US Business

German Chancellor Olaf Scholz makes a high-stakes trip to China this week, walking a tightrope between shoring up a key economic relationship and facing heightened concerns about over-reliance on authoritarian Beijing.

Scholz, accompanied by a delegation of business executives, will be the first European Union leader to visit the world’s second-biggest economy since 2019.

During the one-day trip on Friday, he will hold talks with President Xi Jinping and Premier Li Keqiang. 

But the visit has sparked controversy, coming as Berlin reels from an over-dependence on Russian energy imports and amid surging tensions with China over issues ranging from Taiwan to alleged human rights abuses against the Uyghurs in Xinjiang.

Dolkun Isa, a Uyghur activist based in Germany and president of the World Uyghur Congress, on Tuesday slammed the planned visit and accused Scholz of deciding to “pay homage to Xi Jinping in complete disregard of human suffering”.

The decision to bring a business delegation “shows that for Germany, profit continues to trump human rights”, Isa told a press briefing in Berlin.

Even senior figures within Scholz’s coalition are raising concerns. 

Foreign Minister Annalena Baerbock said she feared mistakes made in the relationship with Russia could be repeated with China.

“We must prevent that,” Baerbock — from the Greens, a member of Scholz’s uneasy three-party ruling coalition — told broadcaster ARD at the weekend.

“I think it is extremely important that we never again make ourselves so dependent on a country that does not share our values.”

– ‘Minimise risks’ –

The sensitivity was highlighted when a row erupted last month about whether to allow Chinese shipping giant Cosco to buy a stake in a Hamburg port terminal. 

Ultimately, Scholz defied calls from six ministries to veto the sale over security concerns, instead permitting the company to acquire a reduced stake.

Ahead of the trip, Scholz’s spokesman Steffen Hebestreit stressed the chancellor was not in favour of “decoupling” from China — but also wanted to “diversify, and minimise risks”.

For now, the German and Chinese economies remain deeply intertwined.

China is a major market for German goods, particularly for auto giants Volkswagen, BMW and Mercedes-Benz, and many jobs in Europe’s top economy depend directly on the relationship.

The worsening climate has rattled the nerves of German firms with investments in China. BASF chemicals giant boss Martin Brudermueller, who will accompany Scholz, last week urged an end to “China bashing”.

Still, the timing of the trip has raised eyebrows, coming so soon after Xi Jinping secured a historic third term as China’s leader. 

“The timing is extremely unfortunate,” Heribert Dieter, from the German Institute for International and Security Affairs, told AFP. 

Xi “has just been confirmed for another five years in office, and of course Chinese politicians see the German chancellor’s visit as confirmation of their policies”, he added. 

– ‘Own path’ –

Chinese foreign ministry spokesperson Zhao Lijian on Tuesday said the aim of Scholz’s visit was to “inject new impetus into the in-depth development of the full-scale strategic partnership between China and Germany… and contribute to world peace, stability and growth”.

Scholz’s spokesman Hebestreit has insisted the trip will “cover the entire spectrum of our relations with China”, including tensions in East Asia, human rights and the war in Ukraine. 

He also said that Scholz was in close contact with international partners in Europe, as well as the United States, about the visit. 

But some may see it as further evidence of Germany going it alone to look after its own interests.

Berlin has already raised hackles among fellow EU members by unveiling a 200-billion-euro ($198 billion) fund to shield consumers and businesses from surging energy prices, rather than acting together with the rest of the bloc.

“Western allies — of course in Paris but above all in Washington — see this trip very critically,” said Dieter.

“Germany is following its own path.”

British grocery delivery platform Ocado on Tuesday announced a tie-up with South Korean giant Lotte Shopping, sending its shares soaring in London.

Ocado’s stock surged more than 30 percent in morning trade on the London Stock Exchange after the announcement.

The two firms said in a joint statement that they would work together to develop Lotte’s online business in South Korea.

That includes creating a network of order processing centres across the country, with the first to open in 2025.

