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U.S. President Joe Biden will tout his plan to deepen Western Hemisphere economic integration on Friday when he hosts leaders from 11 other nations at the White House for the nascent Americas Partnership for Economic Prosperity.

Analysts say the initiative, introduced last year, may not result in a substantial trade boost or pose a significant challenge to China’s economic dominance and ambitions, but it could address other hemispheric challenges, like irregular migration.

In marketing the initiative on Thursday, Biden emphasized what he sees as a pillar of his diplomatic approach: mutual benefit.

“Together, we’re expanding opportunities for working people in both our nations, I believe, including through our Americas Partnership for Economic Prosperity,” Biden said during a pre-summit meeting with Dominican Republic President Luis Abinader.

Treasury Secretary Janet Yellen said Thursday that this economic partnership could affect manufacturing in crucial sectors such as renewables, medical supplies and semiconductors.

She said this is an example of “friendshoring” — the move to diversify supply chains by working with close friends and allies.

Yellen said the economic partnership “offers our countries a key vehicle through which to deepen economic integration, increase the competitiveness of our region, drive private-sector investment and foster inclusive and sustainable development.”

Competition

The United States faces stiff competition. In recent years, China has significantly boosted investment in and economic relations with South America, making it that continent’s largest trading partner.

Because the U.S.-led initiative leans on private-sector investment, it can’t match China’s government-driven approach, said analyst Jason Marczak, senior director at the Atlantic Council’s Adrienne Arsht Latin America Center.

“I don’t expect the U.S. to be able to match China dollar for dollar,” he told VOA. “China is not a capitalist system, and so the ways in which Chinese financing goes in the region is state-owned enterprises. It’s government money, other sources, all of which are directed by the Chinese government.”

But the U.S. can leverage its leadership by choosing projects and investments wisely and investing “in those areas that are critical for the future economic growth of the people of the Americas, and in a way that hopefully ensures that it is the actual people who ultimately benefit from this investment,” Marczak said.

Like the administration’s still-developing Indo-Pacific Economic Framework, this initiative doesn’t include new market access commitments, said economic analyst Tori Smith of the American Action Forum.

“Market access negotiations could be less necessary in this context, given that the existing network of trade agreements have tariff barriers close to zero with most participants,” she wrote March 2 in an analysis of the partnership. She noted that the U.S. has existing free-trade agreements with eight of the 11 other countries.

The partnership “is unlikely to substantially increase trade flows between the United States and the participating countries because the forum focuses very little on trade policy,” she argued.

However, this still-evolving economic agreement could address other challenges in the hemisphere, Marczak said.

“Investing in the APEC member countries, providing sustainable financing — that is all tied to migration,” he said. “Because ultimately, a country that is sending migrants, there will be less migrants that will leave the country when the economy is even stronger.”

While APEP negotiations lag considerably behind those of the Indo-Pacific Economic Framework – even though the programs were announced at roughly the same time – the U.S. currently has an edge in this hemisphere, said Shannon O’Neil of the Council on Foreign Relations.

“The U.S. maintains an advantage in terms of more comprehensive ground rules, a longer history of investment, and more balanced and higher value-added trade,” she said.

Jorge Agobian contributed to this report. 
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Amid rising debts, authorities in China’s coastal province of Jiangsu are encouraging workers at state-owned enterprises to participate in “off-duty entrepreneurships” and take leave without pay to start their own businesses.

News of the new measure came ahead of China’s two-day Central Financial Work Conference, attended by President Xi Jinping, who pledged to set up a long-term mechanism to resolve debt risks tied to local authorities and signaled a willingness to expand central government borrowing.

China’s local government debt reached 92 trillion yuan ($12.58 trillion), equal to 76% of the country’s economic output in 2022, according to the Reuters news agency. That was up from 62.2% in 2019.

Participants in the meeting, which concluded Tuesday, included Li Qiang, Zhao Leji, Wang Huning, Cai Qi, Ding Xuexiang and Li Xi, members of the Central Committee of the Chinese Communist Party.

