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Tag: MCE

  • U.S. Treasury posts sharply higher $228 billion June deficit

    U.S. Treasury posts sharply higher $228 billion June deficit

    WASHINGTON, July 13 (Reuters) – The U.S. government posted a $228 billion budget deficit for June, up 156% from a year earlier as revenues continued to weaken and July benefit payments were accelerated into June, the U.S. Treasury Department said on Thursday.

    The deficit compares to a June 2022 budget gap of $89 billion. June receipts fell $42 billion, or 9% from a year ago, to $418 billion, while June outlays rose $96 billion, or 18%, to $646 billion.

    But some $86 billion worth of July benefit payments were made in June because July 1 fell on a weekend, and without these and other calendar adjustments, the June deficit would have been $142 billion — a 66% increase over June 2022.

    For the first nine months of the 2023 fiscal year, which ends Sept. 30, receipts fell $423 billion, or 11%, from the year-ago period to $3.413 trillion. The decline was primarily driven by lower non-withheld individual income taxes due to lower capital gains in 2022 and lower year-end salary bonuses, as well as sharply higher individual tax refunds as the Internal Revenue Service cleared a backlog of unprocessed receipts.

    The Federal Reserve has earned $93 billion less this year because it is paying higher interest on bank reserves and no longer has positive net income – a situation that a Treasury official said was expected to continue.

    Year-to-date outlays rose $455 billion, or 10% from a year earlier to $4.805 trillion. Higher outlays for Social Security this year have been driven by cost-of-living adjustments, while the interest on the public debt so far this year has risen $131 billion, or 25%, to $652 billion due to higher interest rates.

    Also driving up outlays were $52 billion in Federal Deposit Insurance Corp costs to resolve failing banks, a Treasury official said.

    Reporting by David Lawder; Editing by Andrea Ricci

    Our Standards: The Thomson Reuters Trust Principles.

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  • Chip wars: How ‘chiplets’ are emerging as a core part of China’s tech strategy

    Chip wars: How ‘chiplets’ are emerging as a core part of China’s tech strategy

    July 13 (Reuters) – The sale of struggling Silicon Valley startup zGlue’s patents in 2021 was unremarkable except for one detail: The technology it owned, designed to cut the time and cost for making chips, showed up 13 months later in the patent portfolio of Chipuller, a startup in China’s southern tech hub Shenzhen.

    Chipuller purchased what is referred to as chiplet technology, a cost efficient way to package groups of small semiconductors to form one powerful brain capable of powering everything from data centers to gadgets at home.

    The previously unreported technology transfer coincides with a push for chiplet technology in China that started about two years ago, according to a Reuters analysis of hundreds of patents in the U.S. and China and dozens of Chinese government procurement documents, research papers and grants, local and central government policy documents and interviews with Chinese chip executives.

    Industry experts say chiplet technology has become even more important to China since the U.S. barred it from accessing advanced machines and materials needed to make today’s most cutting edge chips, and now largely underpins the country’s plans for self-reliance in semiconductor manufacturing.

    “U.S.-China competition is on the same starting line,” Chipuller chairman Yang Meng said about chiplet technology in an interview with Reuters. “In other (chip technologies) there is a sizeable gap between China and the United States, Japan, South Korea, Taiwan.”

    Barely mentioned before 2021, Chinese authorities have highlighted chiplets more frequently in recent years, according to a Reuters review. At least 20 policy documents from local to central governments referred to it as part of a broader strategy to increase China’s capabilities in “key and cutting-edge technologies”.

    “Chiplets have a very special meaning for China given the restrictions on wafer fabrication equipment,” said Charles Shi, a chip analyst for brokerage Needham. “They can still develop 3D stacking or other chiplet technology to work around those restrictions. That’s the grand strategy, and I think it might even work.”

    Beijing is rapidly exploiting chiplet technology in applications as diverse as artificial intelligence to self-driving cars, with entities from tech giant Huawei Technologies to military institutions exploring its use.

    More major investments in the area are on the way, according to a review of corporate announcements.

    CHINA’S CHIPLET ADVANTAGE

    Chiplets, or small chips, can be the size of a grain of sand or bigger than a thumbnail and are brought together in a process called advanced packaging.

    It is a technology the global chip industry has increasingly embraced in recent years as chip manufacturing costs soar in the race to make transistors so small they are now measured in the number of atoms.

    Bonding chiplets tightly together can help make more powerful systems without shrinking the transistor size as the multiple chips can work like one brain.

    Apple’s high-end computer lines use chiplet technology, as do Intel and AMD’s more powerful chips.

    About a quarter of the global chip packaging and testing market sits in China, according to Dongguan Securities.

    While some say this gives China an advantage in leveraging chiplet technology, Chipuller chairman Yang cautioned the proportion of China’s packaging industry that could be considered advanced was “not very big”.

    Under the right conditions, chiplets that are personalised according to the needs of the customer can be completed quickly, in “three to four months, this is the unique advantage China holds,” according to Yang.

    Needham’s Shi said according to import data published by China’s customs agency, China’s purchase of chip packaging equipment soared to $3.3 billion in 2021 from its previous high of $1.7 billion in 2018, although last year it fell to $2.3 billion with the chip market downturn.

    Since early 2021 research papers on chiplets started surfacing by researchers of the Chinese military People’s Liberation Army and universities it runs, and state-run and PLA-affiliated laboratories are looking to use chips made using domestic chiplet technology according to six tenders published over the past three years.

    Public documents by the government also show millions of dollars worth of grants to researchers specializing in chiplet technology, while dozens of smaller companies have sprouted throughout China in recent years to meet domestic demand for advanced packaging solutions like chiplets.

    CHIPLETS ON THE TABLE

    Against the backdrop of escalating U.S.-China tension, Chinese company Chipuller acquired 28 patents either owned by zGlue or invented by people whose names are on zGlue’s patents, according to an analysis using IP management technology firm Anaqua’s Acclaim IP database.

    The acquisition was through a two-step transfer, first through British Virgin Islands-registered North Sea Investment Co Ltd, according to documents seen by Reuters and confirmed by Yang.

    The Committee on Foreign Investment in the United States (CFIUS), a powerful Treasury-led committee that reviews transactions for potential threats to U.S. security, did not respond to a Reuters request for comment about whether such sales would require their approval.

    CFIUS lawyers Laura Black at Akin’s Trade Group, Melissa Mannino at BakerHostetler and Perry Bechky at Berliner Corcoran & Rowe say patent sales alone would not necessarily give CFIUS authority over the deal, as it depends whether the assets purchased constitute a U.S. business.

    Representative Mike Gallagher, an influential lawmaker whose select committee on China has pressed the Biden administration to take tougher stances on China, told Reuters zGlue’s case highlights the “urgent need to reform CFIUS”.

    “(People’s Republic of China) entities should not be able to act with impunity to take advantage of distressed U.S. firms to transfer their IP to China,” he said in an emailed statement.

    Chipuller’s Yang said zGlue’s lawyer communicated with both CFIUS and the Department of Commerce to ensure the sale to North Sea would not fall foul of export controls.

    These discussions did not include mention of Chipuller or the possibility of a Chinese entity ending up in possession of the patents, according to a Chipuller spokesperson.

    “Everything was done very transparently and in accordance with (U.S.) law,” Yang said.

    Yang said he considered himself a founder of zGlue as he became an investor in the company in 2015, soon after its formation, and later became a director and chairman.

    CFIUS visited zGlue offices in 2018 to conduct an investigation because the company’s largest non-U.S. investor, Yang, was from China, the chairman said.

    “So we have spent a lot of time communicating with CFIUS,” Yang said, adding that Chipuller currently does not supply any Chinese military or U.S.-sanctioned entities.

    Chipuller isn’t the only firm with chiplet technology.

    Huawei, China’s tech and chip design giant that has been put on the U.S.’s most restricted list, has been actively filing chiplet patents.

    Huawei published over 900 chiplet-related patent applications and grants last year in China, up from 30 in 2017, according to Anaqua’s director of analytics solutions Shayne Phillips.

    Huawei declined to comment.

    Reuters identified over a dozen announcements over the past two years for new factories or expansions of existing ones from companies using chiplet technology in manufacturing across China’s tech sector, representing an investment totalling over 40 billion yuan.

    They include domestic giants TongFu Microelectronics (002156.SZ) and JCET Group (600584.SS), as well as fast-growing startups such as Beijing ESWIN Technology Group, which spent 5.5 billion yuan on a factory for its chiplet-focused subsidiary that began operating in April.

    One article published in May by an outlet run by China’s Ministry of Industry and Information Technology (MIIT) urged big Chinese tech firms the use of domestic packaging companies such as TongFu to help build China’s self-sufficiency in computing power.

    “Use Chiplet technology to break through the United States’ siege of my country’s advanced process chips,” it said.

    MIIT did not respond to a request for comment.

    Chipuller chairman Yang puts it this way: “Chiplet technology is the core driving force for the development of the domestic semiconductor industry,” he said on the company’s official WeChat channel. “It is our mission and duty to bring it back to China.”

    ($1 = 7.2205 Chinese yuan renminbi)

    Reporting by Jane Lanhee Lee and Eduardo Baptista; Additional reporting by Echo Wang and Stephen Nellis; editing by Kenneth Li, Brenda Goh and Lincoln Feast.

    Our Standards: The Thomson Reuters Trust Principles.

    Reports on global trends in computing from covering semiconductors and tools to manufacture them to quantum computing. Has 27 years of experience reporting from South Korea, China, and the U.S. and previously worked at the Asian Wall Street Journal, Dow Jones Newswires and Reuters TV. In her free time, she studies math and physics with the goal …

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  • UPS strike could be costliest in US in a century, study says

    UPS strike could be costliest in US in a century, study says

    July 13 (Reuters) – A threatened U.S. strike at United Parcel Service (UPS.N) could be “one of the costliest in at least a century,” topping $7 billion for a 10-day work stoppage, a think tank specializing in the economic impact of labor actions said on Thursday.

