Tag Archives: China

U.S. withdrawal leaves vacuum at U.N. rights forum

The name place sign of the United States is pictured one day after the U.S. announced their withdraw during a session of the Human Rights Council at the United Nations in Geneva, Switzerland June 20, 2018. Picture taken with a fisheye lens. REUTERS/Denis Balibouse

By Stephanie Nebehay

GENEVA (Reuters) – China, Britain and the European Union lamented on Wednesday Washington’s decision to withdraw from the U.N. Human Rights Council as Western countries began looking for a substitute for the coveted seat.

The United States withdrew on Tuesday from what it called the “hypocritical and self-serving” forum over what it called chronic bias against its close ally Israel and a lack of reform after a year of negotiations.

Washington’s retreat is the latest U.S. rejection of multilateral engagement after it pulled out of the Paris climate agreement and the 2015 Iran nuclear deal.

“It is bad news, it is bad news for this Council, it is bad news I think for the United Nations. It is bad news, I think for the United States, it is bad news for everybody who cares about human rights,” Slovenian President Borut Pahor told the 47-member forum in Geneva where the U.S. seat was empty.

The European Union, Australia and Britain echoed his comments.

“We have lost a member who has been at the forefront of liberty for generations. While we agree with the U.S. on the need for reform, our support for this Human Rights Council remains steadfast, and we will continue to advance the cause of reform from within its ranks,” Britain’s ambassador Julian Braithwaite said.

Bulgaria’s Ambassador Deyana Kostadinova, speaking on behalf of the EU, said that the United States had been a “strong partner” for many years at the talks. Its decision “risks undermining the role of the U.S. as a strong advocate and supporter of democracy on the world stage,” she added.

China’s foreign ministry expressed regret, with state media saying the image of the United States as a defender of rights was “on the verge of collapse”.

Diplomats have said the U.S. withdrawal could bolster Cuba, Russia, Egypt and Pakistan, which resist what they see as U.N. interference in sovereign issues.

Once the Trump administration formally notifies it of its decision, the U.N. General Assembly will organize elections for a replacement to assume the U.S. term through 2019.

The Western group of countries in the council is expected to discuss the issue at their weekly meeting on Thursday, diplomats said.

When the council was created in 2006, U.S. President George W. Bush’s administration shunned the body.

New Zealand, which stepped aside to allow the United States to win election to the Council in 2009 under President Barack Obama, may be a good choice as a replacement, two diplomats said. “There would be a certain symmetry,” one told Reuters.

Canada and the Netherlands were other possibilities, although no country has stepped forward yet, they said.

Israeli Prime Minister Benjamin Netanyahu welcomed the U.S. decision.

Senior member of the Palestine Liberation Organisation (PLO), Hanan Ashrawi, said Washington’s justification for withdrawal was “both deceptive and blatantly untrue”.

In a statement, she accused the United States of “subverting international law…for the sake of maintaining the impunity of Israel, the only remaining military occupation in the world”.

(additional reporting by Christian Shepherd and Ben Blanchard in Beijing and Dan Williams in Jerusalem; Editing by Alison Williams and Raissa Kasolowsky)

North Korea seen looking to China, not U.S., for help in any economic transformation

FILE PHOTO: A vendor is pictured in a shop in a newly constructed residential complex after its opening ceremony in Ryomyong street in Pyongyang, North Korea April 13, 2017. Picture taken April 13, 2017. REUTERS/Damir Sagolj/File Photo

By Cynthia Kim and Christian Shepherd

SEOUL/BEIJING (Reuters) – U.S. President Donald Trump may have promised that North Korea will become “very rich” on the back of American investment if Pyongyang ditches nuclear weapons but economists and academics who have studied the isolated country say it is China not the U.S. that will be the engine of any transformation.

The nearest template would not be based on American-style capitalism, but China’s state-controlled market economy first championed by Deng Xiaoping, who became China’s leader in 1978, these experts said. China was just coming out of the turmoil of the 27-year reign of Mao Zedong, a period during which capitalism was banned and private businesses and property were seized by the state and placed under collective ownership.

Deng introduced wrenching reforms that are widely regarded as creating the foundations of China’s economic miracle in the past 40 years. The changes were massive, the growth phenomenal, but most importantly the Chinese Communist Party has achieved all of this while not only retaining power but increasing its control over the country.

And in the run up to the unprecedented summit between Trump and North Korean leader Kim Jong Un on Tuesday in Singapore, it has been China that Pyongyang has been increasingly turning to.

Kim has made two visits to meet Xi since March, while a high-level delegation from his ruling Workers’ Party toured China’s industrial hubs in an 11-day visit in May that focused on China’s high-tech urban transport and latest scientific breakthroughs.

