Xi calls for oil trade in yuan

President Xi Jinping told Gulf Arab leaders that China would work to buy oil and gas in yuan, a move that would support Beijing's goal to establish its currency internationally and weaken the US dollar's grip on world trade.

Xi was speaking in Saudi Arabia where Crown Prince Mohammed bin Salman hosted two milestone Arab summits with the Chinese leader which showcased the powerful prince's regional heft as he courts partnerships beyond close historic ties with the West.

Top oil exporter Saudi Arabia and economic giant China both sent strong messages during Xi's visit on non-interference at a time when Riyadh's relationship with Washington has been tested over human rights, energy policy and Russia.

Any move by Saudi Arabia to ditch the dollar in its oil trade would be a seismic political move, which Riyadh had previously threatened in the face of possible US legislation exposing OPEC members to antitrust lawsuits.

China's growing influence in the Gulf has unnerved the United States. Deepening economic ties were touted during Xi's visit, where he was greeted with pomp and ceremony and met with Gulf states and attended a wider summit with leaders of Arab League countries spanning the Gulf, Levant and Africa.

At the start of Friday's talks, Prince Mohammed heralded a historic new phase of relations with China, a sharp contrast with the awkward US-Saudi meetings five months ago when President Joe Biden attended a smaller Arab summit in Riyadh.

Asked about his country's relations with Washington in light of the warmth shown to Xi, Foreign Minister Prince Faisal bin Farhan Al Saud said Saudi Arabia would continue to work with all its partners. "We don't see this as a zero sum game," he said.

"We do not believe in polarization or in choosing between sides," the prince told a news conference after the talks.

Though Saudi Arabia and China signed several strategic and economic partnership deals, analysts said relations would remain anchored mostly by energy interests, though Chinese firms have made forays into technology and infrastructure sectors.

"Energy concerns will remain front and centre of relations," Robert Mogielnicki, senior resident scholar at the Arab Gulf States Institute in Washington, told Reuters.

The Chinese and Saudi governments will also be looking to support their national champions and other private sector actors to move forward with trade and investment deals. There will be more cooperation on the tech side of things too, prompting familiar concerns from Washington."

Saudi Arabia agreed a memorandum of understanding with Huawei this week on cloud computing and building high-tech complexes in Saudi cities. The Chinese tech giant has participated in building 5G networks in Gulf states despite US concerns over a possible security risk in using its technology.

Saudi Arabia and its Gulf allies have defied US pressure to limit dealings with China and break with fellow OPEC Plus oil producer Russia over its invasion of Ukraine, as they try to navigate a polarized world order with an eye on national economic and security interests.

Riyadh is a top oil supplier to China and the two countries reaffirmed in a joint statement the importance of global market stability and energy collaboration, while striving to boost non-oil trade and enhance cooperation in peaceful nuclear power

Xi said Beijing would continue to import large quantities of oil from Gulf Arab countries and expand imports of liquefied natural gas, adding that their countries were natural partners who would cooperate further in upstream oil and gas development.

China would also make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade, he said.

Beijing has been lobbying for use of its yuan currency in trade instead of the U.S. dollar.

A Saudi source, speaking before Xi's visit, told Reuters that a decision to sell small amounts of oil in yuan to China could make sense in order to pay Chinese imports directly, but it is not yet the right time.

Most of Saudi Arabia's assets and reserves are in dollars including more than US$120 billion of US Treasuries that Riyadh holds, and the Saudi riyal, like other Gulf currencies, is pegged to the dollar.

Earlier, the Chinese leader said his visit heralded a new era in relations, voicing hope the Arab summits would become "milestone events in the history of China-Arab relations".

 

TSMC to triple US chip investment

Taiwan Semiconductor Manufacturing Company (TSMC) is to more than triple its investment in the United States to US$40 billion to bring the world's most advanced chip production technology to the country by 2026.