    That estimate from Michigan-based Anderson Economic Group (AEG) includes UPS customer losses of $4 billion and lost direct wages of more than $1 billion. A 15-day UPS strike in 1997 disrupted the supply of goods, cost the world’s biggest parcel delivery firm $850 million and sent some customers to rivals like FedEx (FDX.N).

    Roughly 340,000 union-represented UPS workers handle about a quarter of U.S. parcel deliveries and serve virtually every city and town in the nation. A strike could delay millions of daily deliveries, including Amazon.com (AMZN.O) orders, electronic components and lifesaving prescription drugs, shipping experts warned. They added this also could reignite supply-chain snarls that stoke inflation.

    A strike by roughly 340,000 U.S. workers at the world’s biggest package delivery firm threatens to delay millions of shipments, snarl supply chains and send shipping costs higher.

    Talks are deadlocked between UPS and the International Brotherhood of Teamsters union.

    The Teamsters have vowed to strike if a deal is not ratified before the current contract expires at midnight on July 31.

    “Consumers are going to feel this within days,” AEG CEO Patrick Anderson said of a potential strike, adding his analysis does not include the human cost of disruption to shipments of critical and perishable medicines to treat cancer and other life-threatening illnesses.

    A sticking point in negotiations is pay increases for part-time workers who account for roughly half the UPS workforce. Tenured part-timers are particularly frustrated because they make just slightly more than new hires whose wages have jumped in a tight labor market.

    Anderson said a UPS employee walkout would be a bigger risk to the U.S. economy than a work stoppage by UAW workers at the “Detroit Three” automakers, who started contract talks on Thursday.

    He noted that the automaker talks cover fewer workers and have a limited geographic impact. In fiscal 2019, GM’s (GM.N) fourth-quarter profit took a $3.6 billion hit from a 40-day UAW strike that shut down its profitable U.S. operations.

    UPS is urging Teamster negotiators to return to the bargaining table, but union officials say UPS needs to sweeten its offer for workers who risked their lives during the pandemic to help the company generate outsized profits.

    UPS faces two unappealing choices, Stifel analyst Bruce Chan said in a recent note: Risk a strike and resulting customer losses or acquiesce to Teamster demands that could worsen the company’s labor cost disadvantage versus nonunion rivals in an inflationary environment.

    “Both situations would create pain for UPS, so it could just be a question of when and how the company wants to take its medicine,” Chan said.

    Reporting by Lisa Baertlein in Los Angeles, additional reporting by Priyamvada C in Bengaluru; Editing by Pooja Desai, Jonathan Oatis and David Gregorio

    Our Standards: The Thomson Reuters Trust Principles.

    Lisa Baertlein covers the movement of goods around the world, with emphasis on ocean transport and last-mile delivery. In her free time, you’ll find her sailing, painting or exploring state and national parks.

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  • As companies bring more jobs to Mexico, US wants labor rights safeguards

    As companies bring more jobs to Mexico, US wants labor rights safeguards

    MEXICO CITY, July 3 (Reuters) – The U.S. wants Mexico’s government to build strong institutions to protect worker rights as companies aiming to avoid supply chain disruptions in far-off production spots bring more jobs to the country, a top U.S. labor official told Reuters.

    Mexico has begun to benefit from “nearshoring” in which companies seek to move production closer to the U.S. market while maintaining competitive costs.

    The trend is further testing a trade deal known as the U.S.-Mexico-Canada Agreement (USMCA), in effect since July 2020.

    The pact has tougher labor rules than its 1994 predecessor and underpins new Mexican laws that empower workers to push for better wages and conditions after years of stagnant salaries and pro-business union contracts.

    Three years into the deal, experts say, some workers have begun to benefit but broad impacts are still far off.

    “Hopefully that will ensure that Mexico doesn’t become a dumping ground for companies looking for cheap labor and lax regulations,” said Thea Lee, U.S. Deputy Undersecretary for International Labor Affairs who polices USMCA compliance.

    She said in an interview that Mexico was working to fulfill its commitments, backed by leadership keen on helping workers.

    Mexico’s new regulations favor companies taking on higher ethical standards, she said.

    “Maybe 20 years ago it was okay for a multinational corporation to throw up their hands and say, ‘we have no idea what’s in our supply chain, what the labor conditions are,’” she added.

    “That doesn’t seem to be acceptable anymore.”

    Mexico has made progress improving labor courts, resolving worker complaints faster and easing union organization, but needs to do more, Lee said.

    “Our hope is that Mexico will be well-poised to take advantage of nearshoring … if they continue on the path towards really building labor institutions that work, where workers can have confidence.”

    Since 2020, several U.S. labor complaints in Mexico have paved the way for independent unions to land pay raises and even expand. Lee said such examples inspire workers who in the past may have feared threats or dismissals for trying to organize.

    Four more cases are under review: At a garment factory, an auto parts plant, a Goodyear tire plant, and a mine owned by conglomerate Grupo Mexico.

    Yet one employer that faced two USMCA complaints, U.S.-based VU Manufacturing that makes interior car parts in the northern city of Piedras Negras, recently dismissed dozens of employees just months after a new union, La Liga, pressed for better wages. VU did not respond to a request for comment.

    Lee said the company risks penalties if it does not uphold an agreement around worker rights. But La Liga members have already been laid off, and fear the company aims to discourage organizing, said union leader Cristina Ramirez, who lost her job.

    “It’s very disappointing and frustrating,” Ramirez said. “We wanted to fight for things to improve.”

    Reporting by Daina Beth Solomon; Editing by David Gregorio

    Our Standards: The Thomson Reuters Trust Principles.

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  • Turkey’s Erdogan signals economic U-turn in picking orthodox Simsek

    Turkey’s Erdogan signals economic U-turn in picking orthodox Simsek

    • Erdogan begins new five-year term after runoff win
    • Unorthodox rate cuts had exacerbated cost-of-living crisis
    • Economy under deep strain, Simsek seen reversing course

    ANKARA, June 3 (Reuters) – President Tayyip Erdogan signalled on Saturday his newly-elected government would return to more orthodox economic policies when he named Mehmet Simsek to his cabinet to tackle Turkey’s cost-of-living crisis and other strains.

    Simsek’s appointment as treasury and finance minister could set the stage for interest rate hikes in coming months, analysts said – a marked turnaround from Erdogan’s longstanding policy of slashing rates despite soaring inflation.

    After winning a runoff election last weekend, Erdogan, 69, who has ruled for more than two decades, began his new five-year term by calling on Turks to set aside differences and focus on the future.

    Turkey’s new cabinet also includes Cevdet Yilmaz, another orthodox economic manager, as vice president, and the former head of the National Intelligence Organisation (MIT) Hakan Fidan as foreign minister, replacing Mevlut Cavusoglu.

    Erdogan’s inauguration ceremony at Ankara’s presidential palace was attended by NATO Secretary-General Jens Stoltenberg, Venezuelan President Nicolas Maduro and other dignitaries and high-level officials.

    The apparent U-turn on the economy comes as many analysts say the big emerging market is heading for turmoil given depleted foreign reserves, an expanding state-backed protected deposits scheme, and unchecked inflation expectations.

    Simsek, 56, was highly regarded by financial markets when he served as finance minister and deputy prime minister between 2009 and 2018.

    Reuters reported earlier this week Erdogan was almost certain to put him in charge of the economy, marking a partial return to more free-market policies after years of increasing state control of forex, credit and debt markets.

    QUESTION OF INDEPENDENCE

    Analysts said that after past episodes in which Erdogan pivoted to orthodoxy only to quickly return to his rate-cutting ways, much would depend on how much independence Simsek is granted.

    “This suggests Erdogan has recognised the eroding trust in his ability to manage Turkey’s economic challenges. But while Simsek’s appointment is likely to delay a crisis, it is unlikely to present long-term fixes to the economy,” said Emre Peker, a director at Eurasia Group covering Turkey.

    “Simsek will likely have a strong mandate early in his tenure, but face rapidly increasing political headwinds to implement policies as March 2024 local elections draw near.”

    Erdogan’s economic programme since 2021 stresses monetary stimulus and targeted credit to boost economic growth, exports and investments, pressing the central bank into action and badly eroding its independence.

    [1/12] Turkish President Tayyip Erdogan shakes hands with the new Treasury and Finance Minister Mehmet Simsek as they are flanked by new Energy Minister Alparslan Bayraktar during a press conference where the new cabinet was announced, in Ankara, Turkey June 3, 2023. REUTERS/Umit Bektas

    As a result, annual inflation hit a 24-year peak beyond 85% last year before easing.

    The lira has lost more than 90% of his value in the last decade after a series of crashes, the worst in late 2021. It hit new all-time lows beyond 20 to the dollar after the May 28 vote.

    ‘WAYS TO RECONCILE’

    Turkey’s longest-serving leader, Erdogan won 52.2% support in the runoff, defying polls that predicted economic strains would lead to his defeat.

    His new mandate will allow Erdogan to pursue the increasingly authoritarian policies that have polarised the country, a NATO member, but strengthened its position as a regional military power.

    At the inauguration ceremony, attended by Hungarian Prime Minister Viktor Orban and Armenian Prime Minister Nikol Pashinyan, Erdogan struck a conciliatory tone.

    “We will embrace all 85 million people regardless of their political views … Let’s put aside the resentment of the election period. Let’s look for ways to reconcile,” he said.

    “Together, we must look ahead, focus on the future, and try to say new things. We should try to build the future by learning from the mistakes of the past.”

    Earlier, reading out the oath of office, Erdogan vowed to protect Turkey’s independence and integrity, to abide by the constitution, and to follow the principles of Mustafa Kemal Ataturk, founder of the modern secular republic.

