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Despite Rome’s skepticism, China says Belt and Road cooperation with Italy ‘fruitful’

BEIJING – Despite Rome’s skepticism, China‘s Foreign Minister Wang Yi said cooperation with Italy under the Beijing-led Belt and Road initiative had been fruitful, with high-quality Italian products having entered “thousands of households” in China.

“The thousand-year friendship inherited from the ancient Silk Road has endured,” Wang told visiting Italian Deputy Prime Minister Antonio Tajani in a meeting on Monday.

“In the past five years, the trade volume between China and Italy has grown from $50 billion to nearly $80 billion, and Italy‘s exports to China have increased by about 30%,” Wang said in a readout of the meeting from China‘s foreign ministry released on Tuesday.

In 2019, Italy became the first major Western nation to join China‘s Belt and Road, a global trade and infrastructure initiative modeled on the idea of the old Silk Road that had linked imperial China and the West millennia ago.

But Italy, the only Group of Seven power to have signed up since the trade and infrastructure initiative was launched by Chinese President Xi Jinping a decade ago, has expressed doubts over its membership in recent months.

Tajani said on Saturday before leaving for China that bilateral trade had not improved.

“The Silk Road did not bring the results we expected,” Tajani said. “We will have to evaluate, the parliament will have to decide whether or not to renew our participation.”

Rome has until December to formally withdraw from the accord, which expires in March 2024. Otherwise, it will be extended for another five years.

Any loss of the erstwhile terminus of the old Silk Road would be diplomatically embarrassing for China, which has expected to mark the achievements of the Belt and Road initiative at an international forum in Beijing in October.

China and Italy should adhere to the right way of getting along with each other through mutual respect, openness and cooperation, Wang told Tajani.

Wang stressed that in the face of “new situations and new opportunities”, China is willing to adhere to openness and win-win with both sides. – Reuters

G20 per capita CO2 emissions from coal rise 7% from 2015 -research

STOCK PHOTO | Image by PublicDomainPictures from Pixabay

SINGAPORE – Group of 20 nations have increased per capita emissions nearly 7% from coal-fired power since 2015, with China and India adding new plants, and Australia’s CO2 count per head nearly three times higher than the world average, research showed on Tuesday.

As the bloc gathers for a summit in India this week, as many as seven G20 members – China, Brazil, India, Japan, South Korea, South Africa and the United States – have not yet drawn up plans to phase down coal use, according to environment group Ember, which focuses on the global transition to clean electricity.

G20 countries account for 80% of world power sector emissions, with per capita CO2 from coal power at 1.6 tons last year, up from 1.5 tons in 2015 and significantly higher than a global average of 1.1 tons, Ember said.

China, the world’s biggest coal consumer and its biggest source of CO2, saw per capita emissions reach 3.1 tons in 2022, up 30% from 2015 despite the addition of 670 gigawatts (GW) of renewable capacity over the period.

Beijing has pledged to start reducing coal consumption, but not until its 2026-2030 planning period. China has continued to develop new coal-fired power plants, with 243 GW of coal-fired power approved or under construction, enough to power the whole of Germany, according to a recent study.

India also saw per capita emissions from its coal sector rise 29% over the period to 0.8 tons.

“China and India are often blamed as the world’s big coal power polluters. But when you take population into account, South Korea and Australia were the worst polluters still in 2022,” said Dave Jones, one of the authors of Ember’s report.

Australia has cut per capita emissions from coal by more than a quarter since 2015, but still remains at more than 4 tons per head. South Korean emissions have fallen nearly 10% to 3.3 tons per head, second highest in the G20.

“As mature economies, they should be scaling up renewable electricity ambitiously and confidently enough to enable coal to be phased out by 2030.”

At the last G20 summit in July, countries failed to reach an agreement on enhancing their climate change commitments, with some blaming China for blocking a deal. – Reuters

China’s auto workers bear the brunt of price war as fallout widens

STOCK PHOTO | Image by LEEROY Agency from Pixabay

SHANGHAI – As Shanghai sweltered in a heatwave in June, the car factory where Mike Chen works switched production to night shifts and dialed down the air-conditioning.

For Chen, toiling through the early hours in his sweat-soaked uniform, it was the latest slap in the face after cuts in bonuses and overtime slashed his monthly pay this year to little more than a third of what he earned when he was hired in 2016.

Chen, 32, who works for a joint venture between China’s state-owned car giant SAIC and Germany’s Volkswagen, is far from alone. Millions of auto workers and suppliers in China are feeling the heat as an electric vehicle price war forces carmakers to shave costs anywhere they can.

“SAIC-VW used to be the best employer and I felt honored to work here,” said Chen. “Now I just feel angry and sad.”

The price war triggered by Tesla has sucked in more than 40 brands, shifted demand away from older models and forced some automakers to curb production of both EVs and combustion-engine cars, or shut factories altogether.