TSMC, the world's biggest contract chipmaker, announced to increase its investment in Arizona, where it is building a US$12 billion chip facility, to US$40 billion in order to build a second, even more advanced plant there.

The announcement came ahead of an equipment installation ceremony at the first facility attended by US President Joe Biden and numerous tech industry executives.

The additional facility will begin operation by 2026 and will be the first plant in the US to make 3-nanometer chips, the most advanced currently available, a White House official said.

In line with the expansion, TSMC will increase its workforce in Arizona to 4,500, from an initial plan of 1,600, the company said.

Nanometer size refers to the distance between transistors on a chip - the smaller the number, generally speaking, the more powerful the chip. As the brains of electronic devices, such chips are vital for everything from smartphones and autonomous vehicles to supercomputers and AI technologies.

TSMC's first plant, which is slated to begin production in 2024, will produce 4-nm chips of the kind used for iPhone 14 Pro processors. Once that plant and the 3-nm facility are operating at full capacity, TSMC's total output in Arizona will be 60,000 wafers per month, triple its original plan of 20,000.

"When complete, TSMC Arizona will be the greenest semiconductor manufacturing facility in the United States producing the most advanced semiconductor process technology in the country, enabling next generation high-performance and low-power computing products for years to come," TSMC Chairman Mark Liu said in a statement.

"We are thankful for the continual collaboration that has brought us here and are pleased to work with our partners in the United States to serve as a base for semiconductor innovation."

Apple and chipmakers AMD and Nvidia will be among the first customers buying chips from TSMC's Arizona plant, according to an announcement by the company and the White House, confirming an earlier Nikkei Asia report.

AMD told Nikkei Asia that it looks forward to having its most advanced chip products built in TSMC's Arizona fabs.

Nvidia's CEO Jensen Huang said in a statement that bringing TSMC's investment to the United States is a masterstroke and a game-changing development for the industry.

Biden's decision to attend the equipment installation ceremony underscores the importance of TSMC to Washington's chip ambitions.

Speaking at the event, Biden said America had once had more than 30% of global chip production.

"Then something happened. American manufacturing, the backbone of our economy, began to get hollowed out. Companies moved jobs overseas," he said.

"Today we're down to producing only around 10% of the world's chips, despite leading the world in research and design in new chip technologies. But ... where is it written that America can't lead the world once again in manufacturing? I don't know where that's written, and we're proving it can."

Biden was joined by a who's who of the tech industry, including CEOs from companies such as Apple, Nvidia and AMD as well as top chip making tool companies Applied Materials and Lam Research plus other chip-related players such as Entegris, Synopsys and Arm.

TSMC founder Morris Chang, Chairman Mark Liu and CEO C.C. Wei all attended.

Liu said in his remarks that the plant has the potential to generate US$10 billion in revenue a year and chips produced there could help build advanced electronics products worth US$40 billion a year.

The companies represented at the ceremony are worth at least US$4 trillion, making the event the most important gathering in the semiconductor industry in the post-pandemic era.

In the chip industry, a tool move-in event signals that the installation of essential equipment has begun and is a significant milestone for a chip making facility to become operational.

TSMC's announcement comes as Washington is pushing hard to onshore vital production of semiconductors. In addition to their economic importance, chips are also seen as vital to national security - a sentiment reflected in the latest round of export controls Washington imposed on China in an attempt to curb its semiconductor advancement.

Their importance was further brought home by a global chip shortage sparked by the pandemic and supply chain disruptions, hitting a range of industries.

Rising political tensions between China and Taiwan, the self-ruled democratic island where TSMC is based and which Beijing views as part of its territory, have further accelerated Washington's push to diversify chip production.

Most of the world's cutting-edge chips are built in Asia by TSMC and Samsung Electronics of South Korea.

The US is hoping to change this by offering incentives for companies to build chip capacity on American soil. In July, lawmakers passed the US$52.7 billion CHIPS and Science Act package to boost the domestic semiconductor industry.