They also pledged to “optimize the debt structure of central and local governments” and provide more funds for innovation, high-tech manufacturing, green technology and small-to-medium size companies.

In 2022, the gross domestic product of Jiangsu province, neighboring Shanghai, amounted to approximately 12.29 trillion yuan, or $1.68 trillion, while it owed a debt of 2.069 trillion yuan, or $282.8 billion.

Amid the increasing local debt, the Jiangsu provincial government launched a program in early October to encourage 200,000 state-owned enterprise workers every year until 2025 to start their own businesses, especially those who would do so on leave without pay.

The program especially aims to support scientific researchers, including professional and technical personnel from universities, scientific research institutes and other state-owned enterprises, in starting businesses.

They are encouraged to apply the results of their scientific and technological research to other part-time or temporary jobs, collaborate on projects outside their regular jobs, and become entrepreneurs on a leave-without-pay basis from their institutions.

Jiangsu province will retain their employment relationships for three years and continue to pay for the entrepreneurs’ social insurance and occupational annuities at their original workplaces. They will also be promoted and receive salary increases at the normal pace.

Fang Tsung-yen is an assistant researcher at the Institute for National Defense and Security Research in Taipei. Fang said China cannot reverse the economic downturn in the short term, so the local governments have to reduce the financial burden in the hope of stimulating economic prosperity.

She said the local government cannot force people to quit their jobs, so it is seeking other ways to reduce its payroll.

“Keeping your jobs sounds nice, but it’s actually just because [the local government] can’t afford to pay you. So [it] will encourage you to start your own businesses in the hope of reducing its financial burden,” she said.

The news triggered heated discussions online. One netizen, whose online name is Techno, said on Zhihu, the Chinese equivalent of Quora, “[It] may cause a severe loss of state-owned assets.”

A netizen commented under the name of BigBrother, “There are more people eating public food than contributing to public food. They don’t have money to pay salaries.”

Some others suspect the program may become mandatory.

“They probably will have a quota for each enterprise,” someone commented under the name of Euphemia66.

Some think this is a way to lay off people and cut jobs.

“Now, they say, ‘We give you a chance to start your own businesses.’ In a few years, they will say, ‘Your enterprise has a quota of three entrepreneurs this year,’ ” a netizen commented under the name of Mulei, the Knight of Smoke.

“You think you would leave for three years, and during that time, you would take advantage of your background in politics to benefit your business, and you would be financially independent. When you are back to the state-owned enterprise, you can live an easy life in old age.

“But actually, three days after you leave your enterprise, they would eliminate your position. And three years later, the enterprise wouldn’t exist anymore.”

Jiangsu’s government is not the only one affected by the economic downturn. Multiple provinces, including Jiangxi and Fujian, have announced collective salary reductions for civil servants, according to Chinese news website Toutiao.

The central government restricted the ability of local governments in 12 heavily indebted regions to take on new debt and limited any new state-funded projects, according to Reuters, quoting three sources. The 12 regions have to get approval from the central government to launch specified projects.

Tan Yao-nan, chairman of the Hui-li International Policy Advisory Group in Taipei, told VOA that fiscal problems — and especially local debt — are the biggest challenges China currently faces. He said China needs more than just expanding domestic demand or imports and exports.

Chinese authorities on October 24 announced the issuance of 1 trillion yuan, or $137 billion, in government bonds, which will further expand the central government’s fiscal deficit to 4.88 trillion yuan, or $666.9 billion, this year.

Tan said that if the debt of all central and local public sectors is combined, it is nearly three times the size of China’s GDP, which makes the severity of China’s debt problem far greater than that of neighboring Japan.

“Who will hold these government bonds?” Tan asked. “It must be held by major state-owned financial institutions and even provincial governments, so it is actually just debt relief. It’s just a cycle, and it doesn’t solve the long-term problem.”

The meeting that ended on October 31 signaled Beijing is considering further measures to resolve several sources of financial risk, including local government debt. But it didn’t provide any specifics.