Reuters interviews with 10 executives of carmakers and auto parts suppliers, as well as seven factory workers, point to a broader industry in distress, with penny-pinching on everything from components to electricity bills to wages – which is in turn hitting spending elsewhere in the economy.

Asked about the SAIC-VW plant where Chen works, which makes combustion-engine cars, VW said pay at joint ventures varied based on working hours and bonuses. It said making cars at night eased the burden on power grids and that healthy, good working conditions were a high priority. SAIC did not respond.

Economists warn that China’s auto sector could even become a drag on economic growth because of the fallout from the price war, which would be a stark turnaround for a car industry that is by far the world’s biggest.

The problem is that while there has been huge investment in production capacity, helped by large state subsidies, domestic demand for cars has stagnated and household incomes remain under pressure, economists say.

In the first seven months of 2023, China sold 11.4 million cars at home and exported 2 million, but growth came almost entirely from abroad. Exports leapt 81% but domestic sales only crept 1.7% higher – despite the widespread price cuts.

“The focus on production and supply is lopsided,” said George Magnus, research associate at Oxford University’s China Centre, adding that inadequate attention to demand ultimately leads to inventory overhang, price cuts and financial stress.

“China really has to learn to walk on two legs.”

 

‘GOOD OLD DAYS HAVE GONE’

Chinese plants already were far from running at full tilt when Tesla first cut prices in October last year and then again in January. CEO Elon Musk has since doubled-down on his strategy with more cuts announced last month.

Including factories making combustion-engine cars, China had the capacity to produce 43 million vehicles a year at the end of 2022, but the plant utilization rate was 54.5%, down from 66.6% in 2017, China Passenger Car Association (CPCA) data show.

At the same time, pay cuts and lay-offs in the auto industry and its suppliers – which employ an estimated 30 million people according to Chinese state media – are hitting living standards at a time when Beijing desperately wants to lift consumer confidence from near record lows.

Cutting salaries is illegal in China, but complex pay structures offer ways around this.

SAIC-VW, for example, was able to reduce Mike Chen’s take-home pay by reducing working hours and cutting bonuses, without tinkering with his base pay, which typically covers up to half the compensation workers expect when they join.

BYD 002594.SZ, China’s largest EV maker, advertised a position in August at its Shenzhen factory with an estimated monthly income of 5,000-7,000 yuan, but the base salary was 2,360 yuan ($324).

The average monthly wage in China was 11,300 yuan in June, according to government data.

A Reuters analysis of the estimated income included in recent job adverts from 30 auto firms showed hourly salaries of 14 yuan ($1.93) to 31 yuan ($4.27), with Tesla, SAIC-GM, Li Auto and Xpeng at the higher end.

Auto worker Liu, 35, said he quit Changan Automobile’s plant in Hefei in July after earning 4,000 yuan in both May and June, rather than the 7,000 he expected each month. Based on his past experiences, Liu was confident he would quickly find another auto job, but the market had turned.

“The good old days are gone,” said Mr. Liu, speaking on condition of partial anonymity to protect his job prospects.

Changan Automobile said working hours and pay varied from worker to worker.

Several automakers including Mitsubishi Motors and Toyota have laid off thousands in China after sales slumped. Others such as Tesla and battery maker CATL have slowed hiring as they delayed expansions. Hyundai and its Chinese partner, meanwhile, are trying to sell a plant in Chongqing.

After being rejected by Li Auto and Xpeng, Liu almost got a job at Chery’s plant in the eastern port of Qingdao through a labour agent, but he refused to pay him a 32,000 yuan commission to secure the position.

“Some factories exhaust you and are willing to pay you more. Some factories exhaust you, but are stingy. Some factories don’t exhaust you, but starve you as salaries are too low,” Liu said.

“Maybe I’d be better off as a security worker in some office building.”

 

CUT THROUGH THE MESS

It has been a similarly brutal environment for auto suppliers in China as car prices have continued to fall, with the weighted average transaction price of EVs and hybrids in June down 15% from January at 185,100 yuan.

SAIC-VW, for example, offered over half a billion dollars in cash subsidies for car buyers in March and a discount of just over $5,100 on its ID.3 electric hatchback for a period in July.

State-run China Automotive News estimates there are over 100,000 auto suppliers in the country. In a March survey of nearly 2,000 by auto parts trading platform Gasgoo, 74% said automakers had asked them to reduce costs.

More than half were asked for reductions of 5% to 10%, higher than the 3% to 5% targets of previous years. Nine out of 10 companies expected more such requests this year.

Suppliers typically negotiate prices once a year, but many have been pressed to lower prices on a quarterly basis in 2023, two senior executives at auto suppliers said.

Before it kicked off the price war, Tesla sent emails to its direct suppliers, encouraging them to lower costs by 10% this year, according to a person with direct knowledge of the matter.

And in June, a group of small suppliers wrote to state-owned Changan Automobile to push back against 10% price reductions.

The EV battery market has also turned, with suppliers cutting prices for automakers. CATL, which counts Tesla as its biggest client, offered smaller domestic EV makers discounted batteries in February.