That delegation went to China only weeks after Kim declared an end to nuclear and missile tests and vowed an all-out effort toward “socialist economic construction.” Chinese media labeled Kim’s announcement North Korea’s “opening and reform”, shorthand for Deng’s policies, sparking a flurry of investment in housing in Dandong, the Chinese border town.

“Kim is talking to Trump because he needs to get the United States to back off sanctions. After that, headlines will be all about Kim and Xi Jinping,” said Jeon Kyong-man, an economist at the Institute for Korean Integration of Society, with reference to the Chinese president.

China is already North Korea’s most important ally and biggest trade partner. And since Kim assumed power in 2011 the trade relationship has become even more important. China now represents more than 90 percent of Pyongyang’s trade, making it just about North Korea’s only economic lifeline.

CHINA EYES NORTH KOREA’S “OPENING” .

Stagnating economic growth in China’s northeastern rustbelt has also spurred interest in ramping up Chinese economic ties with North Korea, according to Adam Cathcart, an expert on China-North Korea relations at Leeds University in the United Kingdom.

China’s model of shifting from a planned economy to a market economy is attractive for Pyongyang because it was achieved with political, economic and social stability, according to Zhang Anyuan, chief economist at Dongxing Securities in Beijing.

“Taking into consideration geographic location, economic system, market size, economic development stage, China-North Korean economic cooperation has advantages that are irreplaceable and hard to replicate,” Zhang said.

But Cathcart said that progress on economic liberalization would likely be slow because North Korea will want to be careful about the increased political risks that could come from relaxing restrictions on the currency and migration.

As well as China, North Korea may also look to other economies where tight top-down control has been kept, including Vietnam or even the ‘chaebol’ business structures of South Korea, which could allow something closer to “a capital dictatorship,” according to Cathcart.

Xi, under intense pressure from Trump, started enforcing sanctions strictly in the second half of 2017. By March this year, China imported no iron ore, coal or lead from North Korea for a sixth month in a row, in line with U.N. Security Council sanctions.

That has hurt North Korea’s coal-intensive heavy industries and manufacturing sectors. But more importantly, plunging trade with Beijing has been “killing the most thriving part of the economy” – unofficial markets where individuals and wholesalers buy and sell mostly Chinese-made consumer goods and agricultural products, Jeon said.

“More than anything, it was China’s decision to enforce sanctions that squeezed the economy and made removing of the sanctions an urgent task for Kim,” he said.

MOSQUITO-NET STYLE

Even after sanctions are lifted, North Korea will likely pursue state-managed growth because loosening controls is potentially destabilizing for the regime, says Kim Byung-yeon, an economics professor at Seoul National University. “It could leave Kim Jong Un with less than half the power he has now.”

As part of efforts to maintain control, any opening could initially be limited to “special economic zones,” where Pyongyang has sought to combine its cheap labor with China’s financial firepower and technological know-how, according to BMI Research, a unit of Fitch Group.

The Wonsan Special Tourist Zone in the east coast, or the suspended inter-Korean factory park in the North’s border city of Kaesong are some other examples Kim might pursue to maintain state controls over the economy, experts say.

In Wonsan, Kim has already built a ski resort and a new airport to turn the city of 360,000 people into a billion-dollar tourist hotspot.

“These are the sorts of projects that are most likely to get underway first if the sanctions are eased,” BMI Research said.

Jeon says this is “mosquito-net style” reform – similar to Deng Xiaoping’s model – with limited foreign investment and market liberalization contained within firm strictures of state control.

Deng championed a string of special economic zones along China’s east coast where unique local legislation encouraged foreign investment in manufacturing joint-ventures that sold to export markets, while protecting Chinese industries from going head-to-head with multinationals.

“Deng designated Shenzhen as a special economic zone and made that sleepy fishing village to a manufacturing hub of the world,” Jeon said. “Kim will be eager for those, especially as he will want minimal changes to other parts of the economy.”

(Additional reporting by Jeongmin Kim and Hyonhee Shin in SEOUL, Brenda Goh in SHANGHAI; Editing by Soyoung Kim and Martin Howell)

Oil prices fall on dip in China demand, surging U.S. output

FILE PHOTO: Oil pumpjacks are seen in Lagunillas, Venezuela May 24, 2018. REUTERS/Isaac Urrutia

By Henning Gloystein and Dmitry Zhdannikov

SINGAPORE/LONDON (Reuters) – Oil prices fell on Friday, as weakening demand in China and surging U.S. output weighed on markets despite supply woes in Venezuela and Iran as well as OPEC’s production cuts.

Brent crude futures were at $76.60 per barrel at 1015 GMT, down 72 cents, or 0.9 percent. U.S. West Texas Intermediate (WTI) crude futures  were down 39 cents, or 0.6 percent, at $65.56.