Some of China’s biggest banks have been offering local governments loans with long maturities and temporary interest relief to prevent a credit crunch since the second quarter.
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In mid-November, Washington trade representatives will be in San Francisco for APEC Economic Leaders’ Week. Trade experts say the U.S. has moved toward policies that could help Washington attract more APEC nations to invest in the U.S. manufacturing boom. VOA’s Jessica Stone reports.
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The Federal Reserve kept its key short-term interest rate unchanged Wednesday for a second straight time but left the door open to further rate hikes if inflation pressures should accelerate in the months ahead. 

In a statement after its latest meeting, the Fed said it would keep its benchmark rate at about 5.4%, its highest level in 22 years. Since launching the most aggressive series of rate hikes in four decades in March 2022 to fight inflation, the Fed has pulled back and has raised rates only once since May. 

The latest statement noted that recent tumult in the financial markets has sent longer-term interest rates up to near 16-year highs and contributed to higher borrowing rates across the economy. 

“Tighter financial and credit conditions for households and businesses,” it said, “are likely to weigh on economic activity.” 

That reference echoed recent comments by Fed officials that higher yields — or interest rates — on the 10-year Treasury note could impose a dampening impact on the economy, cool inflation, and substitute for an additional rate hike by the Fed. 

Speaking at a news conference, Chair Jerome Powell suggested that the surge in longer-term interest rates will slow the economy if those higher rates stay high for a prolonged period. But he cautioned that the Fed isn’t yet confident that its own benchmark rate is high enough to slow the economy over time. 

Long-term Treasury yields have soared since July, the last time the Fed raised rates, swelling the costs of auto loans, credit card borrowing, and many forms of business loans. Nationally, the average long-term fixed mortgage rate is nearing 8%, its highest level in 23 years.

Economists at Wall Street banks have estimated that sharp losses in the stock market and higher bond yields could have a depressive effect on the economy equal to the impact of three or four quarter-point rate hikes by the Fed. 

Those tighter credit conditions, though, have yet to cool the economy or slow hiring as much as the Fed had expected. Growth soared at a 4.9% annual pace in the July-September quarter, powered by robust consumer spending, and hiring in September was strong.

On Wednesday, the government said employers posted a sizable 9.6 million job openings last month, well below the peak of early last year but still sharply above pre-pandemic levels. 

Consumer inflation has dropped from a year-over-year peak of 9.1% in June 2022 to 3.7% last month. But recent data suggests that inflation remains persistently above the Fed’s 2% target. 

Powell and other Fed officials have responded to the surprising evidence of economic strength by saying the Fed will monitor incoming data for any hints that inflation will either further subside or remain chronically above its target level. In the meantime, most Fed watchers expect the central bank to keep rates unchanged in December as well. 

Market analysts say an array of factors have combined to force up long-term Treasury yields and couple with the Fed’s short-term rate hikes to make borrowing costlier for consumers and businesses. For one thing, the government is expected to sell potentially trillions of dollars more in bonds in the coming years to finance huge budget deficits even as the Fed is shrinking its holdings of bonds. As a result, higher Treasury rates may be needed to attract more buyers. 

And with the future path of rates murkier than usual, investors are demanding higher yields in return for the greater risk of holding longer-term bonds. 

What’s important for the Fed is that the yield on the 10-year Treasury has continued to zoom higher even without rate hikes by the central bank. That suggests that Treasury yields may stay high even if the Fed keeps its own benchmark rate on hold, helping keep a lid on economic growth and inflation. 

Other major central banks have also been dialing back their rates hikes with their inflation measures having appeared to improve. The European Central Bank kept its benchmark rate unchanged last week, and last month inflation in the 20 countries that use the euro fell to 2.9%, its lowest level in more than two years. 

The Bank of England also kept its key rate unchanged in September. The Bank of Japan, meanwhile, is inching toward higher borrowing costs, as it loosens control on longer-term rates. 
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