Lithium iron phosphate (LFP) batteries, the type used by Tesla in China, were 21% cheaper in August than five months ago, while nickel-cobalt batteries were 9% to 18% cheaper, RealLi Research data show.

When Chen Yudong, head of Bosch’s China operations visited one of his biggest customers in March, he received an unusual present, a chopping knife with a message engraved on its sheath: “Cut decisively through the mess.”

Three months later, he told Reuters that price cuts had been more aggressive in 2023 than in previous years.

“They’ve been keeping me awake at night.” – Reuters

India’s women gig workers organize with WhatsApp, secret meetings

STOCK PHOTO | Image by Webster2703 from Pixabay

As women workers at India’s Urban Company, an app-based firm providing beauty and home care services, prepared for a nationwide protest against its new rules and account deactivations, they exchanged hundreds of messages on WhatsApp on every small detail of the days-long action.

Thousands of Urban Company’s female employees, backed by the All India Gig Workers‘ Union, took to the streets in July in about half a dozen Indian cities to protest unfair response and rating requirements that led to their accounts being blocked.

It was the first nationwide labour action by female gig workers in India, where the rapidly expanding platform economy is dominated by men, and women have not been a part of trade unions because of the largely informal nature of their work.

That is changing now, as more women join unions and collectives focused on the rights of platform workers, taking the lead at protests, and in negotiations with companies and states for better benefits and more control of their data.

“Women gig workers were seeing other platform workers protest, and were motivated,” said Rakshita Swamy at Soochna Evam Rozgar Adhikar Abhiyan, a workers‘ collective that helped draft a gig worker’s law in Rajasthan state recently.

“They are also intimately connected to their mobile phones and are able to connect and organize more easily than women in rural areas,” she told the Thomson Reuters Foundation.

With persistently low numbers of women in formal employment, slow job creation and a disproportionate share of women in informal employment in India, digital platforms have been positioned as ideal for women, with promises of greater flexibility, dignity, autonomy and higher earnings.

But as the platform economy has grown, so have concerns around low wages, the lack of protections, limited flexibility and the opaque nature of algorithmic management that can result in random job assignments and ratings, and account deactivation.

Women are particularly vulnerable: recent research by rights group ActionAid showed that algorithms were found to discriminate against women “unable to respond as quickly or work as many hours as men because of unpaid care responsibilities”.

 

SINGLE MOTHERS

India is one of the largest and fastest-growing markets for the so-called gig economy, with nearly 8 million workers in 2020-21, and forecast to expand to 24 million workers by 2029-30, according to government think-tank NITI Aayog.

Women make up a very small part of the industry, and are largely concentrated in beauty services, domestic work, healthcare and education.

Food delivery platform Zomato has indicated that women make up about 1% of its workforce, while at Urban Company women make up over a third of its more than 45,000 contractors.

Manju Goel worked at an Amazon warehouse in the northern Indian town of Manesar for several months last year, alongside dozens of women who had to stand for long stretches, lift heavy packages, and had few breaks with limited access to restrooms.

Using WhatsApp and through brief interactions, Goel got about 60 workers to sign up with Amazon workers‘ union to ask for better conditions, and joining worldwide protests on Black Friday.

“They were afraid to join the union because they were afraid of losing their job. But there was no other way for us to make our demands heard,” said Ms. Goel, 45, a single mother of three.

“We saw the women protesting against Urban Company and we were inspired. Like me, many women there were also single mothers – if we don’t speak up, who will speak for us?”

A spokesperson for Amazon said the claims about dissatisfaction “are not true” and that the company ensures “healthy working conditions” for all workers, including women.

The company respects “freedom of association and our associates’ right to join, form, or not to join a labour union … without fear of reprisal, intimidation, or harassment”, the spokesperson said.

 

UNFAIR TO WORKERS

Organizing in the home care and beauty sectors is particularly challenging because workers have lower visibility and fewer chances to connect compared to their peers in ride-hailing and delivery services.

Urban Company workers‘ protests in October 2021 protests came after months of discussions over WhatsApp groups over the high commissions, the rating system and a lack of grievance mechanisms.

“When we realized everyone had the same issues, we quietly began meeting in small groups in the park,” said beautician Seema Singh, 36, who worked in the company for four years before her ID was blocked.

About 200 women protested outside the company’s office in Gurugram, near Delhi. They held a second protest that December.

Urban Company conceded to some of their demands, even as it filed legal cases against four of the women organizers including Singh, another first for the gig economy in the country.

“Seeing the protests in July, it felt really good that so many women are pushing back,” said Singh.

“It shows that the women are more aware and understand how unfair the platform is. But it also shows nothing has changed since we protested.”

Urban Company did not respond to a request for comment.

Last year, the firm was ranked highest among a dozen gig companies in India in a survey by the Oxford Internet Institute’s Fairwork on metrics such as pay, conditions and management.

In response to the protests in July, the company said it had “asked a few partners who were not meeting standards … to part ways”, and that it continues to “maintain an open-door policy and encourage dialogue with our partners.”

