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BusinessDay 09 Apr 2018

Monday

Monday 09 April 2018 FT FINANCIAL TIMES C002D5556 BUSINESS DAY A11 World Business Newspaper Xi Jinping to outline economic reforms amid trade tension Chinese president’s test is to appear as a bold reformer without bending to the US TOM MITCHELL AND EMILY FENG Xi Jinping will on Tuesday give the most anticipated speech of his already historic presidency. During an address to a Chinese government-hosted forum on Hainan island, Mr Xi’s challenge will be to outline bold new economic reforms and measures to open markets without appearing to bend to US pressure on trade. With China preparing to mark the 40th anniversary of Deng Xiaoping’s “reform and opening” policies, Mr Xi had hoped to use his address at the Bo’ao Forum for Asia to signal his determination to be as decisive and effective as Deng was in implementing difficult economic and financial reforms. “How will China further advance reforms? This is a question people want to know the answer to,” Chinese foreign minister Wang Yi said last week, just hours before trade tension between the world’s two largest economies erupted. “At Boao, Xi Jinping will provide the most authoritative answers. Participants will see the new opening and reform measures that China will take.” Last week’s trade hostilities, however, have bolstered the position of hardliners who argue against making any trade or market-opening concessions to the US. “It’s very delicate,” said one Chinese government policy adviser. “We don’t want to escalate the situation, but if we don’t respond we only encourage Trump.” On Sunday US President Donald Trump tweeted that “China will take down its Trade Barriers because it is the right thing to do …A deal will be made on [trade].” Mr Xi has also limited his room for manoeuvre by cultivating an image of a nationalist hero in the mould of Mao Zedong, Communist China’s revolutionary founder. He began his first term as party general secretary by leading the seven-member Politburo Standing Committee on a tour of a “Road to Rejuvenation” exhibit at China’s national museum, which chronicles the “century of humiliation” the country endured at the hands of foreign invaders between 1839 and 1945. Adidas looks to score online as it drives harder into digital German sportswear brand ramps up investment as it looks to click with consumers OLAF STORBECK In two major speeches over the past six months, Mr Xi has outlined his vision for China’s emergence as a first-rank global power. In the most recent of these addresses — at last month’s annual session of China’s rubber-stamp parliament — Mr Xi warned the US not to “threaten others”. It was a warning that Mr Trump chose to ignore in what Chinese officials saw as deliberately insulting fashion. On April 5 Mr Trump threatened “$100bn in additional tariffs” on Chinese exports to the US. Just a day earlier the Trump administration had outlined its plans to assess punitive tariffs on $50bn worth of Chinese exports, to which Beijing responded in kind. Mr Trump dismissed China’s counter-tariffs, which officials in Beijing described as proportionate and legal, as “unfair retaliation” that will “harm our farmers and manufacturers”. Mr Trump’s latest threat, issued via a formal White House statement rather than a casual tweet, has raised the stakes dramatically for Mr Xi as he prepares to address hundreds of Chinese and international dignitaries, financiers and captains of industry at Bo’ao. “Xi is up against a wily adversary,” says Tim Clissold, a foreign investment adviser and veteran of hundreds of Chinese business negotiations. “Trump is unpredictable and [has] hidden goals.” In private, Chinese officials are more sanguine. “Trump is unpredictable in one sense but he’s very predictable in another sense,” one official told the Financial Times. “He has been a protectionist his whole life.” In a hastily arranged press conference held just before US markets opened on Friday morning, a Chinese commerce ministry spokesman vowed that “under this backdrop [of US threats] China will not negotiate”. “Trump has moved further in the wrong direction,” said He Weiwen, a Chinese trade policy expert and former commerce ministry official. “The right approach is to sit down for negotiations without unilateral threats, based on hard facts and World Trade Organization rules.” German sportswear maker Adidas is closing stores and stepping up investment in digital as it looks to more than double ecommerce sales over the next two years. “Our website is the most important store we have in the world,” says Kasper Rorsted, chief executive. “It has