The outgoing Trump administration has unveiled an executive order banning US investment in Chinese firms that it says are owned or controlled by the Chinese military, adding further economic pressure on Beijing.
The order has the potential to impact some of the largest Chinese companies, including telecom companies China Mobile Ltd, China Telecom Ltd and surveillance equipment producer Hikvision.
From 11 January 2021, the order will prohibit US investment firms and pension funds from purchasing the securities of 31 Chinese companies that the Defense Department identified as backed by the People’s Liberation Army earlier this year. However, transactions made for the purpose of divesting ownership in these companies will be permitted until 11 November 2021.
“China is increasingly exploiting United States capital to resource and to enable the development and modernisation of its military, intelligence, and other security apparatuses,” the order said.
It is not yet clear how much impact the order will have. The affected companies do not appear to include publicly traded Chinese tech giants, while several other tech firms (including Huawei) do not trade on the stock market. Some of the firms said to be affected are state-owned companies with no foreign stockholders, such as China Electronics Technology Group, though others – such as CRRC Corp – do have foreign investors.
According to investment strategist Andy Rothman of fund manager Matthews Asia, US investors own around 2% of the value of the companies traded on the Chinese stock market, meaning that the order is unlikely to be greatly consequential to the Chinese economy.
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As the order allows ownership in the listed companies to be retained until 11 November, there is a significant possibility of the incoming Biden administration rescinding the order before it can affect US shareholders.
Every NATO country contributes to the costs of running the Alliance. By far the biggest contribution comes from Allies’ taking part in NATO-led missions and operations. For example, one country might provide fighter jets, while another provides ships or troops. NATO Allies also pay directly to NATO to cover the costs of NATO staff and buildings, its Command Structure, and its jointly-owned equipment, like its AWACS aircraft.
In recent news Donald Trump praised Saudi Arabia for fighting extremism in the region and said he was the one to make North Atlantic Treaty Organisation (Nato) members spend more on defence.
In addition, cyber-attacks are becoming more common, sophisticated and damaging. Cyber defence is now a top priority for NATO. NATO now recognises cyberspace as an ‘operational domain’ – just like land, sea and air. NATO helps Allies to boost their cyber defences by sharing information about threats, investing in education and training, and through exercises. NATO also has cyber defence experts that can be sent to help Allies under attack.
Lack of trust and transparency as a result of ideological and military conflicts are undermining the international supply chains linking the world, according to the Q1 2017 CIPS Risk Index, powered by Dun & Bradstreet. Prolonged conflict is creating supply chain no-go areas, cutting off local businesses and consumers from global markets and potentially causing a scarcity of goods.
Military conflict
The conflict between Ukraine and separatist rebels in the east of the country continued to hinder both physical and digital supply chains this quarter. A power cut in Kiev in December 2016 is now widely believed to have been the result of a cyber-attack, while in March, Ukraine suspended all cargo from entering separatist-held territory. Despite this, Eastern Europe and Central Asia only contributed 7.6% of global supply chain risk this quarter, down from 8.5% in Q4 2016. The change is the result of an update to the trade weightings used in the Index as the fall in commodity prices has reduced the importance of the region's trade flows in global supply chains. Businesses have been busy re-routing supply chains away from the conflict area, while sanctions have discouraged businesses from dealing with Russia. This process has accelerated as a result of persistently low commodity prices which have seen the value of the region's exports fall.
Civil wars in Iraq, Libya, Syria and Yemen are also disrupting traditional land-based supply chains across the Middle East, curtailing the flow of goods from Jordan and Lebanon through Syria and Iraq, and in North Africa between Egypt, Tunisia and Algeria. The conflicts look likely to continue disrupting supply chains beyond 2017. As with Eastern Europe, international supply chains have largely insulated themselves from the Middle East. The region's trade weighting has been updated following the collapse in oil prices which reduced the value of trade flows from the Middle East, lessening its importance in the global supply chain. The region therefore contributed just 7.9% of global supply chain risk in Q1 2017, down from 9% last quarter.