But Sheema Parveen, a beautician who worked at Urban Company in Hyderabad for two years, and whose ID was blocked in May, was unable to appeal to anyone at the company through the app – the only option she had.

“So many lives have been ruined by this platform – I heard of at least two women in this state who killed themselves after their IDs were blocked,” she said.

 

WIDENING THE GAP

India’s Rajasthan state in July approved a bill to impose a surcharge on online transactions via platforms like Amazon, Zomato and Urban Company to fund welfare benefits for gig workers, the first such scheme in the country.

Karnataka and Tamil Nadu states have also made moves to provide benefits, register gig workers and hear grievances.

But most platform companies worldwide assume that the typical worker is an “independent, efficient, mobile, digitally engaged man without family responsibilities or other considerations,” Fairwork said in a report this year.

For the women gig workers in India who are organizing, “they’ve now found their space in the political discourse. But it still takes years for advocacy to turn into a law,” said Swamy.

“Meanwhile, they’re taking a risk just showing up in a protest. The same device that they use to connect and organize is also used for surveillance and to boot them off the platform.” – Reuters

Teardown of Huawei’s new phone shows China’s chip breakthrough

REUTERS

Huawei Technologies and China’s top chipmaker SMIC have built an advanced 7-nanometer processor to power its latest smartphone, according to a teardown report by analysis firm TechInsights.

Huawei’s Mate 60 Pro is powered by a new Kirin 9000s chip that was made in China by Semiconductor Manufacturing International Corp (SMIC), TechInsights said in the report shared with Reuters on Monday.

Huawei started selling its Mate 60 Pro phone last week. The specifications provided advertised its ability to make satellite calls, but offered no information on the power of the chipset inside.

The processor is the first to utilize SMIC’s most advanced 7nm technology and suggests the Chinese government is making some headway in attempts to build a domestic chip ecosystem, the research firm said.

The firm’s findings were first reported by Bloomberg News.

Huawei and SMIC did not immediately reply to Reuters’ request for comment.

Buyers of the phone in China have been posting tear-down videos and sharing speed tests on social media that suggest the Mate 60 Pro is capable of download speeds exceeding those of top line 5G phones.

The phone‘s launch sent Chinese social media users and state media into a frenzy, with some noting it coincided with a visit by US Commerce Secretary Gina Raimondo.

From 2019, the US has restricted Huawei’s access to chipmaking tools essential for producing the most advanced handset models, with the company only able to launch limited batches of 5G models using stockpiled chips.

But research firms told Reuters in July that they believed Huawei was planning a return to the 5G smartphone industry by the end of this year, using its own advances in semiconductor design tools along with chipmaking from SMIC.

Dan Hutcheson, an analyst with TechInsights, told Reuters the development comes as a “slap in the face” to the U.S.

“Raimondo comes seeking to cool things down, and this chip is [saying] ‘look what we can do, we don’t need you,'” he said. – Reuters

 

Philippines inflation unexpectedly quickens to 5.3% in August

Vendors sell vegetables and other produce at a market along the Philippine National Railways (PNR) tracks in Calamba, Laguna, June 2, 2023. — PHILIPPINE STAR/MIGUEL DE GUZMAN

MANILA – Philippine inflation proved stubborn after it unexpectedly quickened for the first time in seven months in August, due largely to an uptick in food and transport costs, keeping the pressure on the central bank to maintain its hawkish stance.

The consumer price index (CPI) rose 5.3% year-on-year in August, above the 4.7% forecast of economists in a Reuters poll, which matched the previous month’s pace, but within the central bank’s 4.8% to 5.6% projection for the month.

Excluding volatile energy costs, core inflation eased to 6.1% in August from the previous month’s 6.7%.

Tuesday’s data affirmed the central bank’s belief the country was not yet out of the inflation woods and raised the possibility it could resume raising its policy rate after keeping it steady at 6.25% at its last three meetings.

Following the data, the Bangko Sentral ng Pilipinas (BSP) said in a statement it “stands ready to adjust the monetary policy stance as necessary” to prevent the broadening of price pressures and emergence of additional second order effects.

August inflation brought year-to-date inflation to 6.6%, well outside the central bank’s 2%-4% comfort range.

ING economist Nicholas Mapa said rice, transport and electricity costs will determine inflation path for next few months. While he expects the BSP to stay on hold, he said in a post on platform X, it “could consider a hike if this becomes a trend.”

The Bangko Sentral ng Pilipinas (BSP) next meets on Sept 21 to review policy.

To keep food prices at bay, the Philippines has imposed price ceilings on rice, which it said would remain in effect as long as the government deemed them necessary. Food accounts for 35% of CPI.

Following the unexpected rise in August consumer prices, the economic planning minister also said the Philippines, one of the world’s biggest rice importers, may reduce tariffs on the grain to help lower domestic costs.