    Erdogan became prime minister in 2003 after his AK Party won an election in late 2002 following Turkey’s worst economic crisis since the 1970s.

    In 2014, he became the country’s first popularly elected president and was elected again in 2018 after securing new executive powers for the presidency in a 2017 referendum.

    The May 14 presidential election and May 28 runoff were pivotal given that the opposition had been confident of ousting Erdogan and reversing many of his policies, including proposing sharp interest rate hikes to counter inflation, running at 44% in April.

    In his post-election victory speech, Erdogan said inflation was Turkey’s most urgent issue.

    Writing and additional reporting by Jonathan Spicer; Editing by Frances Kerry, Giles Elgood and Christina Fincher

    Our Standards: The Thomson Reuters Trust Principles.

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  • Explainer: US debt ceiling focus on ‘discretionary spending’ means cuts ahead

    Explainer: US debt ceiling focus on ‘discretionary spending’ means cuts ahead

    WASHINGTON, May 24 (Reuters) – The central pillar of any debt-ceiling agreement between President Joe Biden and House Republican Kevin McCarthy is shaping up to be “discretionary spending” – the chunk of the United States’ roughly $6 trillion annual federal budget that is set annually by Congress.

    Talks are fluid as Biden and McCarthy work towards a deal to raise the $31.4 trillion debt ceiling and avoid a default as soon as June 1. But cuts to Social Security and Medicare programs that eat up most of the U.S. budget are already off the table.

    Instead, funds for programs from education to rail safety to law enforcement could be cut, trims that economists warn will slow U.S. economic growth.

    WHAT IS THE US DISCRETIONARY BUDGET?

    Congress sets funding levels for discretionary spending every year, which powers a wide swath of military and domestic programs.

    In 2022, discretionary spending reached $1.7 trillion, accounting for 27% of the overall $6.27 trillion spent, according to federal figures.

    Military spending typically accounts for roughly half of that total, though the amount varies from year to year.

    The other half is devoted to domestic programs like law enforcement, transportation, housing and scientific research.

    Estimated U.S. government discretionary spending for fiscal year 2023, in billion US dollars

    Discretionary spending as a share of U.S. gross domestic product peaked in the late 1970s, and cuts have served as the backbone for several landmark budget deals since the 1980s.

    Reuters Graphics

    HOW COULD DISCRETIONARY CUTS WORK?

    Biden and Democrats have offered to hold discretionary spending flat from the current 2023 fiscal year, a cut from Biden’s 2024 budget, and then cap spending in future years.

    House Republicans passed a plan last month that would save $3.2 trillion by capping growth at 1% annually for 10 years.

    Republicans say they will not accept a deal unless it results in the government spending less money than it did in the last fiscal year, and are pushing for cuts to 2022 levels.

    Both sides are also at odds over how long any spending caps should last, with Republicans now offering caps for six years, and the White House only two.

    Negotiators are avoiding the main driver of U.S. debt: rising retirement and health costs, driven by an aging population.

    The Social Security pension program is projected to increase by 67% by 2032, and the Medicare health program for seniors will nearly double in cost during that period, according to the nonpartisan Congressional Budget Office. Together, these programs account for roughly 37% of current federal spending.

    U.S. spending on health, retirement and other benefit programs has climbed steadily in recent decades, but negotiators in debt-ceiling talks look to cut other domestic and military spending.

    MORE BATTLES AHEAD

    If they can hammer out a general agreement on these levels and caps, if could help the United States avoid default, but would likely set up another series of budget battles, as lawmakers would still have to agree on funding levels for everything from fighter-plane construction to border enforcement.

    Republicans have said they do not want to cut spending on national defense and veterans’ care, which would require other programs to shoulder steeper cuts.

    The Republican-led House Appropriations Committee has unveiled legislation that would boost spending on veterans’ care, border security, and other priorities next year.

    That would likely require cuts of more than 13% in other areas like scientific research and environmental protection if they want to keep overall spending at the same level as this year, according to the Center on Budget and Policy Priorities, a left-leaning think tank.

    The Democratic-controlled Senate is not likely to accept those figures – which could lead to a government shutdown if the two sides do not reach agreement by Sept. 30, the end of the fiscal year.

    POLITICS OF CUTS

    While Republicans on the federal level have generally pushed for funding cuts to these discretionary items and Democrats to increase them, Republican-leaning states tend to benefit more from federal domestic spending, according to a Reuters analysis.

    “Spending restraint always sounds good in the abstract and sounds less good when you’re talking about specifics,” said Jan Moller, head of the Louisiana Budget Project, a nonpartisan think tank.

    Even if Biden and McCarthy agree to spending caps in the years ahead, Congress might not stick to the agreement.

    In 2011, Democratic President Barack Obama reached a deal with Republicans to save $1.8 trillion over 10 years through discretionary spending caps. But lawmakers opted to bypass those caps in the years that followed.

    In the end, the agreement only saved $1.3 trillion, according to Brian Riedl, a fellow with the conservative Manhattan Institute.

    Reporting by Jarret Renshaw and Andy Sullivan; Editing by Heather Timmons and Andrea Ricci

    Our Standards: The Thomson Reuters Trust Principles.

    Andy Sullivan

    Thomson Reuters

    Andy covers politics and policy in Washington. His work has been cited in Supreme Court briefs, political attack ads and at least one Saturday Night Live skit.

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  • Exclusive: Chinese hackers attacked Kenyan government as debt strains grew

    Exclusive: Chinese hackers attacked Kenyan government as debt strains grew

    • Cyber spies infiltrated Kenyan networks from 2019
    • Hit finance ministry, president’s office, spy agency and others
    • Sources believe Beijing was seeking info on debt

    NAIROBI, May 24 (Reuters) – Chinese hackers targeted Kenya’s government in a widespread, years-long series of digital intrusions against key ministries and state institutions, according to three sources, cybersecurity research reports and Reuters’ own analysis of technical data related to the hackings.

    Two of the sources assessed the hacks to be aimed, at least in part, at gaining information on debt owed to Beijing by the East African nation: Kenya is a strategic link in the Belt and Road Initiative – President Xi Jinping’s plan for a global infrastructure network.

    “Further compromises may occur as the requirement for understanding upcoming repayment strategies becomes needed,” a July 2021 research report written by a defence contractor for private clients stated.

    China’s foreign ministry said it was “not aware” of any such hacking, while China’s embassy in Britain called the accusations “baseless”, adding that Beijing opposes and combats “cyberattacks and theft in all their forms.”

    China’s influence in Africa has grown rapidly over the past two decades. But, like several African nations, Kenya’s finances are being strained by the growing cost of servicing external debt – much of it owed to China.

    The hacking campaign demonstrates China’s willingness to leverage its espionage capabilities to monitor and protect economic and strategic interests abroad, two of the sources said.

    The hacks constitute a three-year campaign that targeted eight of Kenya’s ministries and government departments, including the presidential office, according to an intelligence analyst in the region. The analyst also shared with Reuters research documents that included the timeline of attacks, the targets, and provided some technical data relating to the compromise of a server used exclusively by Kenya’s main spy agency.

    A Kenyan cybersecurity expert described similar hacking activity against the foreign and finance ministries. All three of the sources asked not to be named due to the sensitive nature of their work.

    “Your allegation of hacking attempts by Chinese Government entities is not unique,” Kenya’s presidential office said, adding the government had been targeted by “frequent infiltration attempts” from Chinese, American and European hackers.

    “As far as we are concerned, none of the attempts were successful,” it said.

    It did not provide further details nor respond to follow-up questions.

    A spokesperson for the Chinese embassy in Britain said China is against “irresponsible moves that use topics like cybersecurity to sow discord in the relations between China and other developing countries”.

    “China attaches great importance to Africa’s debt issue and works intensively to help Africa cope with it,” the spokesperson added.

    THE HACKS

    Between 2000 and 2020, China committed nearly $160 billion in loans to African countries, according to a comprehensive database on Chinese lending hosted by Boston University, much of it for large-scale infrastructure projects.

    Kenya used over $9 billion in Chinese loans to fund an aggressive push to build or upgrade railways, ports and highways.

    Beijing became the country’s largest bilateral creditor and gained a firm foothold in the most important East African consumer market and a vital logistical hub on Africa’s Indian Ocean coast.

    By late 2019, however, when the Kenyan cybersecurity expert told Reuters he was brought in by Kenyan authorities to assess a hack of a government-wide network, Chinese lending was drying up. And Kenya’s financial strains were showing.

    The breach reviewed by the Kenyan cybersecurity expert and attributed to China began with a “spearphishing” attack at the end of that same year, when a Kenyan government employee unknowingly downloaded an infected document, allowing hackers to infiltrate the network and access other agencies.

    “A lot of documents from the ministry of foreign affairs were stolen and from the finance department as well. The attacks appeared focused on the debt situation,” the Kenyan cybersecurity expert said.

    Another source – the intelligence analyst working in the region – said Chinese hackers carried out a far-reaching campaign against Kenya that began in late 2019 and continued until at least 2022.

    According to documents provided by the analyst, Chinese cyber spies subjected the office of Kenya’s president, its defence, information, health, land and interior ministries, its counter-terrorism centre and other institutions to persistent and prolonged hacking activity.

    The affected government departments did not respond to requests for comment, declined to be interviewed or were unreachable.

    By 2021, global economic fallout from the COVID-19 pandemic had already helped push one major Chinese borrower – Zambia – to default on its external debt. Kenya managed to secure a temporary debt repayment moratorium from China.

    In early July 2021, the cybersecurity research reports shared by the intelligence analyst in the region detailed how the hackers secretly accessed an email server used by Kenya’s National Intelligence Service (NIS).

    Reuters was able to confirm that the victim’s IP address belonged to the NIS. The incident was also covered in a report from the private defence contractor reviewed by Reuters.

