a population of 260m—Indonesia’s Islamic banks are tiny. They account for just 5.8% of all banks’ assets. In neighbouring Malaysia, which has been promoting Islamic finance for many years, Islamic banks’ share exceeds 25%.

But Indonesia’s are growing fast. According to the Financial Services Authority (OJK), the industry’s supervisor, last year their assets rose by 19%, against 9.8% for conventional banks. BRIsyariah’s IPO will help tackle what the OJK says is the biggest obstacle to their…Continue reading

DIPLOMATS are racking up the air miles, but the prospect of trade war has not receded. Negotiations between American and Chinese representatives in Beijing ended on May 4th without agreement. Indeed, the two sides’ starting positions are so different that a mutually agreeable deal is hard to imagine. Talks will resume next week when Liu He, China’s vice-premier, travels to Washington. Negotiators will need to work quickly. From May 23rd America can impose its first set of tariffs against China, on around $50bn of goods. The Chinese would soon retaliate.

America is edging towards trade conflict not just with an avowed rival but with its closest friends. In March, when President Donald Trump announced plans for tariffs on steel and aluminium, America’s allies were granted temporary exemptions to allow time to negotiate deals. Those exemptions are due to run out on June 1st.

Many countries are already off the hook, having agreed to restrict shipments to America. South Korea…Continue reading

The way we were

THE words “Unite Students” are emblazoned on Aston University’s residence halls and on signs all over campus. They are the name of a firm that builds, buys and manages student accommodation across Britain. Last year Unite Students bought all 3,000 of Aston’s on-campus bedrooms for £227m ($313m) in partnership with the Government of Singapore Investment Corporation, a sovereign-wealth fund. It was thought to be the largest ever one-off purchase of student housing.

Many readers will no doubt recall dingy halls of residence owned by universities, or squalid private digs owned by individual landlords. But student accommodation has got an upgrade. Private halls have sprung up as cash-strapped universities have outsourced to companies such as Unite. Some have grown into publicly traded brands offering thousands of beds across the globe. American Campus Communities owns more than 134,000 beds across America. Dubai’s GSA has student housing in…Continue reading