“To partially counterbalance the rise in global prices and alleviate the impact on consumers and households, we may implement a temporary and calibrated reduction in tariffs,” Economic Planning Secretary Arsenio Balisacan said. — Reuters

SM Cares advocates safe spaces for breastfeeding moms with ‘Free to Feed’ initiative

SM Cares, the Corporate Social Responsibility arm of SM Supermalls, culminated its National Breastfeeding Month awareness campaign with a forum and announcement of winners of the Photography contest “Free to Feed: Championing Safe Spaces for Breastfeeding at SM” campaign.

Present in the SM City North Edsa culminating activity were (L-R): Nutritionist-Dietitian of the Quezon City Health Department Alexandra L. Cuyugan; BG Marie Tendencia-Valencia, photographer and judge; Abie Co-Floreza, President of Breastfeeding Pinays; Emerenciana L. Francia, Nutrition Officer III and Trainer on Infant and Young Child Feeding (IYCF) from the National Nutrition Council; Dr. Beverly Lorraine Ho, DOH Assistant Secretary for Public Health Services; Alice Nkoroi, Nutrition Manager of UNICEF Philippines; and Atty. Pearly Joan Jayagan Turley, SM Cares Program Director for Women. Rosalie Dagulo, DSWD Deputy Program Manager for Operations also joined as a panelist.

Winners of the Free to Feed photo contest were 1st: Angelo Clement T. Yap with his  “Nurturing Bonds: A Mother’s Love and the Gift of Breastfeeding” picture, followed by “Safe Haven” from Reu Dawner A. Flores and “SM: A Safe Space, Anytime, Anywhere” from John Ray Panes. Featured mothers were Jennifer J. Macoco, Robella Joyce E. Flores and Karen Kate Sally A. Susmiran, respectively.

SM Cares also conducted breastfeeding sensitivity training for nearly 5,800 mall frontliners  during the World Breastfeeding Week. Free to Feed fora and exhibit roadshows were held in SM malls in Davao, Pampanga, Dasmarinas and Iloilo. To further educate the public on the needs of breastfeeding mothers, the exhibit showcased a breastfeeding station mock-up and tips on workplace and family support according to Department of Labor and Employment (DOLE), International Labor Organization (ILO) and United Nations Children’s Fund (UNICEF) guidelines.

“By capturing how mothers can breastfeed openly today, be it through the lens of the camera or through dialogue, we can better create an inclusive experience that welcomes the role of families, colleagues and the general public as a whole in making such a journey a successful one,” said SM Cares Program on Women and Breastfeeding Mothers Program Director and SM Supermalls AVP for Corporate Compliance Atty. Pearl Jayagan Turley. “The exhibit and forum reflect our dedication to nurturing the spirit of togetherness and empathy that defines SM Cares. Together, we can create a world where every mother feels supported, empowered, and free to feed her child.”

The Free to Feed initiative was developed in line with SM Cares’ Program on Women and Breastfeeding Mothers. The project supports the United Nations’ Sustainable Development Goals, particularly “SDG 2: Zero Hunger” and “SDG 3: Good Health and Well-being”. The exhibit will remain open to the public at SM City North EDSA until September 2.

 

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UnionBank signs up as co-presentor for Travel Sale Expo 2023

Photo shows (L-R) Michelle Taylan, chairperson, Travel Sale Expo 2023; Mellany Sy, senior vice-president-Cards Portfolio Usage head, Union Bank of the Philippines; and Raj Joshua Bangi, president, One Klik Events Management Services.

One Klik Events recently signed a partnership agreement with Union Bank of the Philippines as co-presentor for the Travel Sale Expo 2023 scheduled on Sept. 29, 2023 to Oct. 1, 2023 at the Megatrade Hall, SM Megamall. One Klik Events is the organizer of Travel Sale Expo 2023.

The Travel Sale Expo 2023 will host about 150 exhibitors from the different stakeholders of the travel industry like travel agencies, airlines, hotels, resorts, tour operators, cruise liners, tour operators, travel insurance, amusement parks, museums and retailers of travel-related products. They will have the opportunity to showcase their various travel services to the public at special and discounted rates.

At the Travel Sale Expo 2023, Union Bank of the Philippines will provide the financial support needed at the travel event. “We at UnionBank are very excited to co-present the first-ever Travel Sale Expo 2023 by One Klik Events. So we will see you on Sept. 29 to Oct. 1 at the Megatrade Hall, SM Megamall,” Mellany Sy, senior vice-president-Cards Portfolio Usage head, Union Bank of the Philippines, explained.

Travel Sale Expo 2023 can be a good venue in promoting event sponsor’s services. “We are very honored that Union Bank of the Philippines can join us in this event and hope we can work together in making Travel Sale Expo 2023 a success,” Michelle Taylan, Travel Sale Expo 2023 chairperson, said.

 

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Rice retailers set to receive subsidies

An executive order setting a nationwide price ceiling on rice will take effect today, Sept. 5, 2023. — PHILIPPINE STAR/EDD GUMBAN

By Kyle Aristophere T. Atienza, Reporter

THE GOVERNMENT will extend financial assistance to retailers affected by price ceilings on rice, President Ferdinand R. Marcos, Jr. said on Monday.