    Reuters could not determine what information was taken during the hacks or conclusively establish the motive for the attacks. But the defence contractor’s report said the NIS breach was possibly aimed at gleaning information on how Kenya planned to manage its debt payments.

    “Kenya is currently feeling the pressure of these debt burdens…as many of the projects financed by Chinese loans are not generating enough income to pay for themselves yet,” the report stated.

    A Reuters review of internet logs delineating the Chinese digital espionage activity showed that a server controlled by the Chinese hackers also accessed a shared Kenyan government webmail service more recently from December 2022 until February this year.

    Chinese officials declined to comment on this recent breach, and the Kenyan authorities did not respond to a question about it.

    ‘BACKDOOR DIPLOMACY’

    The defence contractor, pointing to identical tools and techniques used in other hacking campaigns, identified a Chinese state-linked hacking team as having carried out the attack on Kenya’s intelligence agency.

    The group is known as “BackdoorDiplomacy” in the cybersecurity research community, because of its record of trying to further the objectives of Chinese diplomatic strategy.

    According to Slovakia-based cybersecurity firm ESET, BackdoorDiplomacy re-uses malicious software against its victims to gain access to their networks, making it possible to track their activities.

    Provided by Reuters with the IP address of the NIS hackers, Palo Alto Networks, a U.S. cybersecurity firm that tracks BackdoorDiplomacy’s activities, confirmed that it belongs to the group, adding that its prior analysis shows the group is sponsored by the Chinese state.

    Cybersecurity researchers have documented BackdoorDiplomacy hacks targeting governments and institutions in a number of countries in Asia and Europe.

    Incursions into the Middle East and Africa appear less common, making the focus and scale of its hacking activities in Kenya particularly noteworthy, the defence contractor’s report said.

    “This angle is clearly a priority for the group.”

    China’s embassy in Britain rejected any involvement in the Kenya hackings, and did not directly address questions about the government’s relationship with BackdoorDiplomacy.

    “China is a main victim of cyber theft and attacks and a staunch defender of cybersecurity,” a spokesperson said.

    Reporting by Aaron Ross in Nairobi, James Pearson in London and Christopher Bing in Washington
    Additional reporting by Eduardo Baptista in Beijing
    Editing by Chris Sanders and Joe Bavier

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    Aaron Ross

    Thomson Reuters

    West & Central Africa correspondent investigating human rights abuses, conflict and corruption as well as regional commodities production, epidemic diseases and the environment, previously based in Kinshasa, Abidjan and Cairo.

    James Pearson

    Thomson Reuters

    Reports on hacks, leaks and digital espionage in Europe. Ten years at Reuters with previous postings in Hanoi as Bureau Chief and Seoul as Korea Correspondent. Author of ‘North Korea Confidential’, a book about daily life in North Korea. Contact: 447927347451

    Christopher Bing

    Thomson Reuters

    Award-winning reporter covering the intersection between technology and national security with a focus on how the evolving cybersecurity landscape affects government and business.

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  • Canada housing market upturn could delay shift to BoC rate cuts

    Canada housing market upturn could delay shift to BoC rate cuts

    TORONTO, May 14 (Reuters) – Signs of recovery in Canada’s housing market after a year-long slump, just as higher borrowing costs are expected to slow much of the rest of the economy, could raise inflation and delay a shift by the central bank to interest rate cuts, analysts said.

    The housing market’s upturn comes after the Bank of Canada paused its interest rate hiking campaign last month, leaving the benchmark rate at a 15-year high of 4.50% since January.

    In addition, analysts say higher borrowing costs have so far caused less financial stress for homebuyers than they had expected, so the market has not had to accommodate a flood of supply from forced sellers.

    The BoC is counting on slower economic growth to return inflation to its 2% target. A rebound in the housing market could boost activity and contribute directly to price pressures.

    “The Bank of Canada at the end of the day is probably not going to be too thrilled if the housing market really starts to ramp up,” said Robert Kavcic, a senior economist at BMO Capital Markets. “From a shelter cost perspective, you are going to start to see more upward push on inflation in the second half of this year.”

    The cost of shelter has the highest weighting in Canada’s consumer price index, accounting for 30%. And, home prices tend to be highly visible, so an increase could have a pronounced impact on inflation expectations, analysts say.

    The average price for a home in the Greater Toronto Area, Canada’s most populous metropolitan region, rose in April on a month-over-month basis for a third straight month, while sales also moved higher. Other major markets have also showed gains.

    Despite higher borrowing costs, mortgage delinquency rates have remained low for now in Canada after mortgage borrowers were put through a stress test showing they could manage if interest rates were 2 percentage points higher than the rate on their loan.

    In addition, variable-rate borrowers have been sheltered from higher interest rates after lenders temporarily extended the period over which their debt is amortized, keeping their payments the same.

    “One of the reasons the market has been able to stabilize so quickly is because there’s just no forced selling,” Kavcic said.

    Things could change – Royal Bank of Canada recently warned of the risk that mortgage delinquencies rise by more than a third over the coming year.

    The other worry is that stress in the U.S. regional banking sector could spill over to Canada. Clues on that front could come from the BoC’s Financial System Review – an annual checkup of financial system tensions – which is due for release on Thursday.

    But there are also tailwinds to support a recovery, including supply shortfalls, record immigration and labor market strength, analysts said.

    Wage growth could cool over the coming months, helping to lower inflation, but the Bank of Canada “is unlikely to be in a rush to cut interest rates if house prices are roaring higher again,” Stephen Brown, senior Canada economist at Capital Economics, said in a note.

    Reporting by Fergal Smith; Editing by Steve Scherer and Jonathan Oatis

    Our Standards: The Thomson Reuters Trust Principles.

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  • Biden says US debt ceiling talks are moving along

    Biden says US debt ceiling talks are moving along

    WASHINGTON, May 13 (Reuters) – President Joe Biden said on Saturday that talks with Congress on raising the U.S. government’s debt limit were moving along and more will be known about their progress in the next two days.

    “I think they are moving along, hard to tell. We have not reached the crunch point yet,” Biden told reporters at Joint Base Andrews.

    “We’ll know more in the next two days,” he said.

    Biden is expected to meet with Republican House Speaker Kevin McCarthy and other congressional leaders early next week to resume negotiations.

    The leaders had canceled a planned meeting on Friday to let staff continue discussions.

    Aides for Biden and McCarthy have started to discuss ways to limit federal spending as talks on raising the government’s $31.4 trillion debt ceiling to avoid a catastrophic default creep forward, Reuters has reported.

    The Treasury Department says it could run out of money by June 1 unless lawmakers lift the nation’s debt ceiling.

    Reporting by Jeff Mason; Writing by Eric Beech; Editing by David Gregorio

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  • Thailand opposition crushes military parties in election rout

    Thailand opposition crushes military parties in election rout

    • Challenge ahead for opposition parties to form government
    • Move Forward comes close to sweep of capital Bangkok
    • No alliances with dictator-backed parties – Pita
    • Military parties down, but not out
    • Too soon to discuss alliances – Pheu Thai

    BANGKOK, May 14 (Reuters) – Thailand’s opposition secured a stunning election win on Sunday after trouncing parties allied with the military, setting the stage for a flurry of deal-making over forming a government in a bid to end nearly a decade of conservative, army-backed rule.

    The liberal Move Forward party and the populist Pheu Thai Party were far out in front with 99% of votes counted, but it was far from certain either will form the next government, with parliamentary rules written by the military after its 2014 coup skewed in its favour.

    To rule, the opposition parties will need to strike deals and muster support from multiple camps, including members of a junta-appointed Senate that has sided with military parties and gets to vote on who becomes prime minister and form the next administration.

    Sunday’s election was the latest bout in a long-running battle for power between Pheu Thai, the populist juggernaut of the billionaire Shinawatra family, and a nexus of old money, conservatives and military with influence over key institutions at the heart of two decades of turmoil.

    But the staggering performance by Move Forward, riding a wave of support from young voters, will test the resolve of Thailand’s establishment and ruling parties after it came close to a clean sweep of the capital Bangkok on a platform of institutional reform and dismantling monopolies.

    Move Forward came top, followed closely by Pheu Thai, the preliminary results showed. According to a Reuters calculation, both were set to win more than triple the number of seats of Palang Pracharat, the political vehicle of the junta, and the army-backed United Thai Nation party.

    Move Forward leader Pita Limjaroenrat, a 42-year-old former executive of a ride-hailing app, described the outcome as “sensational” and vowed to stay true to his party’s values when forming a government.

    “It will be anti- dictator-backed, military-backed parties, for sure,” he told reporters. “It’s safe to assume that minority government is no longer possible here in Thailand.”

    He said he remained open to an alliance with Pheu Thai, but has set his sights set on being prime minister.

    “It is now clear the Move Forward Party has received the overwhelming support from the people around the country,” he said on Twitter.

    Reuters Graphics Reuters Graphics

    MAJOR BLOW

    Thailand general election

    [1/15] Move Forward Party leader and prime ministerial candidate, Pita Limjaroenrat, waves to the crowd during the general election in Bangkok, Thailand, May 14, 2023. REUTERS/Jorge Silva

    The preliminary results will be a crushing blow for the military and its allies. But with parliamentary rules on their side and influential figures behind them and involved behind the scenes, they could still have a role in government.

    Prime Minister Prayuth Chan-ocha, a retired general who led the last coup, had campaigned on continuity after nine years in charge, warning a change in government could lead to conflict.

    On Sunday, he slipped away quietly from his United Thai Nation party headquarters, where there were few supporters to be seen.

    A handful of staff sat beside plates of uneaten food as a giant television screen showed a live speech by Move Forward’s leader.

    “I hope the country will be peaceful and prosper,” Prayuth told reporters. “I respect democracy and the election. Thank you.”

