Washington Insider -- Friday

Washington Insider: China's Growing Economic Influence

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

USDA'S PERDUE INSISTS FINAL MFP 2 PAYMENT COMING

While there has been some uncertainty on whether the administration would make the final installment of the 2019 Market Facilitation Program (MFP 2) payment to farmers, USDA Secretary Sonny Perdue Wednesday appeared to put that issue to rest.

In separate interviews with Ag Day and Bloomberg, Perdue sought to assure farmers he expects the payments will be made.

Asked by Ag Day if the third MFP 2 installment would come, Perdue said, "I absolutely do expect that and I do not know, I do not know where the fake news came from over the anxiety of that maybe not being there. But it did not come from us. There has been questions from the Hill and from other industries there. But my expectation is that the president will direct us to fulfill that third tranche of the commitment of the 2019 MFP payments."

In his remarks to Bloomberg, Perdue said, "I'm counting on it, but we've got to get that allocated through the Office of Management and Budget. But I see no reason why we can't get that done."

Through Jan. 6, USDA has paid out $10.769 billion under MFP 2, with Iowa, Illinois, Texas, Minnesota and Kansas being the top five states receiving the payments.


USDA Requests Info on Infrastructure Needed For Higher Renewable Fuels Blends

USDA has published a request for information (RFI) for the Higher Blends Infrastructure Incentive Program (HBIIP). The RFI seeks to gain input "to expand domestic ethanol and biodiesel availability."

USDA wants information "opportunities to consider infrastructure projects to facilitate increased sales of higher biofuel blends (E15/B20 or higher.)"

This effort seeks to build on the Biofuels Infrastructure Partnership (BIP) program USDA operated from 2016 to 2019 through state and private partners to expand the availability of E15 and E85 infrastructure to make available higher ethanol blends at retail gas stations around the country.

The request from USDA aims at informing where there may be "notable gaps, vulnerabilities, and areas to promote and protect in the HBIIP that may benefit from Federal government attention."

Comments are due on or before Jan. 30.


WASHINGTON INSIDER: CHINA'S GROWING ECONOMIC INFLUENCE

The complex phase-one trade deal with China was signed this week and the urban press, among others, is hard pressed to evaluate what it may mean. For example, while everybody thinks this "trade truce" is much better than the alternative, there also has been a rush to point out what it may not accomplish. For example, the Times emphasized the deal is a "truce" not a "peace treaty" and argued that while administration officials are bullish, "many economists are not."

In addition, the general reaction to the agreement includes the deepening realization that China has, indeed, become an economically strong world competitor. In that regard, the Times reported extensively on one of China's major programs, its big-money push to build ports, rail lines and telecommunications networks -- and increase Beijing's political sway in the process. While the program seemed to be running out of gas just a year ago, it now "has come roaring back."

In response, the Times notes Western officials and companies are renewing their warnings that China's gains in business and political clout could come at their expense.

Chinese companies signed Belt and Road contracts worth nearly $128 billion in the first 11 months of last year, a 41% increase over the same period in 2018, the Times said. The contracts are mostly for construction and equipment by big Chinese companies using Chinese skilled labor and loans from Chinese banks, although the projects often create jobs for local laborers as well.

The return of Belt and Road is likely to raise additional tensions with the United States, which worries China is building a globe-spanning bloc of nations that will mostly buy Chinese goods and tilt toward China's authoritarian political model.

The rush of new Belt and Road contracts follows a public pullback by Chinese officials in 2018 after several projects were criticized by local officials and others as bloated and costly. China argues that, since then, it has fine-tuned practices to trim waste.

Officials in the United States and Western Europe have long criticized Belt and Road as predatory and recently some officials in developing countries began to agree. Vice Premier Liu He of China publicly raised concerns in early 2018 about heavy lending by Chinese banks, not just for the Belt and Road Initiative.

In the months that followed, Chinese financial regulators clamped down hard on domestic and overseas lending alike. New Belt and Road contracts plummeted, Chinese data showed. China's financial regulators told the country's banks to look twice at further lending to poor countries.

But the credit crunch produced a much broader slowing in the Chinese economy than expected, so financial regulators reversed course. Contracts started to be signed in earnest again in the final weeks of 2018, and momentum built through last year.

More recently, two western groups have raised questions about the resurgence of the Belt and Road Initiative. A report released Thursday by the European Chamber of Commerce in China concluded that Chinese-built telecommunications networks and ports are set up in ways that make it hard for European companies to compete.

A survey by the chamber of its members also found they had been almost completely excluded from bidding on Belt and Road Initiative contracts, which went mostly to Chinese state-owned enterprises.

The Institute of International Finance, a research group in Washington backed mainly by big Western banks, issued a different warning on Monday as part of a broader report on global debt. The institute's report said many poor countries in the Belt and Road Initiative now find themselves with sharply increased debt burdens. Many of these countries could barely qualify to borrow money even before they took on the new debt, the report said.

The institute's report also said 85% of Belt and Road projects involved high emissions of greenhouse gases linked to climate change. These projects have included at least 63 coal-fired power plants, as well as loans that tend to carry considerably higher interest rates than those from lending institutions like the World Bank.

The construction industry group and also the European chamber said the costs of Belt and Road Initiative projects are often greatly underestimated. They focus both on national telecom networks, new ports and other infrastructure that now mean a competitive disadvantage for both U.S. and European investors in several growing areas. China has contended that economic growth has long suffered in many emerging markets from high transportation costs, and that the construction of new ports can reduce these costs.

So, we will see. Clearly, the hoped-for phase two of the China deal will be focused on a number of the remaining areas of anti-competitive behavior and will rely less on direct trade interventions like tariffs. The next steps will be crucial to ag producers and should be watched closely as they begin to take shape, Washington Insider believes.


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