China’s May crude oil imports eased away from a record high hit the month before, customs data showed on Friday, with state-run refineries entering planned maintenance.

May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd). That compared with 9.6 million bpd in April.

Further weighing on prices has been surging U.S. output C-OUT-T-EIA, which hit another record last week at 10.8 million bpd.

That’s a 28 percent gain in two years. It puts the United States close to becoming the world’s biggest crude producer, edging nearer to the 11 million bpd churned out by Russia.

The surge in U.S. production has pulled down WTI into a discount versus Brent of more than $11 per barrel, its steepest since 2015.

“This is occurring because of the rapid increase in production from U.S. shale coupled with the tightening of supplies elsewhere through the actions of OPEC and Russia,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

MARKET STILL TIGHT

Despite Friday’s falls, Brent remains more than 15 percent above its level at the start of the year.

U.S. investment bank Jefferies said the “crude market is tight and spare capacity could dwindle to 2 percent of demand in 2H18, its lowest level since at least 1984”.

Markets have been tightened by supply trouble in Venezuela, where state-owned oil firm PDVSA is struggling to clear a backlog of around 24 million barrels of crude waiting to be shipped to customers.

More generally, Brent has been pushed up by voluntary production cuts led by the Organization of the Petroleum Exporting Countries and Russia, which were put in place in 2017.

OPEC and Russia meet on June 22/23 to discuss production policy.

On Friday, OPEC’s third-largest producer Iran criticized a U.S. request that Saudi Arabia pump more oil to cover a drop in Iranian exports and predicted OPEC would not heed the appeal.

“It’s crazy and astonishing to see instruction coming from Washington to Saudi to act and replace a shortfall of Iran’s export due to their Illegal sanction on Iran and Venezuela,” Iran’s OPEC governor, Hossein Kazempour Ardebili, told Reuters.

(Editing by Dale Hudson)

Iran stands ground on nuclear inspections as France warns of red line

The flag of the International Atomic Energy Agency (IAEA) flutters in front of their headquarters in Vienna, Austria June 4, 2018. REUTERS/Leonhard Foeger

By Francois Murphy and Sudip Kar-Gupta

VIENNA/PARIS (Reuters) – Iran will not cooperate more fully with atomic inspectors until a standoff over its nuclear deal is resolved, its U.N. envoy said, as one signatory warned Tehran against moving ahead with preparations to boost its uranium enrichment capacity.

Tehran meanwhile signaled its resolve to expand its enrichment capability by detailing plans to build advanced centrifuges – the machines that enrich uranium.

European powers have been scrambling to salvage the agreement they signed in 2015 since U.S. President Donald Trump pulled Washington out last month and said he would reimpose far-reaching U.S. sanctions on Iran.

Foreign and finance ministers from those three countries – France, Britain and Germany – have written to U.S. officials to stress their commitment to upholding the pact, and to urge Washington to spare EU firms active in Iran from secondary sanctions.

An Iranian withdrawal from the deal, which lifted sanctions on Tehran in exchange for curbs on its nuclear program, would “further unsettle a region where additional conflicts would be disastrous,” the ministers wrote in the letter dated June 4 and seen by Reuters on Wednesday.

Since the U.S. pullout was announced, authorities in Tehran have sent mixed signals on whether they believe the nuclear deal’s remaining signatories, which also include China and Russia, can salvage it.

Supreme Leader Ayatollah Khamenei said on Monday he had ordered preparations to increase uranium enrichment capacity if the agreement collapsed.

Tehran also informed the International Atomic Energy Agency (IAEA), the U.N. nuclear watchdog that polices restrictions placed on its activities under the deal, of “tentative” plans to produce the feedstock for centrifuges.

In Paris on Wednesday, French Foreign Minister Yves Le Drian told Europe 1 radio that, while that initiative remained within the framework of the nuclear deal, it was unwelcome and risked sailing close to a “red line”.

U.S. Secretary of State Mike Pompeo said on Twitter that Washington was aware of reports Iran plans to increase its uranium enrichment and he vowed not to allow Tehran to develop a nuclear weapon. “Iran is aware of our resolve,” he said.

Emphasizing that Tehran’s patience with European efforts to save the deal was not unlimited, its envoy to the IAEA said it had granted the three powers a few weeks.

“A few weeks means a few weeks, not a few months,” Reza Najafi said outside a quarterly meeting of the agency’s Board of Governors in Vienna.

STANDOFF

He also dismissed calls by the IAEA to go the extra mile in cooperating with the nuclear watchdog’s inspectors, telling reporters that, while the standoff over the deal continued, “no one should expect Iran to go to implement more voluntary measures.”

“But I should emphasize that it does not mean that right now Iran will restart any activities contrary to the (deal),” Najafi added. “These are only preparatory works.”