    Pheu Thai had been expected to win having won most votes in every ballot since 2001, including two landslide victories. Three of its four governments have been ousted from office.

    Founded by the polarising self-exiled tycoon Thaksin Shinawatra, Pheu Thai remains hugely popular among the working classes and was banking on being swept back to power in a landslide on nostalgia for its populist policies like cheap healthcare, micro-loans and generous farming subsidies.

    Thaksin’s daughter Paetongtarn, 36, has been tipped to follow in the footsteps of her father and of her aunt, Yingluck Shinawatra, and become prime minister. Yingluck and Thaksin were both overthrown in coups.

    Paetongtarn said she was happy for Move Forward, but it was too soon to discuss alliances.

    “The voice of the people is most important,” she said.

    Move Forward saw a late-stage rally in opinion polls and was betting on 3.3 million first-time voters getting behind its liberal agenda, including plans to weaken the military’s political role and amend a strict law on royal insults that critics say is used to stifle dissent.

    Thitinan Pongsudhirak, a political scientist at Chulalongkorn University, said Move Forward’s surge demonstrated a major shift in Thai politics.

    “Pheu Thai fought the wrong war. Pheu Thai fought the populism war that it already won,” he said.

    “Move Forward takes the game to the next level with institutional reform. That’s the new battleground in Thai politics.”

    Reporting by Chayut Setboonsarng; Writing by Martin Petty; Editing by William Mallard

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  • Turkey faces runoff election with Erdogan leading

    Turkey faces runoff election with Erdogan leading

    • Neither Erdogan or his challenger pass 50% threshold
    • Erdogan ahead after 20-year rule
    • Rivals spar over election count

    ISTANBUL, May 14 (Reuters) – Turkey headed for a runoff vote after President Tayyip Erdogan led over his opposition rival Kemal Kilicdaroglu in Sunday’s election but fell short of an outright majority to extend his 20-year rule of the NATO-member country.

    Neither Erdogan nor Kilicdaroglu cleared the 50% threshold needed to avoid a second round, to be held on May 28, in an election seen as a verdict on Erdogan’s increasingly authoritarian path.

    The presidential vote will decide not only who leads Turkey but also whether it reverts to a more secular, democratic path, how it will handle its severe cost of living crisis, and manage key relations with Russia, the Middle East and the West.

    Kilicdaroglu, who said he would prevail in the runoff, urged his supporters to be patient and accused Erdogan’s party of interfering with the counting and reporting of results.

    But Erdogan performed better than pre-election polls had predicted, and he appeared in a confident and combative mood as he addressed his supporters.

    “We are already ahead of our closest rival by 2.6 million votes. We expect this figure to increase with official results,” Erdogan said.

    With almost 97% of ballot boxes counted, Erdogan led with 49.39% of votes and Kilicdaroglu had 44.92%, according to state-owned news agency Anadolu. Turkey’s High Election Board gave Erdogan 49.49% with 91.93% of ballot boxes counted.

    Thousands of Erdogan voters converged on the party’s headquarters in Ankara, blasting party songs from loudspeakers and waving flags. Some danced in the street.

    “We know it is not exactly a celebration yet but we hope we will soon celebrate his victory. Erdogan is the best leader we had for this country and we love him,” said Yalcin Yildrim, 39, who owns a textile factory.

    ERDOGAN HAS EDGE

    The results reflected deep polarization in a country at a political crossroads. The vote was set to hand Erdogan’s ruling alliance a majority in parliament, giving him a potential edge heading into the runoff.

    Opinion polls before the election had pointed to a very tight race but gave Kilicdaroglu, who heads a six-party alliance, a slight lead. Two polls on Friday showed him above the 50% threshold.

    The country of 85 million people – already struggling with soaring inflation – now faces two weeks of uncertainty that could rattle markets, with analysts expecting gyrations in the local currency and stock market.

    “The next two weeks will probably be the longest two weeks in Turkey’s history and a lot will happen. I would expect a significant crash in the Istanbul stock exchange and lots of fluctuations in the currency,” said Hakan Akbas, managing director of Strategic Advisory Services, a consultancy.

    [1/16] Turkish President Tayyip Erdogan, accompanied by his wife Ermine Erdogan, greets supporters at the AK Party headquarters in Ankara, Turkey May 15, 2023. REUTERS/Umit Bektas TPX IMAGES OF THE DAY

    “Erdogan will have an advantage in a second vote after his alliance did far better than the opposition’s alliance,” he added.

    A third nationalist presidential candidate, Sinan Ogan, stood at 5.3% of the vote. He could be a “kingmaker” in the runoff depending on which candidate he endorses, analysts said.

    The opposition said Erdogan’s party was delaying full results from emerging by lodging objections, while authorities were publishing results in an order that artificially boosted Erdogan’s tally.

    Kilicdaroglu, in an earlier appearance, said that Erdogan’s party was “destroying the will of Turkey” by objecting to the counts of more than 1,000 ballot boxes. “You cannot prevent what will happen with objections. We will never let this become a fait accompli,” he said.

    But the mood at the opposition party’s headquarters, where Kilicdaroglu expected victory, was subdued as the votes were counted. His supporters waved flags of Turkey’s founder Mustafa Kemal Ataturk and beat drums.

    KEY PUTIN ALLY

    The choice of Turkey’s next president is one of the most consequential political decisions in the country’s 100-year history and will reverberate well beyond Turkey’s borders.

    A victory for Erdogan, one of President Vladimir Putin’s most important allies, will likely cheer the Kremlin but unnerve the Biden administration, as well as many European and Middle Eastern leaders who had troubled relations with Erdogan.

    Turkey’s longest-serving leader has turned the NATO member and Europe’s second-largest country into a global player, modernised it through megaprojects such as new bridges and airports and built an arms industry sought by foreign states.

    But his volatile economic policy of low interest rates, which set off a spiralling cost of living crisis and inflation, left him prey to voters’ anger. His government’s slow response to a devastating earthquake in southeast Turkey that killed 50,000 people earlier this year added to voters’ dismay.

    PARLIAMENTARY MAJORITY

    Kilicdaroglu has pledged to revive democracy after years of state repression, return to orthodox economic policies, empower institutions that lost autonomy under Erdogan and rebuild frail ties with the West.

    Thousands of political prisoners and activists could be released if the opposition prevails.

    Critics fear Erdogan will govern ever more autocratically if he wins another term. The 69-year-old president, a veteran of a dozen election victories, says he respects democracy.

    In the parliamentary vote, the People’s Alliance of Erdogan’s Islamist-rooted AKP, the nationalist MHP and others fared better than expected and were headed for a majority.

    Writing by Alexandra Hudson
    Editing by Frances Kerry

    Our Standards: The Thomson Reuters Trust Principles.

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  • It’s not 2020 anymore. Biden’s re-election campaign faces new challenges

    It’s not 2020 anymore. Biden’s re-election campaign faces new challenges

    WASHINGTON, April 23 (Reuters) – It won’t be a campaign from the basement this time.

    As U.S. President Joe Biden gears up for a bruising re-election battle, the realities of the 2024 race and differences with 2020 at the height of the coronavirus pandemic create new challenges for him.

    Biden, a Democrat, says he is running again and is considering a formal announcement via video as soon as Tuesday.

    In 2020, Biden kept a low profile as the spread of COVID-19 caused havoc to most aspects of American life, including the election campaign that pitted him against then-President Donald Trump, a Republican.

    Trump still spoke at big rallies, but Biden did much of his campaigning virtually from the basement of his home in Wilmington, Delaware, largely avoiding crowds to prevent the spread of disease and reduce his own risk of catching the virus.

    That will change this time around. Gone will be the aversion to public events, large and small, likely replaced by traditional campaign stops at diners, factories and union halls with handshakes, selfies, and crowds of people.

    The Democratic convention in Chicago will be in-person rather than online. And Biden, who at 80 is already the oldest president in U.S. history, will have his day job to do while he makes the case for four more years in office.

    Biden beat Trump in 2020 by winning the Electoral College 306 to 232, winning the close swing states of Pennsylvania and Georgia, and he bested Trump by more than 7 million votes nationally, capturing 51.3 percent of the popular vote to the Republican’s 46.8 percent.

    AGE FACTOR

    Republicans will watch closely for signs of a diminished schedule to suggest that age has made Biden less fit for the campaign trail, and for the White House.

    “It’s quite shocking that Biden thinks he would be able to fill a second term, let alone the rest of this term,” said Republican strategist Scott Reed.

    Trump, the early front-runner for the Republican nomination, is himself 76 years old.

    Biden’s reply to concerns about his age and running for re-election has been to say “watch me,” and the White House points to his record of legislative accomplishments as a sign of his effectiveness.

    “An extensive travel schedule is not the measure of a candidate’s ability to do the job,” said Democratic strategist Karen Finney. “There’s no scenario where the Republicans don’t try to make his age an issue. We know that. And so the focus has to be on … what is the most effective way to reach the American people. Some of that, yes, is going to be in-person events and travel, but there may be other innovations.”

    CAMPAIGN REINVENTED

    Biden campaign aides reinvented his 2020 campaign as COVID-19 spread across the country.

    Some of the innovations were regarded as a success, including star-studded virtual fundraisers done without the need for expensive travel.

    But other changes were more controversial, including a months-long prohibition on the use of door-knocking by campaign volunteers and the regular appearances by Biden in his home’s basement, which became a meme panned by right-wing voters.

    Having to get out more than in 2020 could help Biden, said Meg Bostrom, co-founder of Topos Partnership, a strategic communications firm.

    “Just look at the State of the Union (address.) That was the best I’ve ever seen. When Republicans started heckling him, he just lit up,” she said. Biden sparred ably with Republicans during his speech to Congress in February.

    But other issues may trip up the incumbent president on the campaign trail, including his handling of the economy.