Ocado will also set up order points in stores operated by Lotte from 2024.

“Lotte will pay Ocado Solutions certain fees upfront and during the development phase, then ongoing fees linked to both sales achieved and installed capacity”, the statement read.

No further financial details were given.

Ocado said it expected the deal to create “significant long-term value to the business”, as well as give it another foothold in Asia Pacific.

“The impact of this transaction should be negligible on earnings in the current financial year as no cash fees will be recognised in revenue until operations commence,” it added.

Lotte Group is South Korea’s fifth-biggest conglomerate and operates in the food, retail, chemical and hotel sectors.

Its biggest affiliate, Lotte Shopping has more than 1,000 stores, hypermarkets, supermarkets across the country, and is also present online.

In 2021, its annual revenue was 15.6 trillion won ($11 billion).

The announcement comes after Lotte’s biggest partner, US supermarket giant Kroger, signed a deal to buy its competitor Albertsons.

Ocado announced at the end of July a £212.5-million loss and a slump in first-quarter revenue compared to the same time last year, when it saw sales boosted by coronavirus lockdown restrictions.

Lufthansa said Tuesday it had agreed a pay rise for 19,000 cabin crew members in Germany to help compensate for soaring inflation.

Germany’s flagship carrier said it had reached a one-year deal with flight attendants’ union UFO to increase basic monthly salaries by 250 euros ($248) from January 2023, and by an extra 2.5 percent from July.

Starting salaries for in-flight personnel will jump by 17 percent as a result, Lufthansa said, while those in the highest salary bracket will see a nine-percent increase.

“With this, we are paying due and full regard to our social responsibilities, while also ensuring our attractiveness as an employer,” said Lufthansa personnel chief Michael Niggemann.

Cabin staff in the lower and mid-range salary groups “will particularly benefit” from the new agreement, he added.

Lufthansa already agreed to raise the salaries of pilots and ground staff in Germany earlier this year after they staged walkouts to press their demands for better pay.

High inflation, running at a record 10.4 percent in Germany in October, has fuelled calls for pay hikes across a range of sectors in Europe’s biggest economy.

The airline industry is at the same time grappling with a shortage of workers after many jobs were cut during the coronavirus pandemic.

Lufthansa, which was saved from bankruptcy by a government bailout during the pandemic, last week reported a robust third-quarter net profit of 809 million euros.

The group’s CEO, Carsten Spohr, said Lufthansa had “left the pandemic behind” and was expecting strong travel demand in the months ahead.

Asian and European stock markets rose further Tuesday, as traders looked ahead to the Federal Reserve’s policy decision, hoping it will signal a more dovish approach to fighting inflation.

The Fed is widely expected Wednesday to announce a fourth straight 75-basis-point rate hike as it tries to rein in runaway prices, which has led to worries it will tip the world’s top economy into recession, sending stocks tumbling.

But a recent report suggesting officials are looking to dial down the pace of increases has sparked a rally in risk assets over the past week — helped by signs other central banks are also trying to take a step back.

– Waiting game –

“The waiting game for the Fed is still on, with investors largely in the dark until the US central bank illuminates the path ahead for interest rate rises tomorrow,” said Hargreaves Lansdown analyst Susannah Streeter.

“In the interim they have been feeling their way to a more optimistic attitude, hopeful that economic indicators hinting that inflationary pressures are beginning to subside could lead to a softening in monetary policy.”

In Asia, Hong Kong led the rally following unconfirmed posts on Chinese social media saying officials were putting together a committee to discuss how to move the country away from its economically damaging zero-Covid policy.

Shares jumped more than five percent after the appearance of the unverified document, which ramped up hopes that the world’s number two economy could begin opening up again in the new year and ease the strict containment measures that have hammered productivity and markets.

However, neither Chinese state media nor government officials have suggested that the meeting actually took place, or that such a committee was established, raising questions about the veracity of the statement.

Nonetheless, Shanghai climbed more than two percent, while the yuan also rallied after recently falling to record lows against the dollar.