Ideological conflict
Q1 2017 has also seen an escalation in the ideological conflict between globalisation and economic nationalism, with the British Prime Minister, Theresa May's, visit to the White House in January 2017 symbolic of the shift in emphasis from multilateral to bilateral trade deals. Despite President Donald Trump's decision not to pull out of the North American Free Trade Agreement (NAFTA) in April 2017, the future trading relationship between Canada, Mexico and the USA remains uncertain. As a result, North America's contribution to global supply chain risk rose from 8.1% in Q4 2016 to 8.6% in Q1 2017.
In France, Marine Le Pen's advance to the second round of the presidential election raised serious concerns for businesses with supply chains in the region. The failed candidate had promised to close French borders immediately, abandon free-trade deals, tax businesses with foreign employees and leave the European Union. Collectively these measures could have significantly hindered businesses that rely on French suppliers. The election of President Emmanuel Macron should dissipate these fears.
Elsewhere in Europe, the ideal of a borderless Europe looks increasingly secure. Whether Chancellor Angela Merkel, or her opponent Martin Schulz succeeds in Germany's parliamentary elections, the German government looks likely to retain a pro-EU outlook. Although temporary border controls have been extended in Germany and Sweden, they look likely to be abolished by the end of the year, helping to reduce delays at these crucial supply chain interchanges.
In China, meanwhile, exchange controls implemented in November 2016 have prevented foreign businesses from transferring cash outside of the country. The rules prevent overseas acquisitions of more than USD10bn and require banks to keep net cross-border Renminbi transfers balanced. The controls make routine activity such as royalty payments difficult and pose a significant risk to businesses with supply chains in the region.
National disruption
Localised conflicts have affected local supply chains in Q1 2017. In Chile a six week strike ending on 24th March at La Escondida copper mine reduced global copper capacity by 5%. Terrorism also remains a risk for businesses working with suppliers in Chile. Fires destroying 238,000 hectares of forest are widely thought to have been caused deliberately, while a spate of bombings have continued in the capital, Santiago. Latin America's contribution to global supply chain risk has dropped however, from 7.5% in Q4 2016 to 7.15% in Q1 2017. The reduction is the result of falling commodity prices which have considerably reduced the value of the region's exports to the rest of the world.
The Indian Government's unexpected decision to withdraw 86% of the country's cash as part of a crackdown on the use of counterfeit money has left businesses struggling to pay suppliers and workers. Combined with prolonged congestion at major Indian ports, India has helped to push global supply chain risk upwards. Asia Pacific contributed 37.4% of supply chain risk in Q1 2017, up from 33% at the end of 2016. In the long-term, however, progress continues to be made to create a nationwide Indian customs union which would see local tariffs abolished and encourage investment in supply chain infrastructure across the country.
John Glen, CIPS Economist and Director of the Centre for Customised Executive Development at The Cranfield School of Management, said: "Supply chains are a shared resource between consumers, businesses and governments, with procurement and supply chain managers acting as the guardians. When these links are effective, businesses can benefit from lower prices, consumers from better choice and society from greater knowledge sharing. It is therefore crucial they are protected, made resilient and as effective as possible, particularly when faced with a barrage of challenges."
"Supply chain infrastructure can only function normally and efficiently when there is trust and collaboration between all nationalities and sections of society. Whether through military confrontation in the Middle East or political schism in Britain, supply chain infrastructure is one of the first casualties of conflict and the results can be devastating."
Bodhi Ganguli, Lead Economist, Dun & Bradstreet: "The improvement in the Global Risk Index (GRI) affirms that after a rather torrid start to the year, the global economy is settling down. The growth outlook is brightening, headwinds are diminishing, and forecasts generally point to better outcomes than we had expected a year ago. Yet, underlying this feel-good momentum, the global economy continues to face risks, both systemic and exogenous, that could flare up. From the fanning of protectionist inclinations by the rise of right-wing populism, to a one-off hit to supply chains from North Korean aggression, global supply chains and cross-border business strategies must remain cognisant of these risks, while utilising data and insights to take advantage of the opportunities created by the rising tide of global growth."
(Source: Dun & Bradstreet)
