Thursday, September 29 2022

This is an audio transcription of the FT press briefing podcast episode: China’s movements in the South Pacific

Marc Filipino
Hello from the Financial Times. Today is Wednesday, April 27, and it’s your FT press briefing.

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The Nasdaq Composite fell to its lowest level in more than a year. New research shows impact of Brexit on small businesses – it’s not good. Additionally, we will learn about Chinese companies trying to rent properties on the South Pacific Islands. I’m Marc Filippino, and here’s the news you need to start your day.

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The Nasdaq lost 4% of its value yesterday. Part of that was Tesla stock. They plunged 12% a day after its CEO, Elon Musk, struck a deal to buy social media site Twitter. But investors are also worried about inflation and rising interest rates and their impact on tech earnings. Turns out they were right to be concerned. After markets closed, Google’s parent company, Alphabet, reported first-quarter results that narrowly beat Wall Street expectations. But shares still fell more than 6% after the bell. Microsoft beat expectations and announced strong growth in its cloud business, but its shares still fell in after-hours trading.

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One of the biggest questions surrounding Brexit was: “What impact would it have on trade between the UK and the European Union?” Now we have some sense. There was a great study from the London School of Economics. It analyzed trade patterns for 1,200 individual product lines. FT public policy editor Peter Foster has this key conclusion.

Peter Foster
Most modeling suggests that UK exports to the EU are significantly lower than they would have been, perhaps 15% lower than they would have been. But in that figure, that headline figure, what this research from the London School of Economics shows is that small businesses have been disproportionately affected by Brexit. Big businesses have therefore found ways to deal with bureaucracy, but smaller businesses, which is reflected in the number of buyer-seller relationships between the UK and the EU, have really suffered as they have fell by about a third in the first quarter of the EU. -The UK trade deal will come into effect in January 2021. And that’s because smaller businesses have found it much, much harder to deal with all the bureaucracy that the UK’s exit from the EU single market has brought about.

Marc Filipino
So, Peter, do these findings align with what you’re hearing from small business owners? You know, what did they tell you?

Peter Foster
Often, I have spoken to companies that face this situation. There might be a business that sells used rare and vintage books. Another company selling Staffordshire honey became unable to economically move its product to the European Union because it was a one-man group.

Marc Filipino
OK, so what does this mean more broadly for small businesses?

Peter Foster
Well, small businesses just become bigger businesses. And so, you know, what that does is that the stock, so to speak, of embryonic small British businesses learning to trade internationally, to trade with Europe, is crimped and reduced by the Brexit, and the risk is that it has longer-term impacts down the line. We’ve also seen, even though the numbers are the same, if you look at the data from the Office of Budget Responsibility, the UK is underperforming the other major G7 economies by a factor of about 15 %. The OBR estimates that UK exports over the medium term will fall 15% from what they would otherwise have been as a result of Brexit.

Marc Filipino
Peter Foster is the FT’s public policy editor. Thanks, Peter.

Peter Foster
With pleasure.

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Marc Filipino
China is expanding its influence in the South Pacific. Last week, Beijing signed a security pact with the Solomon Islands. But in the years leading up to that, Chinese companies tried to strike real estate deals in the area. Kathrin Hille from the FT joins me now to talk more about it. Hello, Katherine.

Catherine Hille
Hi.

Marc Filipino
So I want to ask about one of the companies you investigated. It’s called China Sam Enterprises. What was he trying to do?

Catherine Hille
Well, in 2019, just months after the Solomon Islands transferred its diplomatic recognition from Taiwan to China, China Sam Enterprise Group came out of nowhere and offered a 75-year lease on Tulagi, which is a small island in the Solomon Islands. Solomon. And at the time they were saying that they wanted to create an economic zone and we were talking about oil refineries. But for that, you have to know that there is no oil in the Solomon Islands. So they signed a contract with the provincial premier at the time. But when it became public, this contract was canceled by order of the attorney general, who found it to be in violation of several laws. A year later, the company again tried to acquire a long lease on another piece of land in another province for the People’s Liberation Army to build military facilities and other infrastructure. Fast forward to the spring of this year, now we suddenly have the Chinese government signing a bilateral security agreement with the Solomon Islands government, and under that agreement it would be possible for China to send armed forces in the Solomon Islands.

Marc Filipino
Why are these Solomon Islands so strategic?

Catherine Hille
The key thing about the Solomon Islands and any of these Pacific island nations is that they control vast expanses of ocean. And for China, being able to move around the Pacific and especially the South Pacific is particularly important because it would bring them closer militarily to some of the places where the United States, which is still the dominant military power in the Pacific, has some of its military installations. So, in order for the People’s Liberation Army to keep an eye on the US military and also project its power and be a serious competitor militarily, it needs to come together. And that can only be done with naval resources, with ships, and for ships to move and operate for long periods of time so far from home, they would need a foothold.

Marc Filipino
So is there a connection between these Chinese companies trying to lease land in the region and China which has just signed a security pact with the Solomon Islands?

Catherine Hille
We do not know. I mean, you judge yourself. It seems very, very strange that this obscure Chinese company which also has ties to the security forces is making two attempts to secure the territory. And then a little over a year later, the government comes out and signs such an agreement. Now, we have to say that this security agreement that the Chinese government signed with the Solomon Islands is now being explained by both parties as something that is not intended to establish a Chinese naval base in the Solomon Islands.

Marc Filipino
And just out of curiosity, what are the people of the Solomon Islands saying? Or other South Pacific countries? What do they say about China’s influence?

Catherine Hille
Well, the Solomon Islands political landscape is deeply divided. Many opposition politicians are fiercely opposed to this security deal with China. But if there’s one thing everyone agrees on, it’s that the outside world needs to really care about the Solomon Islands and not just look at the country through a geopolitical lens all the time. Many of these countries have very specific problems. Almost all of them are really, really threatened by climate change. So if the water levels rise a little bit, they just disappear or part of their territory disappears. But from the perspective of outside countries or actors in the region, these countries have tended to focus on geopolitics and hard security and have not, from the perspective of Pacific island nations, done enough to fight against climate change and think about solving these problems. .

Marc Filipino
Kathrin Hille is the FT’s China correspondent.

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And before you go, just a final reminder that if you haven’t already, please take a few minutes and take our FT Podcasts survey. You will be entered to earn money and you will be doing us a huge favor. We really want to better understand the things you love to hear in our podcasts. Just go to FT.com/podcastsurvey, that’s FT.com/podcastsurvey. And as always, we’ll have a link in the show notes.

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You can read more about all these stories than FT.com. This has been your daily press briefing on FT. Be sure to check back tomorrow for the latest trade news.

This transcript was generated automatically. If by any chance there is an error, please send the details for a correction to: [email protected]. We will do our best to make the change as soon as possible.

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