The goal is to compensate rice retailers who are expected to lose income due to the price ceilings on regular and well-milled rice, he said in a speech before flying to Indonesia for a summit of Southeast Asian leaders. 

The President said the Agriculture and Trade agencies are now preparing the list of rice retailers and their associations, as well as identifying the amount of assistance needed to compensate them for their losses.

An executive order setting a nationwide price ceiling on rice will take effect today, Sept. 5. The order mandates a maximum price of P41 per kilo for regular milled rice and P45 for well-milled rice, as part of government efforts to protect consumers amid a surge in the food staple’s retail prices.

“We’ll have to consider how authorities can first afford to do this and how they will fund the subsidy,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.

He said the government needs to ensure that there will be “a clear method for all retailers to enjoy the support and not just a few.”

“If not all retailers receive support, we may see inefficiencies surface anew,” he said.

House Speaker Ferdinand Martin G. Romualdez, Mr. Marcos’ cousin, said he had instructed the Committee on Appropriations to look for ways to allocate P2 billion for the subsidy program.

“Our goal is to ensure that we can extend assistance to rice retailers who may be affected by this rice price ceiling, as it is a directive from our President aimed at protecting consumers,” he said.

Ako Bicol Party-list Rep. Elizaldy “Zaldy” Co, chairman of the House Appropriations panel, said the committee would work with the Department of Budget and Management to expedite the release of the P2 billion.

However, the move to provide subsidies is unsustainable given that there are thousands of small retailers nationwide, said Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños.

“It is inefficient, hard to implement and unsustainable,” he said via Messenger chat, noting that the government should instead lower rice tariffs.

In his departure speech, Mr. Marcos said the Department of Agriculture and other agencies have found no acceptable reasons behind the spike in rice prices, which are now above P50 per kilogram.

He said the government does not want to intervene in the market as much as possible but has been forced to impose price ceilings on rice due to alleged smugglers and hoarders’ disruption of the basic law of supply and demand.

“The people have suffered already, that’s why the government has been forced to impose price controls,” he said in Filipino. “This is a temporary measure; the rice supply will be coming in the second week of September.”

Social Welfare Secretary Rexlon T. Gatchalian described the price control as “a temporary stop-gap measure.”

“We don’t expect it to be long,” he told reporters on the sidelines of the departure ceremony for Mr. Marcos.

He said the department would implement a sustainable livelihood program for small-scale rice retailers.

The imposition of price control has been heavily criticized by economists, who said the order could limit the supply of the food staple and lead to black-market trading.

They also said traders might hesitate to buy rice from farmers, who will be left with no choice but to lower farmgate prices.

Mr. Marcos met with officials of the Trade department and other agencies hours before his departure speech.

The Presidential Communications Office said that aside from assistance, loan programs for rice retailers were also considered during the meeting.

“Instead of using the limited resources, we have to modernize our agricultural production and distribution system, we are going to use funds to give loans to retailers who themselves are embroiled in a messy and inefficient distribution system,” said Leonardo A. Lanzona, who teaches economics at the Ateneo de Manila University.

“For what purpose?  To save face after making campaign promises to produce rice at P20 per kilo?” he asked.

The economist reiterated his call for the government to revoke the price control order and “instead, develop systems and mechanisms to reduce transaction costs by matching the needs of farmers and the demands of consumers.”

Earlier, Mr. Lanzona said that if the government sees hoarding and smuggling as the key drivers of the surge in rice prices, it should encourage more players to enter the market, such as micro, small and medium enterprises and farmers, who can transact directly with consumers.

The Palace said the government is also eyeing logistics support “like providing government transportation for transferring sacks of rice from traders to retailers/wholesalers.”

It said programs that could link local rice farmers with supermarket chains and other retailers were also discussed during the Monday meeting.

In a separate statement, the Palace said Trade Secretary Alfredo E. Pascual has ordered the creation of a special task force that will profile and validate the list of rice retailers.

The task force’s official list “shall be the basis for the distribution of financial aid by the Department of Social Welfare and Development as early as next week,” Trade Assistant Secretary Teodoro Uvero said.

He said the task force will conduct visits in warehouses in various locations to ensure that there is enough supply and discourage hoarding.   

“The task force will ensure that consumers are protected and retailers will receive the assistance they need as the executive order takes effect,” he added.

BSP shifts to variable rate repo auction

BANGKO SENTRAL ng Pilipinas Governor Eli M. Remolona, Jr. — COURTESY OF BANGKO SENTRAL NG PILIPINAS

THE BANGKO Sentral ng Pilipinas (BSP) will shift to a variable rate format in the auction for the overnight reverse repurchase (RRP) facility starting Friday (Sept. 8), as well as introduce a formal operational target called the “Overnight (ON) RRP Rate.”