priority when we hire, when we allocate our resources and when we build our infrastructure.” Since joining Adidas from German consumer goods and chemicals group Henkel in 2016, Mr Rorsted has ramped up the Herzogenaurachbased group’s annual capital expenditure by almost 40 per cent. He plans to spend €900m this year, with the bulk of the increase earmarked for digital operations. One area of investment is logistics and infrastructure, such as fulfilment warehouses for online consumers. “The entire logistics is totally different,” says Mr Rorsted. “When you ship to a big retail chain, you ship pallets Continues on page A2 One-man show: Xi Jinping is expected to outline bold economic reforms for China this week © AP Barclays plans to split euro trading hub over Brexit Shift highlights level of uncertainty in London’s position as dominant centre MARTIN ARNOLD AND DAN MCCRUM Barclays is preparing to split its euro rates trading team because of Brexit and plans to move part of the unit that trades eurozone government bonds and interest rate swaps away from its main trading floor in London. The shift is designed to allow Barclays to continue trading euro securities with European clients even if the UK crashes out of the EU in March 2019 with no trade deal or transition agreement to maintain access to the bloc’s single market. The plan highlights the level of uncertainty over the City of London’s position as the dominant centre for trading euro securities. The European Commission and European Central Bank are pushing for the EU to retain direct oversight over clearing such assets. Without a free trade deal between the UK and EU to preserve mutual market access for financial services, banks will lose their “passport” that gives them the right to trade securities across Europe from London. US truck driver shortage points to bigger problems As automation is happening unevenly a flexible training system is needed GILLIAN TETT Until recently, if you said the word “truck drivers” and “21st-century economy” in the same breath, most economists — and voters — would have guessed that the next words would be “job losses”. No wonder. A couple of years ago, auto experts started to warn that computers will soon be driving not just cars, but trucks, too. A 2017 trucking industry report, for example, predicts that by 2030 some 4.4m of the 6.4m trucker jobs in Europe and America could disappear, since robots will be driving. Unsurprisingly, that has sparked plenty of hand-wringing about the political economy, especially in America. After all, in recent decades truck driving has been one of the best-paying jobs for non-college American graduates, and the workforce is overwhelmingly male, middleaged and lowly-educated. Both sides have committed to a transition deal to avoid a “cliff edge” Brexit by maintaining the status quo until December 2020, but that agreement is unlikely to be finalised until close to the date when the UK leaves the EU in March 2019. Barclays has not decided where its new euro rates trading desk will be based but it is expected to involve slightly fewer than 10 traders being based in the eurozone, according to a person briefed on the plan. London will, however, remain the bank’s main hub for euro rates trading and the leader of that team will still be based in the UK capital. “Meeting the needs of our clients worldwide is our top priority,” the bank said in an emailed statement. “Barclays continues to plan for all contingencies relating to Brexit to ensure seamless service for our clients.” The British bank is planning to make Dublin its main EU hub outside London, adding 150 to 200 more staff in a new office building in the Irish capital. It is also beefing up its legal status to become a standalone subsidiary with its own capital and regulatory oversight. So the idea that truckers might suddenly be tossed out of the workforce has contributed to a fear that we are heading for a dystopian future — which, of course, is the type of alarming theme that Donald Trump played on in his presidential campaign. But lately, something peculiar — and unexpected — has been going on with those trucks. Yes, in the long term, it is likely we will see automated vehicles on the roads. However, in the short term the really big problem is not a lack of trucker jobs, but a dire shortage of all-toohuman truckers. The combination of a surging economy and a rise in internet shopping is creating rising demand for long-haul shipping, which trucking companies are struggling to meet. Demand is so high that capacity utilisation is now running at about 100 per cent according to consultants (compared with 85 per cent at the