Iran’s nuclear chief on Wednesday inaugurated work on a facility in Natanz plant in central Iran designed to build advanced centrifuges and said the center would be fully functional in a month.

“After the supreme leader’s order we prepared this center within 48 hours. We hope the facility to be completed in a month,” Ali Akbar Salehi, the head of Iran’s Atomic Energy Organization, said on state television.

Although the move was not a violation of the nuclear deal, it sent a strong signal to the West that Tehran would not succumb to the pressures.

Answering a question about a remark by Pompeo last month that Iran must halt all uranium enrichment, Salehi said: “We are far beyond that point. That man has been talking for himself.”

The agency has said Tehran is implementing its commitments, but also called for “timely and proactive cooperation” on providing access for snap inspections.

Diplomats who deal with the agency say an inspection in late April went down to the wire in terms of how quickly the IAEA team gained access to one site.

(Additional reporting by Tom Koerkemeier in Berlin, Bozorgmehr Sharafedin in London and Eric Beech in Washington; writing by John Stonestreet; editing by William Maclean and James Dalgleish)

Exclusive: U.S. warships sail near South China Sea islands claimed by Beijing

Satellite photo dated March 28, 2018 shows Woody Island. Planet Labs Inc/Handout via REUTERS

By Idrees Ali

WASHINGTON (Reuters) – Two U.S. Navy warships sailed near South China Sea islands claimed by China on Sunday, two U.S. officials told Reuters, in a move that drew condemnation from Beijing as President Donald Trump seeks its continued cooperation on North Korea.

The operation was the latest attempt to counter what Washington sees as Beijing’s efforts to limit freedom of navigation in the strategic waters.

While this operation had been planned months in advance, and similar operations have become routine, it comes at a particularly sensitive time and just days after the Pentagon uninvited China from a major U.S.-hosted naval drill.

The U.S. officials, speaking on condition of anonymity, said the Higgins guided-missile destroyer and the Antietam, a guided-missile cruiser, came within 12 nautical miles of the Paracel Islands, among a string of islets, reefs and shoals over which China has territorial disputes with its neighbors.

The U.S. military vessels carried out maneuvering operations near Tree, Lincoln, Triton and Woody islands in the Paracels, one of the officials said.

Trump’s cancellation of a summit with North Korean leader Kim Jong Un has put further strain on U.S.-China ties amid a trade dispute between the world’s two largest economies.

Critics of the operations, known as a “freedom of navigation,” have said that they have little impact on Chinese behavior and are largely symbolic.

The U.S. military has a long-standing position that its operations are carried out throughout the world, including in areas claimed by allies, and that they are separate from political considerations.

Satellite photographs taken on May 12 showed China appeared to have deployed truck-mounted surface-to-air missiles or anti-ship cruise missiles at Woody Island.

Earlier this month, China’s air force landed bombers on disputed islands and reefs in the South China Sea as part of a training exercise in the region, triggering concern from Vietnam and the Philippines.

The U.S. military did not directly comment on Sunday’s operation, but said U.S. forces operate in the region daily.

“We conduct routine and regular Freedom of Navigation Operations (FONOPs), as we have done in the past and will continue to do in the future,” U.S. Pacific Fleet said in a statement.

China’s Defense Ministry expressed its anger, saying it had sent ships and aircraft to warn the U.S. warships to leave, saying they had entered the country’s territorial waters without permission.

The move “contravened Chinese and relevant international law, seriously infringed upon Chinese sovereignty (and) harmed strategic mutual trust between the two militaries,” it said.

In a separate statement, China’s Foreign Ministry urged the United States to stop such actions.

“China will continue to take all necessary measures to defend the country’s sovereignty and security,” it added, without elaborating.

CONTESTED SEA

Pentagon officials have long complained that China has not been candid enough about its rapid military build-up and using South China Sea islands to gather intelligence in the region.

In March, a U.S. Navy destroyer carried out a “freedom of navigation” operation close to Mischief Reef in the Spratly Islands.

Chinese officials have accused Washington of viewing their country in suspicious, “Cold War” terms.

China’s claims in the South China Sea, through which about $5 trillion in shipborne trade passes each year, are contested by Brunei, Malaysia, the Philippines, Taiwan and Vietnam.

The United States has said it would like to see more international participation in freedom-of-navigation operations in the South China Sea.

(Reporting by Idress Ali in Washington; Additional reporting by Ben Blanchard in Beijing; Editing by Alexander Smith, Alexandra Hudson and Lisa Shumaker)

Farmers worldwide struggle with rising fuel costs

By Stephanie Kelly and Tom Polansek

NEW YORK/CHICAGO (Reuters) – Farmers worldwide are feeling the pinch as fuel costs rise to near four-year highs just as they plant and harvest their fields, eroding agricultural income already hamstrung by depressed crop prices.