Sydney was also well up after the Australian central bank lifted rates by 0.25 percentage points to a near-decade high but brushed off calls for a bigger raise, surging despite inflation.

– Key figures around 1000 GMT –

London – FTSE 100: UP 1.4 percent at 7,196.72 points

Frankfurt – DAX: UP 1.0 percent at 13,383.85

Paris – CAC 40: UP 1.6 percent at 6,368.85

EURO STOXX 50: UP 1.4 percent at 3,666.35

Tokyo – Nikkei 225: UP 0.3 percent at 27,678.92 (close)

Hong Kong – Hang Seng Index: UP 5.2 percent at 15,455.27 (close)

Shanghai – Composite: UP 2.6 percent at 2,969.20 (close)

New York – Dow: DOWN 0.4 percent at 32,732.95 (close)

Euro/dollar: UP at $0.9934 from $0.9885 on Monday

Pound/dollar: UP at $1.1536 from $1.1465

Dollar/yen: DOWN at 147.41 yen from 148.72 yen

Euro/pound: DOWN at 86.12 pence from 86.20 pence

West Texas Intermediate: UP 1.3 percent at $87.65 per barrel

Brent North Sea crude: UP 1.4 percent at $94.13 per barrel

BP said Tuesday that underlying third-quarter profit more than doubled on high commodity prices after key energy producer Russia’s invasion of Ukraine but logged a net loss on accounting charges.

Replacement cost profit soared to $8.2 billion in the three months to September, the British energy major announced.

That compared with $3.3 billion a year earlier and outstripped market expectations of $6.1 billion.

Yet profits were weaker than the second quarter due to a dip in oil prices.

London-listed BP, flush with cash, also revealed a $2.5-billion share buyback but its stock slid in morning deals.

Energy markets remain elevated due to Russia’s war in Ukraine, which has sent British household fuel bills rocketing — but helped generate massive profits across the industry.

Energy prices also leapt on strong demand after nations lifted Covid pandemic lockdowns.

– Windfall tax –

Runaway profits have heightened calls for Britain to massively enlarge its windfall tax to help cushion the impact of a cost-of-living crisis largely sparked by sky-high electricity and gas bills.

Tuesday’s bumper earnings — after vast profits at Chevron, Shell and TotalEnergies — will not diminish those calls, according to analysts.

“This isn’t going to ease calls for windfall taxes at a time when governments are facing fiscal black holes requiring difficult decisions on taxation and spending,” said Oanda analyst Craig Erlam.

“Finding the right balance between taxing ‘excess profits’ as a result of the war in Ukraine without deterring investment won’t be easy.”

BP added Tuesday that it will pay about $2.5 billion in taxes this year for its North Sea business, including $800 million related to the levy.

New British Prime Minister Rishi Sunak unveiled the windfall tax on the profits of UK energy companies earlier this year when he was finance minister in Boris Johnson’s government.

Sunak has so far resisted calls to increase the tax, deemed far too small by activists.

– Energy transition –

“With the economy sinking, energy bills soaring and the climate crisis deepening, Rishi Sunak must surely act on the excessive profits that fossil fuel firms like BP are raking in,” said Sana Yusuf, a campaigner at Friends of the Earth.

BP says it is seeking to pivot towards cleaner energy and away from fossil fuels, sparking deep scepticism from environmental groups who accuse it of greenwashing.

“This quarter’s results reflect us continuing to perform while transforming,” said Chief Executive Bernard Looney.

“We are providing the oil and gas the world needs today — while at the same time investing to accelerate the energy transition.”

BP agreed this month to buy US renewable gas producer Archaea for $4.1 billion.

The group added Tuesday that it faced a net loss of $2.2 billion in the third quarter on large accounting charges. That followed a loss after tax of $2.5 billion last time around.

BP’s share price slid 0.7 percent to 476.25 pence in morning deals on London’s rising stock market.

Few took Elon Musk’s tweeted threat to stop funding Starlink in Ukraine as seriously as the commander in charge of communications along much of the southern front.