    “The allure for voting for Biden in 2020 was sort of the quaint notion of getting back to normal,” said Republican strategist Ford O’Connell, referring to the chaos of Trump’s time in office.

    “The problem for Biden is that he’s been in power … and things are anything but normal, especially when it comes to the economy and inflation.”

    Reuters Graphics Reuters Graphics

    RECESSION CONCERNS

    Biden took office in January 2021 just as COVID vaccines were rolling out, and economic conditions gradually normalized during his early tenure after the shock of nationwide shutdowns. The United States now boasts 3.2 million jobs over the pre-pandemic peak.

    But Americans are concerned about a potential recession, and Biden may suffer from being on the wrong side of an economic cycle heading into 2024, with unemployment likely to rise as growth slows, interest rates remaining high and inflation potentially hovering above pre-pandemic levels.

    Reuters Graphics Reuters Graphics

    Trump, who has announced his re-election bid already and could be Biden’s opponent again, is expected to follow the strategy that he employed in 2016 and 2020 with multiple large rallies to energize his base.

    But he will first have to win what could be a grueling Republican nomination contest – something that Biden, as an incumbent without major opposition inside his party, will not face.

    “We don’t need fire and brimstone. We don’t need rah rah rallies,” said Democratic strategist Joe Lestingi. “We need the strength and conviction of our values and a steadiness not to move on them.”

    Biden, he said, would provide that steadiness.

    “I think he’ll get out more,” Lestingi said, praising Biden’s skill at traditional “retail” politics. “If you get an opportunity to be with him in a small intimate setting, he can make a real big difference.”

    Reuters Graphics Reuters Graphics

    Reporting by Jeff Mason; additional reporting by Trevor Hunnicutt, Steve Holland, Howard Schneider and Andrea Shalal; editing by Grant McCool

    Our Standards: The Thomson Reuters Trust Principles.

    Jeff Mason

    Thomson Reuters

    Jeff Mason is a White House Correspondent for Reuters. He has covered the presidencies of Barack Obama, Donald Trump and Joe Biden and the presidential campaigns of Biden, Trump, Obama, Hillary Clinton and John McCain.

    He served as president of the White House Correspondents’ Association in 2016-2017, leading the press corps in advocating for press freedom in the early days of the Trump administration. His and the WHCA’s work was recognized with Deutsche Welle’s “Freedom of Speech Award.”

    Jeff has asked pointed questions of domestic and foreign leaders, including Russian President Vladimir Putin and North Korea’s Kim Jong Un. He is a winner of the WHCA’s “Excellence in Presidential News Coverage Under Deadline Pressure” award and co-winner of the Association for Business Journalists’ “Breaking News” award.

    Jeff began his career in Frankfurt, Germany as a business reporter before being posted to Brussels, Belgium, where he covered the European Union.

    Jeff appears regularly on television and radio and teaches political journalism at Georgetown University. He is a graduate of Northwestern University’s Medill School of Journalism and a former Fulbright scholar.

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  • Cash-loving Germans fret over exploding ATMs as cross-border crime wave hits

    Cash-loving Germans fret over exploding ATMs as cross-border crime wave hits

    RATINGEN, Germany, April 14 (Reuters) – In the German town of Ratingen, exploding cash machines are a hot-button topic.

    Two got blown up early on the same morning last month, at branches of Santander (SAN.MC) and Deutsche Bank (DBKGn.DE) across the street from each other close to the Duesseldorf suburb’s main square.

    A year ago, residents of the apartments above Santander unsuccessfully sued to have the machines removed due to concerns they could be raided – a gesture that might in retrospect be deemed prophetic in other countries.

    But in Germany, thieves are blowing ATMs up at the rate of more than one a day.

    Attacks are up more than 40% since 2019, according to the interior ministry, and investigators say two factors are driving the increase.

    Europe’s largest economy has 53,000 ATM machines, a disproportionately high number that reflects Germans’ preference for cash rather than bank cards. The country also boasts an extensive network of highways, or Autobahns, on much of which no speed limit is enforced.

    Ratingen lies just 70km (40 miles) from the Dutch border, and investigators say gangs from the Netherlands are the prime culprits for the attacks, which send glass flying, cause building facades to crumble and money cartridges to crack open.

    Raiders got away with nearly 20 million euros ($22.1 million) in 2021, when 392 ATM explosions were recorded, a tally that rose to 496 in 2022. Police in the state of North Rhine-Westphalia, where Ratingen lies and which has borne the brunt of the attacks, have recorded 47 incidents so far in 2023, up on last year’s rate.

    Reuters Graphics Reuters Graphics

    DUTCH RAIDERS

    Meanwhile the frequency of ATM attackers is falling in the Netherlands, partly due to security measures such as glue that makes blocks of cash inside ATMs unusable, Dutch police say.

    So Dutch cash machine raiders are crossing the border and, German police estimate, have carried out between 70% to 80% of attacks in Germany since 2018.

    Dutch police suspect around 500 men are responsible, working in ever-evolving groups as new recruits replace those who get caught. Prosecutors in Frankfurt this week charged six Dutch citizens with causing explosions, theft and property damage.

    Reuters Graphics

    Ratingen police are investigating a possible Dutch connection in last month’s twin raid too, having identified a small vehicle that sped from the scene to a nearby Autobahn.

    On Thursday, nearly a month after the attacks, Santander’s facade remained boarded up. Deutsche Bank’s sign was still damaged, and a sign asked for customers’ understanding that ATMs were out of order while under repair.

    In Germany, roughly 60% of everyday purchases are paid in cash, according to a Bundesbank study that found Germans, on average, withdrew more than 6,600 euros annually chiefly from cash machines.

    Germany is also working with officials in Belgium and France and at Europol to combat the cash machine crime wave. The partner authorities did not respond to requests for comment.

    Noting that ATM raids endangered lives, German Interior Minister Nancy Faeser this week urged banks to step up safety measures for ATMs.

    Both Santander and Deutsche said they prioritised safety and were continuously improving ATM security, but banks inside Germany are reluctant to adopt blanket measures, instead advocating a case-by-case approach depending on individual security risk.

    A spokesperson for Deutsche Kreditwirtschaft, a umbrella lobby group for the nation’s financial institutions, said: “Different locations come with different risks. There is currently no one-size-fits-all solution.”

    ($1 = 0.9044 euros)

    Additional reporting by Milan Pavicic; editing by John Stonestreet

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    Tom Sims

    Thomson Reuters

    Covers German finance with a focus on big banks, insurance companies, regulation and financial crime, previous experience at the Wall Street Journal and New York Times in Europe and Asia.

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  • No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up

    No China, no deal: Bid to break sovereign debt logjams gets weary thumbs up

    LONDON, April 13 (Reuters) – The latest bid by the world’s leading institutions and creditors to speed up debt restructurings and get bankrupt countries back on their feet has been greeted by a mix of cautious optimism and weary scepticism by veteran crisis watchers.

    Standoffs between major Western-backed lenders like the International Monetary Fund (IMF) and the world’s top bilateral creditor, China, have been blamed for keeping countries such as Zambia mired in default for nearly three years.

    The somewhat loose framework around sovereign restructurings has seen Beijing seek to influence the traditional rules of engagement in these processes.

    The renewed push to overcome the logjams came after a “roundtable” at the IMF Spring Meetings and included pledges from the Fund and World Bank to share assessments of countries’ troubles more quickly, provide more low-interest and grant funding and stricter timeframes on restructurings overall.

    The idea is that Beijing would then drop its insistence that the multilateral lenders take losses, or “haircuts”, on the loans they have provided or underwritten in crisis-hit countries.

    Beijing has not commented directly on the demand for multilateral lender haircuts, but in remarks published on Friday People’s Bank of China Governor Yi Gang reiterated China’s willingness to implement debt talks under the Common Framework, the platform introduced by leading G20 nations in 2020 to streamline talks with all creditors.

    “If the multilateral development banks are now making real commitments to provide fresh grants to distressed countries this is a breakthrough,” said Kevin Gallagher, director of the Boston University Global Development Policy Center.

    But he added that as the new plans lacked specific mention of China’s intentions it suggested the “lack of a strong and clear consensus” in Washington.

    The IMF’s managing director Kristalina Georgieva has stressed that with around 15% of low income countries already in debt distress and dozens more in danger of falling into it, far more urgency is needed.

    Besides members of the Paris Club of creditor nations such as the United States, France and Japan, cash-strapped nations now have to rework loans with lenders such as India, Saudi Arabia, South Africa and Kuwait – but first and foremost China.

    Beijing is now the largest bilateral creditor to developing nations, extending $138 billion in new loans between 2010 and 2021, according to World Bank data, and some estimates put total lending at almost $850 billion.

    Reuters Graphics

    HEADWINDS

    Global headwinds are about to get stronger too.

    Financially weaker countries with “junk”-grade sovereign credit ratings need to repay or refinance $30 billion worth of government bonds next year between them, compared to just $8.4 billion for the remainder of this one.

    The rise in global borrowing costs, though, means that many countries under the greatest stress are now unable to borrow in the international capital markets or, if they can, only at unsustainably high interest rates.

    The Chinese debt, meanwhile, is often opaque and muddied by arguments about whether the loans have been given by “official” entities – i.e by the government – or by “private” entities.

    Authorities in Beijing also prefer to roll over debt payments rather than write them off, and given it is an increasingly dominant creditor, it has little incentive to follow co-operative Paris Club-like principles.

    “It would be great to have China on board (with the push to speed up restructurings) but I don’t really have high hopes because there is a lot of geopolitics involved,” said Viktor Szabo, an emerging market debt manager at Abrdn in London.

    Select IMF loans to low and middle income countries by date of Board approval

    COMMON PROBLEMS

    Recent research by Boston University estimated that up to $520 billion in debt needs to be written off to help developing nations at greatest risk of default return to a sounder fiscal footing.