The agricultural sector from the United States to Russia, and Brazil to Europe, is seeing profits harmed by the rise in diesel prices. The global oil benchmark, Brent crude, touched $80 a barrel for the first time since late 2014 on Thursday.

Coupled with local economic issues, the increase is making it even harder for many farmers worldwide to turn a profit in the estimated $2.4 trillion agriculture industry, casting a cloud over future investments.

In the United States, fuel accounts for about five percent of farmers’ overall costs, and is hurting margins at a time when farm income is already half that of 2013. Massive harvests have depressed prices of staples such as corn, wheat and soybeans.

Diesel fuel is essential for planting, harvesting, and shipping crops to market. In the United States, farmers will spend an estimated $15.25 billion on fuel and oil in 2018, an 8 percent increase from 2017, U.S. Department of Agriculture data showed.

The price of ultra-low sulfur diesel used for farming equipment and transporting crops has not been this high in May since 2014. Heating oil futures, the proxy for ultra-low sulfur diesel, traded at $2.29 a gallon on Thursday.

Ron Heck, who grows soybeans in Perry, Iowa, said his fuel costs could go up $1,000 to $2,000 during the northern hemisphere’s spring.

“You feel the pain right away,” Heck said.

In Russia, fuel prices for farmers are up 50 percent compared with a year ago, Arkady Zlochevsky, the head of Russia’s Grain Union, a non-governmental farm lobby, told Reuters. Farmers will need to spend more ahead of harvesting, which starts in about a month in Russia, he said.

For a graphic on farmers’ cash expenses, click https://tmsnrt.rs/2rXHHQf

FINANCIAL STRESS

U.S. farms are also factoring in potential losses of income due to a 25 percent tax China announced on major American imports following the U.S. government’s decision to slap duties on steel and aluminum.

“We’re seeing financial stress occurring in agriculture that we probably haven’t seen for a decade or so,” said Scott Brown, director of strategic partnerships at the University of Missouri’s College of Agriculture, Food and Natural Resources. “If diesel prices continue to go higher, it continues to put more pressure on [farmers].”

Net farm income is forecast to fall to $59.5 billion in 2018, an 8.3 percent decline from 2017, according to the USDA. It has fallen by 55 percent since 2013.

In Holly Grove, Arkansas, Tim Gannon paid about $17,000 in February to fill a 7,500-gallon tank with diesel used to run equipment and irrigation. The price increase means it may cost up to 25 percent more, or an extra $4,000, to refill it in coming weeks, he said.

“That’s a fairly significant amount of income to lose,” he said. Gannon has been taking steps to cut his diesel costs over the past year by reducing the number of times he plows, or tills.

In Brazil, farmers are also taking steps to deal with higher costs, as diesel prices have climbed 43 percent in the country since July 2017. Eder Ferreira Bueno, a farmer in grain state Mato Grosso, said increased fuel costs meant he had “no other option but to spend less to treat the soil.” Other farmers might hire fewer workers or delay investment plans, he added.

In neighboring Argentina, the top shipper of soybean meal and oil worldwide, farmers are having to deal with a weakening currency at the same time fuel costs are rising.

“Where the impact is felt greatest is in trucking costs. We are already at a disadvantage when compared to our competitors on freight costs within Argentina,” said David Hughes, a farmer in Buenos Aires province and president of Argentine wheat industry chamber Argentrigo.

In Europe, French grain producers say rising oil costs may have a knock-on effect on fertilizers and crop protection products.

“It comes at a time when things are already difficult for farmers economically,” said Philippe Pinta, head of grain growers group AGPB in Paris.

Wamego, Kansas, farmer Glenn Brunkow said he may lock in diesel prices in advance for the first time ever next year, to avoid the pain of future increases.

“You just kind of all of a sudden realize, ‘Wow, it’s pretty high,'” he said.

(Reporting by Stephanie Kelly in New York and Tom Polansek in Chicago; additional reporting by Sybille de La Hamaide and Valerie Parent in Paris, Polina Devitt in Moscow, Ana Mano and Marcelo Teixeira in Sao Paulo, and Hugh Bronstein in Buenos Aires, Editing by Rosalba O’Brien)

Why Caterpillar can’t keep up with a boom in demand

A worker pours molten iron into molds to form parts for Caterpillar Inc. and other industrial customers at Kirsh Foundry Inc. in Beaver Dam, Wisconsin, U.S., April 12, 2018. REUTERS/Timothy Aeppel

By Timothy Aeppel and Rajesh Kumar Singh

EAST PEORIA, Ill. (Reuters) – Orders for the mining machines and construction bulldozers made at this sprawling Caterpillar Inc. factory in central Illinois have jumped, in general, three-fold over the past year.