Similar to the existing BSP securities facility or the BSP bill auction, the variable rate format for the RRP will have a pre-determined offer volume.

BSP Governor Eli M. Remolona, Jr. in a statement on Monday said  an operational target is a market-determined, short-term interest rate that a central bank can “guide” on a daily basis to reflect the current monetary policy stance.

“For the BSP, the shift to variable rate RRP auction format will yield a market-determined rate for overnight funds, the ON RRP Rate, that conveys the results of the daily RRP auctions,” he said.

The BSP chief noted that the ON RRP Rate is an appropriate operational target due to the regularity of RRP auctions and market players’ familiarity with the instrument.   

Earlier in June, the BSP created the overnight rate as the benchmark for determining short-term interest rates amid the phaseout of the London Interbank Offered Rate (LIBOR).

Meanwhile, Mr. Remolona said that in the shift to a variable rate auction format, the BSP’s monetary policy rate would now be called the “Target RRP Rate.”

He said the BSP would signal its monetary policy stance through the Target RRP Rate. The rate will also be set after each policy review of the Monetary Board, similar to the central bank’s prevailing practices.

The RRP facility will also remain as the BSP’s primary monetary policy instrument, Mr. Remolona said.

“The ON RRP Rate is expected to move closely around the Target RRP Rate. Deviations of the ON RRP Rate from the Target RRP Rate will reflect changes in liquidity conditions from time to time, or when deviations from the liquidity forecasts occur,” he said.

Still, the ON RRP Rate should revert and move in accordance with the policy rate over time, as the RRP auction size is adjusted based on observed demand, he said.

“As the market familiarizes itself with the operational target, the ON RRP Rate will carry useful information on liquidity conditions and how they relate to the prevailing stance of monetary policy,” Mr. Remolona said.

“Thus, the introduction of an explicit operational target will provide monetary authorities an important market-based indicator that can help in assessing the effective stance of monetary policy,” he said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the BSP would now set the Target RRP Rate based on their preferred stance. It will then report a prevailing daily rate that reflects liquidity conditions and demand.

“If the ON RRP Rate is lower than the Target RRP Rate, the BSP may look to increase auction volumes to drain more liquidity that leads to tighter financial market conditions, which would cause rates to rise,” he said. 

“But if the ON RRP Rate is higher than the Target RRP Rate, the BSP may look to downsize auction volumes to allow liquidity buildup, which in turn will push rates closer to the Target RRP.”

The BSP also noted that the changes in the RRP facility are part of the central bank’s set of planned reforms during the adoption of the interest rate corridor (IRC) framework in 2016. 

These changes are largely operational and do not constitute any shift in the BSP’s monetary policy stance, Mr. Remolona said. It will also enhance the transmission of monetary policy.

“The shift to the variable rate auction format will also help strengthen the price discovery process by providing market participants and monetary authorities alike a market-determined interest rate that conveys the prevailing cost of and demand for overnight funds in the financial system,” he said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the changes are part of the development of a credible, market-determined funding rate that will be determined by market forces daily.

“The yield curve (should be) more realistic and credible for market players, instead of being distorted and artificially priced, thereby making the IRC system implemented since 2016 more dynamic and effective,” he said. 

This may also lead to a more effective and transparent transmission of monetary policy rates coursed through banks and financial markets. — Keisha B. Ta-asan

Maharlika investments need to be monitored — analysts

A Philippines peso note is seen in this picture illustration on June 2, 2017. — REUTERS

By Luisa Maria Jacinta C. Jocson, Reporter

THE MAHARLIKA Investment Corp. (MIC) must ensure that investments made by the country’s first wealth fund would generate returns higher than investments made by existing government financial institutions, analysts said.

This as the implementing rules and regulations (IRR) allow the Maharlika Investment Fund (MIF) to make wide-ranging investments in infrastructure projects, fixed-income instruments, domestic and foreign corporate bonds, and listed or unlisted equities, among others.

“To justify the existence of the MIF, the government must prove that the returns on their investments are greater than the returns if these resources were invested in our government social investments or by our own government financial institutions,” Ateneo de Manila University economics professor Leonardo A. Lanzona said in an e-mail.

“In other words, these investments are characterized by very high opportunity costs, especially because most of the government funds are based on its borrowings. Failure to achieve high returns will only result in even greater taxes or debt for the country,” he added.

Any investments to be made by the Maharlika fund should also be carefully scrutinized to prevent the government from incurring losses and more debt.

Former Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said Congress has created a “strategic, super investment corporation that can do almost anything even against its own good.”

“In doing infrastructure, it does not have to put up this superbody; we have the Public Works and Highways and Transportation departments to do it as part of their duties to elevate the quality of social and economic services funded by the budget. We are in effect creating another layer of bureaucracy. This is very expensive,” he said in a text message.

Mr. Guinigundo said risks could arise from the fact that the MIC can extend loans and guarantees.

“Another exhibit of bad thinking is allowing MIC to grant loans and even provide guarantees to companies which may be described as semi-government because there are presumably private investors involved,” he said.