In addition to TSMC's expanded investment plans, Samsung is building a US$17 billion plant in Texas, while top US chipmaker Intel is spending at least $40 billion to build chip plants in Arizona and Ohio.

Only TSMC, Samsung and Intel are building or attempting to build chips as advanced as 3-nm, and all aim to put even more advanced 2-nm chips into production by 2025.

 

Transition from WTO to TTC

After long championing the World Trade Organization (WTO) and its predecessor GATT as the key venue for pursuing its commercial economic interests, the United States shifted more than a decade ago toward building alternative trade architecture.

President Barack Obama’s Trans-Pacific Partnership was aimed at crafting an Asia-Pacific trade bloc that left out China, a plan that was upended by his successor. Now, there’s a new body that warrants close attention, United States-European Union Trade and Technology Council (TTC).

Opened for business in 2021, the TTC this week held its third minister-level gathering. Originally designed by the Biden administration to resolve and manage disputes, it’s been evolving into a forum for coordinating economic approaches to systemic rivals of the US and Europe, specifically Russia and China, reports Bloomberg.

With TTC links between Washington and Brussels bureaucrats set up last year, the council found fresh purpose with Russia’s February invasion of Ukraine, enabling more effective coordination on sanctions and export controls.

The TTC reaction to Vladimir Putin’s aggression is also serving as something of a template for China, should Xi Jinping choose to make war on Taiwan. Indeed, there’s already evidence the TTC is emerging as a forum for the US and Europe to link up on issues concerning Beijing.

On December 05, 2022 the TTC served as a venue for discussing President Joe Biden’s push to hobble China’s semiconductor industry. Coincidentally, Dutch officials are already planning new controls on exports of chip-making equipment to China, potentially aligning with the US efforts to restrict Beijing’s access to high-end technology.

Germany, France and other EU members remain much more hesitant to embrace aggressive moves toward reducing China’s place in global supply chains. German Chancellor Olaf Scholz’s visit to Beijing last month with an entourage of business leaders from his country showcased that dynamic.

But the TTC now provides a permanent venue in which moves against China can be debated. With the WTO’s ability to rule on controversial trade measures effectively crippled by its inability to hear appeals (thanks to Donald Trump), the TTC is fast becoming the West’s preferred platform for hashing out global trade strategy. 

The TTC, along with the less formal US-Japan initiative and Biden’s even-looser Indo-Pacific Economic Framework, aren’t technically focused on tariffs and quotas in the way traditional trade-talk forums or free-trade agreements were. 

Instead, these are aimed at the “soft infrastructure” of global commerce—standards, export controls, transparency requirements, investment reviews and labor and environmental rules, explains Stephen Olson, a former US trade negotiator now at the Hinrich Foundation. 

“The parties are essentially creating ecosystems,” Olson wrote in a note earlier this year. “Integration deepens not as a result of trade-barrier reductions, but rather in response to the need or desirability of doing business with partners that maintain similar labor protections or adhere to compatible technical standards.”

Underscoring the strengthening of US-European digital diplomacy—and an apparent determination to manage differences (like EU tax and regulatory policy toward US tech giants), the EU even opened an office in Silicon Valley.

There of course remain plenty of trans-Atlantic disputes, highlighted by European fury over Biden’s clean-energy and electric-vehicle subsidies in this year’s massive Inflation Reduction Act. This week’s TTC gathering, it turned, out provided another chance to address those.

But the council could become increasingly important in other ways, especially as digital trade and associated regulations develop. The TTC gathering in September of last year called out authoritarian regimes for aiming to use technology to implement social control at scale.

Benjamin Larsen wrote in a Brookings Institution paper this week that the TTC can be viewed as the beginning steps towards forming an alliance around a human rights-oriented approach to the development of artificial intelligence in democratic countries.

In May, the two sides of the TTC took strides in another direction, agreeing to set up a Strategic Standardization Information mechanism to share information on international standards development—an area of increasing Chinese interest, as this newsletter highlighted.