But meeting that boom in demand at the world’s largest heavy equipment manufacturer is a challenge, in part because of Caterpillar suppliers like Steve Kirsh.

Years of watching Caterpillar and other big manufacturers cut inventories, close plants and axe workers in the last downturn has embedded caution in Kirsh’s ambition to expand after the surge in orders, reflecting a more fundamental shift in how many industrial businesses view expansions, according to interviews with Caterpillar executives, more than a half-dozen Caterpillar suppliers and U.S. economic data.

“I just wasn’t sure it was real,” said Kirsh, speaking from a windowless office at the front of Kirsh Foundry Inc., in Beaver Dam, Wisconsin, which makes metal parts for Caterpillar and other customers.

Even with a surplus in demand for its product, Caterpillar CEO Jim Umpleby told investors last month the company will not invest in factory capacity. Instead, it plans to spend more on new technologies, expanding its parts business and selling more rental and used equipment.

The company’s big East Peoria assembly plant runs just one shift and operates only four days a week, while its own parts-making facilities are running three shifts, five days a week to provide it enough components to assemble, according to the company officials. Outside suppliers are similarly scrambling to catch up to the surge in orders.

This has extended the lead-time to deliver final products to dealers. For instance, it takes more than eight months to get one model of its large engines into a customer’s hands.

The Trump administration’s efforts to rewrite trade relations with key partners, especially China, only add to the uncertainty. The latest move to step back from a confrontation with China is good news for many domestic producers, who worry that a trade war could quickly puncture the global expansion, going on nine years, which is feeding the U.S. factory boom, manufacturing executives told Reuters.

The result is a drag on the economic expansion that President Trump and Republicans hoped for coming off U.S. corporate tax reform last year. The idea behind Trump’s tax reform was that companies could pour more money into expansions, hire more workers and lift wages.

There has been an upswing in plans for capital spending, but much of it is concentrated in the technology and energy sectors. Spending plans by industrial companies are up only slightly.

For those companies that do want to expand, from car companies to railroads and engine makers, they often can’t find the workers to expand fast enough.

The contraction of their supply chain in the last downturn thrust many players big and small into a “just in time delivery” business model, creating order backlogs, which has led to soaring prices for raw materials in the recent upswing. For a graphic, click https://tmsnrt.rs/2rY3iZp

A worker checks parts he has cut into final shapes at Wolfe and Swickard Machine Company Inc. in Indianapolis, Indiana, U.S., April 10, 2018. REUTERS/Timothy Aeppel

A worker checks parts he has cut into final shapes at Wolfe and Swickard Machine Company Inc. in Indianapolis, Indiana, U.S., April 10, 2018. REUTERS/Timothy Aeppel

TURNING THE SWITCH BACK ON

The hesitation to expand Caterpillar’s supply chain is rooted in the last bust, notable as the longest downturn in its history – worse than the Great Depression – from 2012 to 2016, when sales dropped more than 40 percent.

Chastised by that slump, the Deerfield, Ill.-based company embarked on a restructuring strategy that aims to squeeze more production from its factories and buy more of what it needs from outside suppliers on a just-in-time basis.

Caterpillar has closed or restructured more than 25 factories and its full-time workforce is smaller now than it was at the end of 2012. And cuts continue. Caterpillar plans to close two more facilities this year and is considering shuttering an engine plant, which would eliminate 880 jobs.

Caterpillar executives said the new strategy is boosting profitability by allowing it to get the best use out of its existing factories. They blame the backlogs on its suppliers’ inability to keep up with the surge in orders.

Timing is part of the problem. Caterpillar and a host of other industrial companies all ramped up orders at the same time. “That switch got turned on after being turned off for several years – all at the same time,” said Amy Campbell, director of investor relations.

Campbell, however, said the supply situation is improving. The central Illinois plant will go back to the normal five-day shift beginning in June.

Caterpillar’s investors love this approach, since it helps deliver strong margins in the good times and minimizes pain in bad times.

The company recently boosted profit projections for 2018 by about 25 percent, and in the latest quarter, every segment posted better results compared to a year ago. But its stock price took a hit when the company’s CFO warned higher prices for raw materials like steel are going to start squeezing margins even as growth continues.

Supply chain bottlenecks, meanwhile, are hitting companies across the industrial heartland.

The Institute for Supply Management’s index for order backlogs, one of the best U.S. metrics for how quickly manufacturers are meeting demand, now stands at its highest level in 14 years. And many companies remain tight fisted. The Commerce Department recently reported that orders for capital goods, a key measure of business investment, fell in March, the third decline in four months. These numbers show that companies are holding back on spending, even as their order books swell.

“We’re in a period of significant disruption where everyone is scrambling — but it’s the way supply chains work today,” said John Layden, a consultant in Indianapolis who helps companies design and manage supply networks.