    But lengthy delays in Zambia, and more recently in Sri Lanka, have elicited widespread criticism of the Common Framework.

    Wednesday’s promises by the IMF to provide its assessments more quickly was an admission that the Common Framework was currently failing, Szabo added.

    “You have to make it functional. The fact that it’s been in place for three years and there is nothing to really show for it, that is really appalling.”

    Anna Ashton, director of China research at Eurasia Group, said this week’s developments underscored the benefits for China to give some ground on some of its concerns.

    “Being willing to compromise and facilitate debt restructuring right now is likely crucial to China’s continued credibility with the developing world writ large,” Ashton said.

    Patrick Curran, senior economist with Tellimer, added that China dropping demands for the big multilateral development banks (MDBs) to swallow losses on their loans could also be “a major breakthrough”.

    “There is likely to be broad support for the alternative proposal that MDBs mobilize their resources more aggressively, especially at a time when most low-income countries are locked out of the market,” Curran said.

    Germany’s finance minister Christian Lindner on Thursday too said all the talk now needed to be converted into action.

    The group that took part in Wednesday’s roundtable plans to meet again in coming weeks to address remaining issues, including how various creditors are treated, principles for cut-off dates and suspending debt payments.

    Ultimately, whether the new terms help Zambia, and countries like Sri Lanka, Ghana and Ethiopia that are also in the midst of bailout talks, finalise deals will be the only proof of whether the new terms work.

    “China is a difficult partner to talk to but we need China at the table for the solution of debt problems, because otherwise we won’t see any progress,” Lindner said.

    Reuters Graphics

    Additional reporting by Rodrigo Campos in New York and Joe Cash in Beijing
    Editing by Mark Potter

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  • Exclusive: India’s Bank of Baroda stops clearing payment for above-cap Russian oil – sources

    Exclusive: India’s Bank of Baroda stops clearing payment for above-cap Russian oil – sources

    NEW DELHI, April 4 (Reuters) – India’s Bank of Baroda (BOB.NS) has stopped clearing payments for Russian oil sold above the price cap set by the West from this month, three sources with direct knowledge of the matter said, a move that could expedite transition to a rupee trade mechanism.

    Some Indian refiners were paying in the United Arab Emirates dirham currency for Russian low-sulphur crude priced above the $60 a barrel cap using Bank of Baroda, mainly to Dubai-based traders, sources said.

    The Group of Seven economies, the European Union and Australia, set the price cap late last year to bar Western services and shipping from trading Russian oil unless sold at an enforced low price to deprive Moscow of funds for its Ukraine war.

    “Bank of Baroda is extremely cautious in settling payments for Russian oil bought (at levels) above the price cap,” one of the sources said.

    “They have told us no for settling payments for above-cap barrels,” the person said.

    The state-run lender told refiners last month that it would not settle payment from Russian barrels bought above the price cap, the three sources said.

    Bank of Baroda did not respond to requests for comment from Reuters.

    Before the Ukraine war, Indian refiners rarely bought oil from Russia due to higher freight costs. After Western sanctions on Moscow for its invasion of Ukraine, Indian refiners have been gorging on discounted Russian oil.

    Russia has replaced Iraq as the top oil supplier to India in the last few months, data from trade sources showed.

    Sources anticipate that prices of Russian sweet crude such as Sokol and ESPO Blend, which was sold near $60 a barrel in recent weeks, could breach the price cap due to a sharp spike in global oil prices triggered by Sunday’s OPEC+ decision to cut output.

    Some refiners, mainly private operators, have been clearing payments in dirhams for Russian crude through private lender Axis Bank (AXBK.NS), sources told Reuters last month. It was not clear if Axis Bank had also stopped settling trades for Russian oil sold above the price cap.

    Axis Bank did not immediately respond to Reuters’ request for comment.

    Although Indian refiners buy Russian oil on a delivered basis, copies of invoices reviewed by Reuters also show shipping charges, which helps in calculating the price of crude at Russian ports.

    Sources said that problems in settling trade for Russian oil could push sellers to accept rupee payments, at least for barrels that exceed the price cap.

    “We have neither stopped nor reduced purchases of Russian oil after Bank of Baroda’s decision … we will consider using rupees to pay for oil purchased above the price cap,” another source said.

    India does not recognise the Western price cap on Russian oil, a senior oil ministry source said last month.

    SETTLEMENT MECHANISM

    India set up a mechanism to settle its international trade in rupees last year. Some Russian banks later opened vostro accounts with banks in India to facilitate rupee trade.

    The mechanism has not yet started given the lack of Russian appetite for rupees and India’s trade deficit with Moscow.

    However, during a visit last week to India, Igor Sechin, chief executive of Russian oil major Rosneft, discussed ways to expand cooperation with India across the hydrocarbons value chain, including the possibility of making payments in national currencies.

    A switch to rupee payments would help wean Russia from dollars and would save foreign exchange for India.

    Reporting by Nidhi Verma; Additional reporting by Siddhi Nayak in Mumbai; Editing by Tony Munroe and Jacqueline Wong

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  • In victory for labor unions, Michigan governor repeals ‘right-to-work’ law

    In victory for labor unions, Michigan governor repeals ‘right-to-work’ law

    March 24 (Reuters) – Michigan Governor Gretchen Whitmer on Friday signed a package of bills repealing the state’s so-called “right to work” law that allowed workers to opt out of unions, a long-sought victory for labor organizers facing an era of diminished power.

    Whitmer became the first governor since the 1960s to roll back right-to-work legislation. Twenty-six other U.S. states and the territory of Guam still have right-to-work laws on the books, according to the National Conference of State Legislatures.

    “Michigan workers are the most talented and hard-working in the world and deserve to be treated with dignity and respect,” Whitmer, a two-term Democrat, said in a statement.

    Michigan House Bills 4004 and 4007 and Senate Bill 34 passed the Democratic-controlled state legislature earlier this month. House Bill 4007 requires that contractors hired by the state pay a so-called prevailing wage, the amount used when hiring union workers.

    The Michigan state legislature, controlled at the time by Republicans, in 2012 passed a right-to-work law over the objections of union activists. It was signed into law by then-Governor Rick Snyder, also a Republican.

    Republicans opposed repealing that law this year, arguing that it would hurt businesses and make the state less attractive to companies.

    Union membership has declined sharply in the United States since its peak in the 1950s, when more than a third of workers belonged to a union.

    Membership dropped to an all-time low of 10.1% in 2022 despite a surge in organizing during the COVID-19 pandemic, according to data released in January by the U.S. Bureau of Labor Statistics.

    Reporting by Dan Whitcomb; editing by Grant McCool

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  • Oil slips as banking fears return, offsetting China demand hopes

    Oil slips as banking fears return, offsetting China demand hopes

    • Credit Suisse unease sparks global sell-off
    • Chinese economy shows signs of gradual recovery
    • China reopening expected to boost oil demand -IEA

    LONDON, March 15 (Reuters) – Oil extended losses on Wednesday as unease over Credit Suisse spooked world markets, offsetting hopes of a Chinese oil demand recovery.

    Early signs of a return to calm and stability faded after Credit Suisse’s largest investor said it could not provide the Swiss bank with more financial assistance, sending its shares and broader European stocks sliding.

    “The financial sector in Europe is under significant turmoil today,” said Naeem Aslam, chief investment officer at Zaye Capital Markets.

    Brent crude fell $1.44, or 1.9%, to $76.01 a barrel by 1100 GMT. U.S. West Texas Intermediate crude futures (WTI) were down 33 cents, or 0.5%, at $71.00.

    Oil had rallied earlier on figures showing that China’s economic activity picked up in the first two months of 2023 after the end of strict COVID-19 containment measures.

    On Tuesday both benchmarks shed more than 4% to three-month lows, pressured by fears that the collapse of Silicon Valley Bank (SVB) last week and other U.S. bank failures could spark a financial crisis that would weigh on fuel demand.

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    Wednedsay’s monthly report from the International Energy Agency provided support by flagging an expected boost to oil demand from China a day after OPEC increased its Chinese demand forecast for 2023.

    Investors are now awaiting official U.S. oil inventory data later on Wednesday to see if it confirms the 1.2 million barrel rise in crude stocks reported on Tuesday by the American Petroleum Institute.

    (This story has been refiled to correct typographical error in headline)

    Reporting by Alex Lawler
    Additional reporting by Florence Tan in Singapore and Yuka Obayashi in Tokyo
    Editing by Jason Neely and David Goodman

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  • Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

    Saudi Arabia could invest in Iran ‘very quickly’ after agreement – minister

    RIYADH, March 15 (Reuters) – Saudi Arabia’s Finance Minister Mohammed Al-Jadaan said on Wednesday that Saudi investments into Iran could happen “very quickly” following an agreement to restore diplomatic ties.

    “There are a lot of opportunities for Saudi investments in Iran. We don’t see impediments as long as the terms of any agreement would be respected,” Al-Jadaan said during the Financial Sector Conference in Riyadh.

    Iran and Saudi Arabia agreed on Friday to re-establish relations and re-open embassies within two months after years of hostility, following talks in China.

    “Stability in the region is very important, for the world and for the countries in the region, and we have always said that Iran is our neighbour and we have no interest to have a conflict with our neighbours, if they are willing to cooperate,” Al-Jadaan later told Reuters in an interview.

    The hostility between the two Middle Eastern powers had endangered the stability and security of the Middle East and helped fuel regional conflicts including in Yemen, Syria and Lebanon.

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    “We have no reason not to invest in Iran, and we have no reason not to allow them to invest in Saudi Arabia. It is in our interest to make sure that both nations benefit from each others resources and competitive advantage,” Al-Jadaan told Reuters.

    “If they (Iran) are willing to go through this process, then we are more than willing to go through this process and show them they are welcome and we would be more than happy to participate in their development,” he said.