start of the decade). And the Jes Staley, chief executive of Barclays, plans to visit Dublin this week to discuss its Brexit plans and to view its new Molesworth Street office in the heart of the city, with capacity for up to 400 people. The bank’s new euro rates trading desk is likely to be based in one of its other European offices, such as Frankfurt or Paris. These will soon be converted from branches of its London headquarters to become offshoots of its new Irish subsidiary. Mr Staley has consistently said the impact of Brexit on the bank is minor compared with the work it has done to comply with UK ringfencing rules and US intermediate holding company requirements. It nonetheless remains one of the big challenges still facing him and the bank’s chairman, John McFarlane, before his planned retirement at its annual meeting in May 2019. Other hurdles include a regulatory investigation into Mr Staley’s attempt to unmask a whistleblower and UK criminal charges against the bank and several former executives over a rescue fundraising with Qatar in 2008. producer price index for trucking is 6 per cent higher than a year ago. That has hit margins for companies ranging from General Mills to Clorox, and executives say the problem could soon get even worse. What should investors make of this? There are at least three important lessons. First, this tale shows that we should take futurist predictions about technology and jobs with a pinch of salt. A few years ago researchers at Oxford university sparked alarm by predicting that 47 per cent of American jobs were at risk from “computerisation” in the next decade or two. However, this week the OECD, the Paris-based club of mostly rich nations, did its own intensive study which estimated that “only” 14 per cent of jobs in the west are vulnerable to automation. That still might sound quite scary. But what is also becoming clear is that the spread of robots is likely to be uneven, and the timing uncertain.

A12 BUSINESS DAY C002D5556 Monday 09 April 2018 FT NATIONAL Citic Resources plans stake sale to Kazakhstan Central Asian country prepares to play bigger role in China’s ‘Belt and Road’ trade HENNY SENDER Hong Kong listed Citic Resources Holdings is negotiating with Kazakhstan to sell a significant minority stake to the country, which is preparing to play a bigger role in Beijing’s “Belt and Road” trade and development initiative, according to two people with direct knowledge of the matter. The complicated plan, which still has not been finalised, involves Citic Resources itself selling off a series of assets starting with an under-performing oilfield in northeastern China. It hopes eventually to sell other oilfields in China and various mining and coal assets, these people added. Meanwhile a Kazakh government entity will inject energy assets into Citic Resources in return for a stake in the company, while powerful Citic Group itself will remain its largest shareholder. Among the most important assets involved will probably be JSC Karazhanbasmunai, which has the right to explore, develop, produce and sell oil from the Karazhanbas oilfield. Today Kazakhstan and Citic Resources each own 50 per cent of that entity. The deal has been in the works for many months and has the blessing of Chang Zhenming, chairman of Citic Group who is expected to retire next year and wants Citic Resources to become an important participant in China’s principal international initiative, these people added. Citic Group has long had a close relationship with Kazakhstan: for example, local Halyk Bank agreed to sell a 60 per cent stake in its subsidiary Altyn Bank to Citic Bank Corp in a transaction meant to promote the Belt and Road initiative, while Citic Kazyna Investment Fund I is sponsored by Citic and is a subsidiary of Kazakhstan’s sovereign wealth fund. That fund focuses on infrastructure projects in Kazakhstan, Central Asia and China. The first step in the transformation of the company is the sale of the Hainan-Yuedong Block in the Bohai Bay Basin in Liaoning Province to Geo-Jade Petroleum Corp, a Shanghailisted independent oil exploration and production company for a price that is yet to be determined. Adidas looks to score online as it drives harder... Continued from page A11 of shoes; but when you sell to the end customer, you ship maybe one pair of shoes, some socks and maybe some shorts.” The group is hiring 200 staff with a digital focus and wants to more than double its ecommerce revenues to €4bn by 2020. Last year, the group’s online sales rose 57 per cent to almost €1.6bn. “That growth rate is impressive,” says Piral Dadhania, an analyst with Royal Bank of