Finished castings coming off the production line at Kirsh Foundry Inc. in Beaver Dam, Wisconsin, U.S., April 12, 2018. REUTERS/Timothy Aeppel

Finished castings coming off the production line at Kirsh Foundry Inc. in Beaver Dam, Wisconsin, U.S., April 12, 2018. REUTERS/Timothy Aeppel

WHERE ARE THE WORKERS?

Finding employees is another drag on the U.S. manufacturing supply chain.

When Kirsh decided to add people early last year at his foundry – which melts iron and forms it into the rough shapes that will be refined for Caterpillar and others – he could not find them. Wisconsin’s jobless rate has hit an all-time low of 2.8 percent.

So Kirsh tried something new, hiring a Minnesota staffing company that specializes in parachuting industrial workers into factories that can’t find them locally.

He eventually got about 10 of these workers, who he calls “mercenaries,” who helped get his backlog under control. One came from as far as away as Detroit. But it was a costly fix. Between paying the staffing company, hotels and a per diem for the workers, he estimates they cost about three times more than local labor.

Industrial companies have always struggled with big swings in demand, but the problem of shortages emerges much quicker in today’s super-lean economy.

In the past, manufacturers from Kirsh to Caterpillar often kept more goods on warehouse shelves, creating a built-in buffer that could be absorbed as signals went out to suppliers that the latest upturn is going to continue. That gave more time for everyone to gear up.

It is a luxury that does not exist anymore, said Joe Williams, president of privately-held Wolfe and Swickard Machine Company Inc. in Indianapolis, which buys forged parts from Kirsh and over 20 other foundries that his 85-worker shop shapes and polishes into final machine parts.

Early last year, Williams saw orders from Caterpillar surge 80 percent, a stunning increase that left him scrambling.

“When we get an order, we have to order from a foundry, which has to communicate with the people supplying them metal, so there’s always a lag,” he said.

This time, however, it was particularly difficult. Some foundries simply refused his business because they were swamped with orders from other customers.

Like Kirsh, Williams has had trouble hiring workers and said he still needs at least 15 more machinists. Caterpillar has told him to expect orders to go up another 20 percent this year.

Stephen Volkmann, a machinery industry analyst at Jefferies, said Caterpillar was slow to ramp up production – which frustrated dealers clamoring for machines they could sell.

But he said Caterpillar and its suppliers are smart to be cautious.

“They all know that (business) could be down again next year,” he said, and so over expanding now “would be an expensive mistake.”

(Reporting by Timothy Aeppel and Rajesh Kumar Singh; editing by Joe White and Edward Tobin)

China considers scrapping birth limits by 2019: Bloomberg

FILE PHOTO: A nurse takes care of newborn babies at a hospital in Hefei, Anhui province April 2011. REUTERS/Stringer

HONG KONG (Reuters) – China is considering ending the limits it sets on the number of children a family can have, Bloomberg reported on Monday, citing people familiar with the matter.

China’s population is aging rapidly, with the number of births falling by 3.5 percent to 17.23 million last year despite the country’s decision in late 2015 to relax the controversial “one-child” policy and allow couples to have a second child.

The State Council, or cabinet, has commissioned research on ending the country’s birth limits on a nationwide basis, the Bloomberg report said.

A decision could be made in the last quarter of this year or in 2019, the report said.

China implemented its one-child policy in the 1970s to limit population growth, but authorities are concerned that a dwindling workforce will not be able to support an increasingly aging population.

The one-child policy also contributed to a sharp gender imbalance, with 32.66 million more males than females at the end of 2017.

(Reporting by Meg Shen; Editing by Tony Munroe)

After re-election, Venezuela’s Maduro faces overseas condemnation

Venezuela's President Nicolas Maduro raises a finger as he is surrounded by supporters while speaking during a gathering after the results of the election were released, outside of the Miraflores Palace in Caracas, Venezuela, May 20, 2018. REUTERS/Carlos Garcia Rawlins

By Alexandra Ulmer and Vivian Sequera

CARACAS (Reuters) – Venezuela’s socialist President Nicolas Maduro faced international condemnation on Monday after his re-election in a vote foes denounced as a farce that cemented autocracy in the crisis-stricken oil-producing nation.

Maduro, 55, hailed his win in Sunday’s vote as a victory against “imperialism,” but his main rival alleged irregularities and refused to recognize the result.

Venezuela’s mainstream opposition boycotted the election, given that two of its most popular leaders were barred from running, authorities had banned the coalition and various of its parties from using their names, and the election board is run by Maduro loyalists. Turnout was under 50 percent.

Thousands of Maduro supporters, many wearing red berets, hugged and danced outside the Miraflores presidential palace, showered in confetti in the yellow, blue and red colors of the Venezuelan national flag.