The world’s richest man last month took to his favourite social media platform — which he has since bought — to wonder why he should keep providing Ukraine with free satellite internet service.

The temperamental mega-billionaire appeared to change his mind a few days later.

“The hell with it,” Musk wrote after his initial threat created a geopolitical furore and underscored the Pentagon’s growing dependence on private space technology.

“Even though Starlink is still losing money and other companies are getting billions of taxpayer dollars, we’ll just keep funding the Ukrainian government for free.”

Major Roman Omelchenko is still not sure if Musk’s second tweet was ironic or if he really did intend to keep paying for the Ukrainian army’s main line of communication.

He just knows that Starlink’s loss would leave him scrambling during the brewing battle for Kherson.

“If we lose it, it will be a serious blow to our means of communication,” the 59th brigade’s communications chief said in an interview conducted at a secret location along the southern front.

“It would be very difficult without it.”

– Cult status –

Musk gained cult status in Ukraine by sending in thousands of Starlink terminals in the first days of Russia’s invasion.

Ukraine now has 20,000 of the little white dishes hidden away across the war zone.

Their role became even more important when Russia began to target Ukraine’s key infrastructure with long-range missile strikes.

A loss of power usually shuts down most cell phone service and complicates even basic communications on the ground.

The only other alternatives for soldiers are walkie-talkies and older types of satellites dishes that take much more time and effort to set up.

“We still have those in reserve,” Omelchenko said of the older technology.

“But you have to keep tuning it constantly. Starlink tunes itself. You don’t have to do it manually. It is very simple and very powerful.”

– Undetectable –

The terminals’ dishes link up to Musk’s constellation of satellites by feeds that Omelchenko said are almost impossible for the Russians to detect.

The dishes are then wired up to basic routers that create small wifi spots.

Therein lies the danger.

Omelchenko said the Russians can spot the wifi signal and use it to target their strikes.

The hotspots thus need to be set up in covered locations than can mask the wifi signals.

But the entire system is uniquely simple to use.

Omelchenko said soldiers can set up a functioning satellite feed on the battlefield within minutes.

This then helps connect everyone from remote drone operators to soldiers and commanders across the war zone.

– ‘Thank you’ –

Many interpreted Musk’s tweets as an effort to put pressure on the Pentagon to foot at least a part of the Starlink bill.

CNN reported that Musk sent a private letter to the Pentagon in September requesting that it take over funding for Ukraine’s use of his terminals.

Musk’s SpaceX venture put the cost of operating the system in Ukraine over the coming 12 months at $400 million.

Omelchenko said he would prefer not to guess Musk’s real intentions.

“It is up to him to decide if he keeps paying for it or not,” said the 45-year-old career soldier.

“In either case, I just want to say thank you. I am still grateful because he helped us a great deal in the war against the Russian aggressor.”

Sony raised its annual net profit and sales forecasts on Tuesday, saying the weak yen had boosted the performance of sectors including music, movies and smartphone camera components.

The yen has lost more than 20 percent of its value this year, inflating profits for Japanese companies that operate overseas.

That includes Sony’s massive global entertainment business — from streaming services to blockbuster films and PlayStation games, as well as digital camera components.

“Major factors for the upward revisions include the growth of the music streaming business, as well as foreign exchange,” chief financial officer Hiroki Totoki told reporters.

The conglomerate now expects net profit to March 2023 to reach 840 billion yen ($5.7 billion), up from the 800 billion yen previously forecast.

It has also slightly increased its sales outlook to 11.6 trillion yen, with higher revenues in several sectors likely to be “partially offset by lower-than-expected sales in the financial services segment”.

In the first half of the current financial year, net profit was 482.2 billion yen — up 13 percent on-year — while sales rose nine percent to five trillion yen, Sony said.

Recent big hits for the group include the PC version of the game “Marvel’s Spider-Man”, “Uncharted: Legacy of Thieves” for PlayStation, as well as new music from Beyonce, Doja Cat and Harry Styles, Totoki added.