Canada, adding that the “relatively ambitious” 2020 target for online sales shows Adidas has “a high level of confidence for the midterm prospects” online. As part of its efforts to boost digital sales, Adidas introduced a smartphone app that allows customers a high degree of personalisation. It has been launched in the US, the UK and Germany, and is set to go live in France, Spain and Canada in the coming months. Another driver of growth are tieups with online retailers such as fellow German group Zalando — both warehouses are connected, and Adidas fulfils some of its partner’s orders. Adidas, which last month announced a €3bn share buyback and a 30 per cent increase to its dividend, is one of Germany’s best-performing blue-chips. Its shares have risen 21 per cent this year, compared with a 5 per cent drop for the blue-chip Dax index. In the first full year under Mr Rorsted’s leadership, Adidas in 2017 reported a 16 per cent increase in revenue to €21.2bn, while the operating profit margin increased 120 basis points to 9.8 per cent. Mr Rorsted aims to lift sales 10-12 per cent a year by 2020, and to boost the operating profit margin from almost 10 per cent to 11.5 per cent. The company says net profit is forecast to rise 22-24 per cent annually until 2020. “Adidas has been one of the most successful turnround stories in the sporting goods universe,” write Berenberg analysts. Mr Rorsted insists increasing sales and margins at the same time is not a trade-off. “In most industries, the larger companies are also the most profitable,” he says, adding that in the past regional operations were too fractured. “Every country was running their own warehouses and systems. We became 20 Adidas companies instead of one.” Pruning its store network is also intended to increase profitability, as margins in ecommerce are higher than for traditional retail. Christian Sewing has been at Deutsche Bank since 1989 © Reuters Co-deputy chief in line to replace Cryan at Deutsche Bank Chairman favours Christian Sewing as board prepares to meet on Sunday evening OLAF STORBECK John Cryan is set to be replaced by one of his deputies as chief executive of Deutsche Bank two years earlier than planned after a spat with chairman Paul Achleitner that has thrown Germany’s largest lender into turmoil, according to two people involved in the discussions. Deutsche Bank’s supervisory board will make a final decision on whether to appoint Christian Sewing, who also runs the bank’s retail operations and is Mr Achleitner’s preferred candidate, in a meeting on Sunday evening, according to several people familiar with the matter. The board is also poised to appoint Garth Ritchie as the sole head of the lender’s ailing corporate and investment bank, a person familiar with the internal discussions said. Mr Ritchie’s current co-head Marcus Schenck informed Mr Achleitner over the Easter break that he was leaving Deutsche Bank after May’s annual meeting as the bank was not commit- HENRY FOY AND DAVID SHEPPARD The latest round of US sanctions against Russian oligarchs and political officials have been designed to wound parts of the country’s economy. But the pain is also likely to be felt far away from Moscow. Blanket sanctions against billionaire Oleg Deripaska’s aluminium empire look set to have an impact across the global commodity market, while restrictions on major figures in Russia’s energy and industrial sectors could also create widespread complications for western partners. Friday’s salvo against 24 Russians ting enough resources to secure the investment bank’s global position, according to a person who knows Mr Schenck. Mr Sewing, 47, has been with Deutsche Bank since he was a teenager. His previous roles included head of group audit, deputy chief risk officer and chief credit officer. German news magazine Der Spiegel on Sunday reported that Mr Achleitner had chosen Mr Sewing. Two people close to the supervisory board stressed that the final decision had yet to be made. Three top-10 shareholders on Sunday voiced their deep frustration with Mr Achleitner’s handling of the situation. “His days as chairman should be numbered,” one of the lender’s biggest investors told the FT, adding that he was “just the lesser of two evils”. A person at another leading investor in Deutsche Bank said it was “beyond doubt that Mr Achleitner botched his job”. A third key shareholder said his record at the lender was “devastating” but pointed US sanctions on oligarchs set to resonate globally Broad-based salvo of restrictions will ripple across wider commodity secto and 14 companies bans US citizens from doing business with them. But it also for the first