“The revolution is here to stay!” a jubilant Maduro told the crowd, promising to prioritize economic recovery after five years of recession in the OPEC nation of 30 million people.

“Let’s go, Nico!” his supporters chanted until after midnight during party scenes in downtown Caracas.

“We mustn’t cave to any empire, or go running to the International Monetary Fund as Argentina did. The opposition must leave us alone to govern,” said government supporter Ingrid Sequera, 51. She wore a T-shirt with a logo featuring the eyes of Maduro’s socialist predecessor, the late Hugo Chavez.

Senior U.S. State Department officials declared Sunday’s vote a “sham” and repeated threats to impose sanctions on Venezuela’s all-important oil sector, which is already reeling from falling output, a brain-drain and creaking infrastructure.

Spain, which has led European Union criticism of Maduro, also weighed in. “Venezuela’s electoral process has not respected the most basic democratic standards. Spain and its European partners will study appropriate measures and continue to work to alleviate Venezuelans’ suffering,” tweeted Prime Minister Mariano Rajoy.

In a blistering statement, the 14-nation “Lima Group” of countries in the Americas from Canada to Brazil, said it did not recognize the legitimacy of the vote and would be downgrading diplomatic relations.

The group deplored Venezuela’s “grave humanitarian situation” behind a migrant exodus, and promised to help coordinate with international financial bodies to crack down on corruption and block loans to the government.

However, regional leftist allies of Venezuela, from Cuba to Bolivia, sent their congratulations. China and Russia, which have both poured money into Venezuela in recent years, were also unlikely to join in the international condemnation.

‘TRAGIC CYCLE’ FOR VENEZUELA

The election board said Maduro won 5.8 million votes, versus 1.8 million for his chief challenger Henri Falcon, a former governor who broke with the opposition boycott to stand.

Turnout was 46 percent, the election board said, way down from the 80 percent at the last presidential vote in 2013. Suggesting turnout was even lower, an electoral board source told Reuters 32.3 percent of eligible voters cast ballots by 6 p.m. (2200 GMT) as most polls shut.

The government used ample state resources during the campaign and state workers were pressured to vote.

Falcon called for a new vote, complaining about the government’s placing of nearly 13,000 pro-government stands called “red spots” close to polling stations nationwide.

Mainly poor Venezuelans lined up to scan state-issued “fatherland cards” at red tents after voting, in hope of receiving a “prize” promised by Maduro.

The “fatherland cards” are required to receive benefits including food boxes and money transfers.

Some anti-government activists said the opposition coalition should have fielded a candidate regardless of how uneven the playing field might be. But the opposition coalition, which has been divided for most of the duration of the ‘Chavismo’ movement founded by Chavez after he took office in 1999, appeared united after the vote and said its boycott strategy had paid off.

“I implore Venezuelans not to become demoralized, today Maduro is weaker than ever before. We’re in the final phase of a tragic cycle for our country. The fraud has been exposed and today the world will reject it,” tweeted opposition leader Julio Borges.

It was not yet clear what strategy the opposition would now adopt, but major protests seem unlikely given widespread disillusionment and fatigue. Caracas was calm and many of its streets were empty on Monday morning.

Protesters did, however, barricade some streets in the southern city of Puerto Ordaz, drawing teargas from National Guard soldiers, witnesses said.

ECONOMIC PRESSURES

Maduro, who faces a colossal task turning around Venezuela’s moribund economy, has offered no specifics on changes to two decades of state-led policies. The bolivar currency is down 99 percent over the past year and inflation is at an annual 14,000 percent, according to the National Assembly.

Furthermore, Venezuela’s multiple creditors are considering accelerating claims on unpaid foreign debt, while oil major ConocoPhillips has been taking aggressive action in recent weeks against state oil company PDVSA, as part of its claim for compensation over a 2007 nationalization of its assets in Venezuela.

Though increasingly shunned in the West, Maduro can at least count on the support of China and Russia, which have provided billions of dollars’ funding in recent years.

In Beijing, foreign ministry spokesman Lu Kang said China believed the Venezuelan government and people could handle their own affairs and that everyone should respect the choice of the Venezuelan people.

Asked if China had sent congratulations to Maduro, he said China would “handle this in accordance with diplomatic convention,” but did not elaborate.

 

 

(Reporting by Aexandra Ulmer and Vivian Sequera in Caracas; Additional reporting by Maria Ramirez in Ciudad Guayana; Luc Cohen in Caracas; Felipe Iturrieta in Santiago; Marco Aquino in Lima; and Ben Blanchard in Beijing; Writing by Angus Berwick and Alexandra Ulmer; Editing by Andrew Cawthorne and Frances Kerry)