The next TTC session is slated for mid-2023 in Europe. It will likely be a forum well worth watching

 

 

 

Pakistan Stock Exchange benchmark index closes almost flat

Economic uncertainty regarding Pakistan’s ability to make good on its debt payments kept the market under pressure during the week ended December 09, 2022. The benchmark index closed at 41,698 points, posting a decline of 1.07%WoW.

State Bank of Pakistan (SBP) confirmed the payment of US$1.08 billion of International Sukuk. This brought down foreign exchange reserves held by the SBP to US$6.7 billion on December 02, 2022.

Saudi Arabia provided a much-needed breathing space to Pakistan by announcing the rollover of US$3 billion which would help meet external sector challenges and achieve economic growth.

Participation in the market improved, though negligibly, with average traded volumes increasing to 179.7 million shares from 161.8 million shares in the earlier week.

Other major news flows during the week included: 1)  ECNEC okayed RKR333.6 billion for flood-hit projects, 2) GoP announced to borrow RKR5.52 trillion domestic debt over the next three months, 3) GoP debt rose to RKR50.152 trillion, 4) revised flood damages estimates estimated at US$46 billion, 5) tractor sales anticipated to decline 67 percent, 6) auto financing dropped for the fourth consecutive month, 7) Cement dispatches Declined by 17%YoY in November 20222 and 8) Cotton arrivals plunged 40%.

Top performing sectors were: Miscellaneous, Closed end mutual funds, and Vanaspati and Allied Industries, while the least favorite sectors were: Pharmaceuticals, Jute and Leasing.

Stock-wise, top performers were: PSEL, PGLC, MUREB, ILP, and BAHL, while laggards included: GLAXO, PIOC, CHCC, PSMC, and SEARL.

Individuals were major buyers with net buy of US$8.82 million, followed by Insurance companies with net buy of US$1.26 million. As against this, foreign investors were major sellers, with a net sell of US$6.26 million. Mutual funds continued to be a seller, with a net sell of US$3.71 million.

The market is expected to remain range-bound in the near future, clouded by liquidity concerns of the country, with foreign exchange reserves held by SBP plunging to US$6.7 billion— a less than one month import cover.

Some respite may come in the form of Saudi Arabia’s expected US$4.2 billion (US$3 billion in deposits and US$1.2 billion in deferred oil facilities), alleviating the pressures off the country’s FX reserves to some extent.

Political uncertainty and any developments regarding the 9th review by the IMF would remain in the limelight.

Indonesia plans using B35 biodiesel beginning 2023

Indonesia may start implementing a program to use biodiesel with 35% blend of palm oil-based fuel, known as B35, from January, 2023, a senior energy ministry official said on Friday.

Currently the world's top palm oil producer, Indonesia uses B30, containing 30% palm oil-based fuel. The overall palm oil-based fuel allocation for 2023 is estimated at around 13 million kilolitres in 2023, he said. Indonesia's 2022 allocation was 11.03 kilolitres.

Indonesian President Joko Widodo told his cabinet earlier this week to prepare the mechanism to implement B35 amid expectations that the crude oil price would remain high next year.

"The B35 policy is taken in anticipation of rising world oil prices and to reduce imports, while on the other hand this policy also aims to increase the use of renewable energy," ministry official Dadan Kusdiana said.

Southeast Asia's largest and most populous country is among the region's top importers of fuel, but authorities said import bills have been slashed significantly since Indonesia started expanding the portion of palm oil in biodiesel.

The expectation of B35 implementation helped palm oil prices in Malaysia higher, although some market participants were disappointed the blend would be lower than the anticipated 40%.

The energy ministry has been running trials for biodiesel containing 40% of fuel made using palm oil.

"Ten out of 12 of the vehicles tested had completed the road test with no significant issue and next we will determine the specification for B35 biodiesel," Dadan added, referring to the B40 trials.