time extends that restriction to non-Americans who “knowingly facilitate significant transactions… for or on behalf of [them]”, a proviso that means the sanctions’ impact on global trade will likely be deeper than previous curbs. It could make banks and commodity houses wary of conducting any US dollar denominated transactions with those linked to sanctioned entities, lawyers said, creating ripples across the wider commodity industry in which Russia plays an oversized role “These sanctions are going to make it very difficult for any western bank out that his position nonetheless seemed secure. Shareholders extended Mr Achleitner’s term by five years at last year’s annual shareholder meeting. Mr Achleitner’s frustration over Mr Cryan’s lack of leadership, and the incomplete implementation of the bank’s cost-cutting strategy, are the main reason for the rift between the chairman and CEO, two people familiar with Mr Achleitner’s thinking told the FT. “This is not about strategy, but about the failure to execute it,” one of them said. Investors have a different view. “The strategy and its implementation is ultimately the chairman’s responsibility,” said Hans-Christoph Hirt, executive director at Hermes EOS, which advises and represents around 0.5 per cent of the voting rights. He added that Mr Sewing would be the third CEO during the six years of Mr Achleitner’s tenure. “Mr Achleitner will have to answer some serious questions in the run-up to and at the shareholder meeting.” to deal with these companies or individuals,” said Michael O’Kane, partner at Peters & Peters in London. “The breadth of the sanctions also suggest they may restrict non-US citizens from facilitating significant transactions with these companies, which may complicate trade.” It will certainly complicate the aluminium market. Mr Deripaska’s Rusal accounts for just under 6 per cent of the metal’s global supply and is the largest producer of the metal outside of China. Rusal is the second biggest supplier of aluminium to the US after Canada, and more than 10 per cent of his output is sent to America, roughly $1bn worth of metal that it now needs to sell elsewhere. Trump leads condemnation of Syria gas attack US president says there will be ‘big price to pay’ for alleged eastern Ghouta attack REBECCA COLLARD AND COURTNEY WEAVER Donald Trump has led international condemnation of an alleged chemical weapons attack by the Syrian government, raising prospects of an American response to the assault that has killed at least 48 people in the rebel-held town of Douma. The US president singled out Russian president Vladimir Putin in a tweet on Sunday, saying he held Russia and Iran, Syrian president Bashar al-Assad’s backers, responsible for the atrocity. He slammed the “Animal Assad” and warned there would be a “big price to pay” for the attack. Republican lawmakers urged Mr Trump to turn his words into action. Senator Lindsey Graham, a Republican foreign policy hawk, said a soft response from Mr Trump would damage his credibility. “If he doesn’t follow through and live up to that tweet, he’s going to look weak in the eyes of Russia and Iran,” he warned. Relations between Washington and Moscow are fraught after the Trump administration on Friday imposed sanctions against 24 prominent Russians and more than a dozen Russian companies. The EU said on Sunday that it “condemns in the strongest terms the use of chemical weapons” and urged for an “immediate response by the international community . . . to make sure that those responsible are held accountable.” Brussels also pressed Russia and Iran “to use their influence to prevent any further attack and ensure the cessation of hostilities and de-escalation of violence”. The Syrian American Medical Society, a medical relief organisation, said that at least 48 people had been killed and hundreds more injured in a chemical attack inside the rebel-held enclave of eastern Ghouta on Saturday evening. If confirmed the attack would be the most serious since sarin gas was dropped on the Syrian town of Khan Sheikhoun a year ago, killing more than 80 people and provoking retaliatory air strikes on the Assad regime by the US military. The UN said last year that the Syrian government had carried out dozens of chemical attacks since the start of the Syrian civil war seven years ago. Video footage and images posted by activists showed rescue workers treating dozens of people, some foaming at the mouth, as well as children and babies being given oxygen and being doused in water. It was not possible to confirm the authenticity of the videos or images.

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