– PS5 production increasing –

Nearly two years since its launch, Sony’s PlayStation 5 console remains notoriously difficult to find.

But “with material supply and logistics constraints significantly eased, PS5 production exceeded 6.5 million units in this quarter and is progressing ahead of plan,” Totoki said.

Recent price increases for the console have not yet hit demand, he added, and Sony is “doing our utmost to accelerate supply for the year-end sales season”, he added.

In August, Sony Interactive Entertainment recommended raising the PS5’s retail price in many parts of the world, but not the United States, because of high inflation and forex changes.

Hideki Yasuda, senior analyst at Toyo Securities, said PS5 “hardware shipments are expected to grow significantly” in the second half of 2022-23, but warned that software sales will be “very tough”.

“This year, software makers are postponing the sale of major titles, partly because production of the PS5 has been slow,” Yasuda told AFP ahead of Sony’s earnings release.

With most of the forex-related boost coming from software sales, if the situation does not change it could start to hit Sony’s gaming earnings, the analyst warned.

“The PS5 is selling at a very high price, but it is well-balanced cost-wise… if the dollar strengthens, it’s going to be tricky,” he said.

Behind the yen’s dramatic fall is the contrast between the monetary policies of the US and Japanese central banks.

While the US Federal Reserve is fighting inflation with aggressive rate hikes, the Bank of Japan has stuck to its longstanding monetary easing programme, designed to encourage sustainable growth.

A federal judge on Monday blocked publishing giant Penguin Random House from acquiring its competitor Simon & Schuster, siding with the US Justice Department which had argued against the mega-merger.

The deal, worth $2.2 billion, had been announced in November 2020 and would have brought together two of the five largest American publishers.

US District Court Judge Florence Pan, in her ruling, said the government had convincingly shown that the merger would substantially lessen competition “in the market for the US publishing rights to anticipated top-selling books.”

Pan said her full reasoning for the decision would be issued under seal, as it relied on confidential business information.

The Justice Department hailed the decision, which comes only a week before crucial midterm elections in which Democratic President Joe Biden has tried to paint his party as defending consumers’ interests.

The Justice Department under Biden has been more aggressive than his predecessors in attempting to block mergers, with mixed success so far.

“Today’s decision protects vital competition for books and is a victory for authors, readers, and the free exchange of ideas,” said Assistant Attorney General Jonathan Kanter in a statement.

With 10,000 employees worldwide and nearly 15,000 books published per year, Penguin Random House — a subsidiary of the German Bertelsmann Group — dominates the industry in the United States.

Simon & Schuster, owned by Paramount, is the fourth largest of America’s “Big Five” publishing companies, which also include HarperCollins, Hachette Book Group USA and Macmillan Publishers.

– Stephen King ‘delighted’ –

Big-name writers on the roster at Simon & Schuster include Stephen King and Doris Kearns Goodwin, while Barack and Michelle Obama and John Grisham have books published by Penguin Random House.

It is also preparing to release Prince Harry’s memoir, in early 2023.

Penguin Random House said it strongly disagreed with the judge’s ruling and announced it will request an expedited appeal.

“We believe this merger will be pro-competitive, and we will continue to work closely with Paramount and Simon & Schuster on next steps,” it said in a statement.

But best-selling author King praised Pan’s decision, in a statement going against his own publisher.

“I am delighted that Judge Florence Pan has blocked the merger of Penguin Random House and Simon & Schuster,” the “King of Horror” said in a tweet. 

“The proposed merger was never about readers and writers; it was about preserving (and growing) PRH’s market share. In other words: $$$,” he said.

Paramount said it was disappointed by the ruling.

“We are reviewing the decision and discussing next steps with Bertelsmann and Penguin Random House, including seeking an expedited appeal,” it said.

Prior to the US action against the takeover, the UK’s competition authority had also taken a close look at the merger, as both groups have British divisions. It issued a favorable opinion in May 2021.