“Hopefully, the B35 program can be implemented starting January 2023."

Indonesia is testing two formulation of B40, the first is a mix of diesel with 40% fatty acid methyl esters (FAME) and the second a mix of diesel with 30% FAME mixed with 10% green diesel made of refined, bleached and deodorized palm oil (RBDPO).

 

Keystone pipeline history of oil spills

According to a Reuters report, Canadian TC Energy Corp has shut its Keystone pipeline in the United States after more than 14,000 barrels of crude oil spilled into a creek in Kansas, making it one of the largest crude spills in the United States in nearly a decade. It is unclear how long the closure will last.

The 622,000 barrel-per-day pipeline is a critical artery shipping heavy Canadian crude from Alberta to refiners in the US Midwest and the Gulf Coast.

There have been several spills on the line since it began operating in 2010. The following is a timeline of some of Keystone's biggest oil spills, based on data from the US Pipeline and Hazardous Materials Safety Administration.

2011

May: TC shut the pipeline for six days after a spill of about 500 barrels of oil due to a failed fitting at a North Dakota pumping station. (https://reut.rs/3iKr5JC)

2016

April: TC shut down the pipeline after about 400 barrels of oil leaked in Hutchinson County, South Dakota. (https://reut.rs/3W2FjUx)

2017

November: TC shut part of the Keystone pipeline system after a leak in South Dakota, caused by mechanical damage from original construction. Originally pegged at 5,000 barrels, a TC spokesperson later put the estimate at about 9,700 barrels. (https://reut.rs/3P9J6Nu)

2019

February: Portions of the Keystone pipeline were shut down after 42 barrels of oil leaked on land in rural St. Charles County, Missouri. (https://reut.rs/3HkTBLZ)

October: An estimated 9,120 barrels of oil spilled in North Dakota. The spill was one of the biggest onshore crude spills in the last decade and the largest for Keystone, according to PHMSA. (https://reut.rs/3Hq4zjH)

 

 

US approves record military spending

The US House of Representatives backed legislation on Thursday paving the way for the defense budget to hit a record US$858 billion next year, US$45 billion more than proposed by President Joe Biden.

The House passed the compromise version of the National Defense Authorization Act, or NDAA, an annual must-pass bill setting policy for the Pentagon, by 350-80, far exceeding the two-thirds majority required to pass the legislation and send it for a vote in the Senate.

The fiscal 2023 NDAA authorizes US$858 billion in military spending and includes a 4.6% pay increase for the troops, funding for purchases of weapons, ships and aircraft; and support for Taiwan as it faces aggression from China and Ukraine as it fights an invasion by Russia.

"This bill is Congress exercising its authority to authorize and do oversight," said Representative Adam Smith, the Democratic chairman of the House Armed Services Committee, in a speech urging support for the measure.

Because it is one of the few major bills passed every year, members of Congress use the NDAA as a vehicle for a range of initiatives, some unrelated to defense.

This year's bill - the result of months of negotiations between Democrats and Republicans in the House and Senate - needed a two-thirds majority in the House after disagreement from some House members over whether it should include an amendment on voting rights.

The fiscal 2023 NDAA includes a provision demanded by many Republicans requiring the Secretary of Defense to rescind a mandate requiring that members of the armed forces get COVID-19 vaccinations.

It provides Ukraine at least US$800 million in additional security assistance next year and includes a range of provisions to strengthen Taiwan amid tensions with China.

The bill authorizes more funds to develop new weapons and purchase systems including Lockheed Martin Corp's F-35 fighter jets and ships made by General Dynamics.

The Senate is expected to pass the NDAA next week, sending it to the White House for President Joe Biden to sign into law.

NDAA is not the final word on spending. Authorization bills create programs but Congress must pass appropriations bills to give the government legal authority to spend federal money.

Congressional leaders have not yet agreed on an appropriations bill for next year.