Under the rules, the MIC is authorized to extend “loans and guarantees to, or participation into joint ventures or consortiums with Filipino and foreign investors, whether in the majority or minority position in commercial, industrial, mining, agricultural, housing, energy, and other enterprises, which may be necessary or contributory to the economic development of the country, or important to the public interest.”

Mr. Guinigundo said this could increase contingent liabilities of the government and increase the risk to fiscal sustainability.

“Because the country has no surplus and funds will be coming from other government agencies whose budget may have to be funded by either taxes or loans, what the Maharlika is effectively doing is investing borrowed funds, lending borrowed funds or extending guarantees with borrowed funds,” he said.

“Nothing prevents politics from possibly entering business decisions here. What will prevent Maharlika from buying distressed but favored corporates? Or invest in stocks of distressed but favored corporates?”

Former BSP Governor Felipe M. Medalla said the IRR has “enough” safeguards but noted that MIC’s current structure is “much more than an asset management corporation.”

“For instance, it can ‘execute strategic initiatives that resonate with the fund’s objectives and align with the country’s economic strategies’ possibly through ‘joint venture or co-investment not prejudicial to the interest of government,’” he said in a text message.

“However, given how difficult the above task could be, it may end up as an ordinary (e.g., nonstrategic) fund management company, which has to be funded by a government that is heavily indebted,” he added.

Under the IRR, the MIC can also invest in cash, foreign currencies, metals, and other tradable commodities; fixed-income instruments issued by sovereigns, quasi-sovereigns and supranationals; domestic and foreign corporate bonds; listed or unlisted equities, whether common, preferred, or hybrids; and Islamic investments, such as Sukuk bonds.

Mr. Lanzona noted that investing in unlisted equities and foreign bonds could offer “conceptually higher growth rates and provide opportunities to engage with early stage companies with high-growth potential.”

“However, these also come with higher risks and are less liquid than listed equities. The same higher return potential is also found in foreign bonds, but they come with additional risks due to currency exchange fluctuations and geopolitical factors,” he said.

Mr. Lanzona said that the MIC board must consider not just the level of returns but the risks that can be tolerated given the wide array of investments it can invest in.

“How the MIF will bring the needed returns net of its high opportunity costs remains a fundamental question. Investing government resources that come essentially from the country’s debts is foolhardy,” he said.

The National Government’s (NG) outstanding debt reached a record P14.15 trillion as of end-June. As of end-June, the NG’s outstanding debt as a share of gross domestic product stood at 61%, slightly higher than the 60.9% seen as of end-December. This was also still above the 60% threshold considered manageable by multilateral lenders for developing economies.

Meanwhile, Regina Capital Development Corp. Head of Sales Luis A. Limlingan said the MIC board should favor a “balanced portfolio with measured risk.”

“Since I work in local equities my views are biased, however, modern portfolio theory has taught us that diversification minimizes risk and maximizes return,” he said in a Viber message.

“The external factors have been very hard to factor and discount especially when it comes to geopolitical risks. Having an experienced fund manager that has international experience would greatly be beneficial to the team,” he added.

PHL external debt service up 160% as of end-May

REUTERS

THE PHILIPPINES’ debt service burden on its external debt more than doubled as of end-May amid high global interest rates.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the Philippines’ debt service burden on its external debt increased by 160% to $6.5 billion from $2.5 billion a year ago. 

The debt service burden refers to the amount of money a country needs to pay back to its foreign creditors. It includes both the principal and interest payments on its external debt. 

BSP data showed principal payments climbed by 164.3% to $3.7 billion from $1.4 billion a year ago.

Interest payments jumped by 145% to $2.7 billion in the first five months of the year from $1.1 billion a year earlier.

Principal external debt service is mostly fixed medium- to long-term credits, while interest payments are on fixed and revolving short-term credits of banks and nonbanks.

“Increased bond issuance by the National Government, which is part of the borrowing program, may have pushed up the principal payments to $3.7 billion,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

He said the recent spike in global interest rates is the likely reason behind the 145% increase in interest payments.

Central banks across the world have tightened monetary policy to curb inflation.

“Higher external debt service burden may be attributed to higher prices/inflation that increased government expenditures, increased budget deficits and foreign borrowings,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said, adding that the weaker peso could also be a factor.

Headline inflation eased to 6.1% in May from 6.6% in April and brought the five-month average to 7.5%. May also marked the 14th straight month inflation breached the BSP’s 2-4% target.

Based on the latest central bank data, the Philippines’ outstanding external debt rose by 8.25% to $118.8 billion as of end-March from the $109.75-billion level a year earlier.

External debt refers to all types of borrowings by Philippine residents from nonresidents, following the residency criterion for international statistics.

The external debt as of end-March was equivalent to 29% of gross domestic product, higher than 27.5% from end-December and end-March 2022.

The debt service ratio also increased to 12.9% as of end-March from 4% a year ago. — KBT

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