    CHINESE LEVERAGE

    The deal, brokered by China, was announced after four days of previously undisclosed talks in Beijing between top security officials from Saudi Arabia and Iran.

    China has leverage on Iran and Tehran will find it difficult to explain if it does not honour the agreement signed with Saudi Arabia in Beijing, another Saudi official told reporters, separately, on Wednesday.

    The official, who declined to be named, said China is in a unique position as it enjoys exceptional relations with both Iran and Saudi Arabia.

    “China is the first trading partner for both countries so the leverage is very important in that regard. And since we are building confidence, that commitment should be made with the presence of Chinese officials,” he said.

    Saudi Arabia cut ties with Iran in 2016 after its embassy in Tehran was stormed during a dispute between the two countries over Riyadh’s execution of a prominent Shi’ite Muslim cleric.

    The kingdom also has blamed Iran for missile and drone attacks on its oil facilities in 2019 as well as attacks on tankers in Gulf waters. Iran denied the charges.

    The most difficult topics in the talks with Iran were related to Yemen, the media, and China’s role, the official said without elaborating.

    Both sides have agreed to re-activate a 2001 security agreement, which covers cooperation in fighting drugs, smuggling and organised crime, as well as another earlier pact on trade, economy and investment.

    “Resuming diplomatic relations does not mean we are allies… Diplomatic relations are the norm for Saudi Arabia, and we should have them with everybody,” the official said.

    Additional reporting by Aziz El Yaakoubi; Writing by Clauda Tanios and Hadeel Al Sayegh; Editing by Christopher Cushing, Jon Boyle and Andrea Ricci

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  • China plans 7.2% defence spending rise this year, faster than GDP target

    China plans 7.2% defence spending rise this year, faster than GDP target

    • China’s 2023 defence spending to rise 7.2%
    • Increase to outpace GDP growth target of around 5%
    • Premier Li says armed forces should boost combat preparedness
    • China investing in new hardware including aircraft carriers

    BEIJING, March 5 (Reuters) – China will boost defence spending by 7.2% this year, slightly outpacing last year’s increase and faster than the government’s modest economic growth forecast, as Premier Li Keqiang called for the armed forces to boost combat preparedness.

    The national budget released on Sunday showed 1.55 trillion yuan ($224 billion) allocated to military spending.

    The defence budget will be closely watched by China’s neighbours and the United States, who are concerned by Beijing’s strategic intentions and development of its military, especially as tensions have spiked in recent years over Taiwan.

    In his work report to the annual session of parliament, Li said military operations, capacity building and combat preparedness should be “well-coordinated in fulfilling major tasks”.

    “Our armed forces, with a focus on the goals for the centenary of the People’s Liberation Army in 2027, should work to carry out military operations, boost combat preparedness and enhance military capabilities,” he said in the state-of-the-nation address to the largely rubber-stamp legislature.

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    This year’s hike in defence spending marks the eighth consecutive single-digit increase. As in previous years, no breakdown of the spending was given, only the overall amount and the rate of increase.

    The spending increase outpaces targeted economic growth of around 5%, which is slightly below last year’s target as the world’s second-largest economy faces domestic headwinds.

    Beijing is nervous about challenges on fronts ranging from Chinese-claimed Taiwan to U.S. naval and air missions in the disputed South China Sea near Chinese-occupied islands.

    China staged war games near Taiwan last August to express anger at the visit to Taipei of then-U.S. House Speaker Nancy Pelosi.

    Li Mingjiang, associate professor at S. Rajaratnam School of International Studies in Singapore, said defence spending outpacing the economic growth forecast showed China anticipates facing greater pressures in its external security environment, especially from the United States and on the Taiwan issue.

    “Chinese leaders are clearly intensifying efforts to prepare the country militarily to meet all potential security challenges, including unexpected situations,” he said.

    China, with the world’s largest military in terms of personnel, is busy adding a slew of new hardware, including aircraft carriers and stealth fighters.

    ‘STRENGTHEN MILITARY WORK’

    Beijing says its military spending for defensive purposes is a comparatively low percentage of its GDP and that critics want to demonise it as a threat to world peace.

    “The armed forces should intensify military training and preparedness across the board, develop new military strategic guidance, devote greater energy to training under combat conditions and make well-coordinated efforts to strengthen military work in all directions and domains,” Premier Li said.

    Takashi Kawakami, a professor of Takushoku University in Tokyo, said China would probably give priority to its nuclear capability.

    “As China strengthens the new area of cognitive warfare over Taiwan, I think it will also use the budget to build up its cyber and space capabilities, as well as its submarine forces to target undersea cables,” he said.

    China’s reported defence budget in 2023 is around one quarter of proposed U.S. spending, though many diplomats and foreign experts believe Beijing under-reports the real number.

    The fiscal 2023 U.S. defence budget authorises $858 billion in military spending and includes funding for purchases of weapons, ships and aircraft, and support for Taiwan and for Ukraine as it fights an invasion by Russia.

    China has long argued that it needs to close the gap with the United States. China, for example, has three aircraft carriers, compared with 11 in active service for the United States.

    The Ukraine war has prompted some elements in China’s military-industrial complex to call for an increase in the defence budget.

    An article published last October in the official journal of the State Administration of Science, Technology and Industry for National Defence, a central government ministry responsible for wartime logistics, recommended an increase in the military budget given surges in defence spending from NATO member-states besides the United States.

    “This matter is not about participating in the international arms race, but defending our national security,” it said.

    ($1 = 6.9048 Chinese yuan renminbi)

    Reporting by Yew Lun Tian; Additional reporting by Eduardo Baptista, and Nobuhiro Kubo in Tokyo; Writing by Ben Blanchard; Editing by William Mallard & Simon Cameron-Moore

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  • China sets modest growth target of about 5% as parliament opens

    China sets modest growth target of about 5% as parliament opens

    • GDP target around 5% at low end of expectations
    • Work report focuses on consumption, jobs
    • Defence spending to rise 7.2%, up from 7.1% rise
    • Budget deficit target at 3%, wider than previous 2.8%

    BEIJING, March 5 (Reuters) – China set a modest target for economic growth this year of around 5% on Sunday as it kicked-off the annual session of its National People’s Congress (NPC), which is poised to implement the biggest government shake-up in a decade.

    China’s gross domestic product (GDP) grew by just 3% last year, one of its worst showings in decades, squeezed by three years of COVID-19 restrictions, crisis in its vast property sector, a crackdown on private enterprise and weakening demand for Chinese exports.

    In his work report, outgoing Premier Li Keqiang stressed the need for economic stability and expanding consumption, setting a goal to create around 12 million urban jobs this year, up from last year’s target of at least 11 million, and warned that risks remain in the real estate sector.

    Li set a budget deficit target at 3.0% of GDP, widening from a goal of around 2.8% last year.

    “We should give priority to the recovery and expansion of consumption,” said Li, who spoke for just under an hour in a speech to open the parliament, which will run through March 13.

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    “The incomes of urban and rural residents should be boosted through multiple channels. We should stabilize spending on big-ticket items and promote recovery in consumption of consumer services,” he said.

    This year’s growth target of around 5% was at the low end of expectations, as policy sources had recently told Reuters a range as high as 6% could be set. It is also below last year’s target of around 5.5%.

    “While the official growth target has been lowered for the second consecutive year, which might be a disappointment to the market, we reckon investors (should) pay attention to the underlying growth momentum to gauge the recovery pace,” said Zhou Hao, economist at Guotai Junan International.

    Li and a slate of more reform-oriented economic policy officials are set to retire during the congress, making way for loyalists to President Xi Jinping, who further tightened his grip on power when he secured a precedent-breaking third leadership term at October’s Communist Party Congress.

    [1/5] Chinese President Xi Jinping and Li Keqiang talk at the opening session of the National People’s Congress (NPC) at the Great Hall of the People in Beijing, China March 5, 2023. REUTERS/Thomas Peter

    During the NPC, former Shanghai party chief Li Qiang, a longtime Xi ally, is expected to be confirmed as premier, tasked with reinvigorating the world’s second-largest economy.

    The rubber-stamp parliament will also discuss Xi’s plans for an “intensive” and “wide-ranging” reorganisation of state and Communist Party entities, state media reported on Tuesday, with analysts expecting a further deepening of Communist Party penetration of state bodies.

    MILITARY BUDGET RISE

    Li said China’s armed forces should devote greater energy to training under combat conditions and boost combat preparedness, and the budget included a 7.2% increase in defence spending this year, a slightly bigger increase than last year’s budgeted 7.1% rise and again exceeding expected GDP growth.

    On Taiwan, Li struck a moderate tone, saying China should promote the peaceful development of cross-Strait relations and advance the process of China’s “peaceful reunification”, but also take resolute steps to oppose Taiwan independence.

    Beijing faces a host of challenges including increasingly fraught relations with the United States and a worsening demographic outlook, with plunging birth rates and a population drop last year for the first time since the famine year of 1961.

    China plans to lower the costs of childbirth, childcare and education and will actively respond to an ageing population and a decrease in fertility, the nation’s state planner said in a work report released on Sunday.

    The NPC opened on a smoggy day amid tight security in the Chinese capital, with 2,948 delegates gathered in the cavernous Great Hall of the People on the west side of Tiananmen Square.

    During the session, China’s legislature will vote on a plan to reform institutions under the State Council, or cabinet, and decide on a new cabinet line-up for the next five years, according to a meeting agenda.

    It is the first NPC meeting since China abruptly dropped its zero-COVID policy in December, following rare nationwide protests. Excluding the pandemic-shortened meetings of the previous three years, this year’s session will be the shortest in at least 40 years, according to NPC Observer, a blog.

    Additional reporting by the Beijing newsrooom; Writing by Tony Munroe; Editing by Himani Sarkar, William Mallard and Simon Cameron-Moore

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