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Western multinationals congratulate Hong Kong’s new leader

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Hong Kong Chief Executive-elect John Lee (L) will take over from Carrie Lam on July 1
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Western multinationals and local tycoons published newspaper adverts on Monday congratulating John Lee on becoming Hong Kong’s next leader, following a rubber-stamp selection process condemned by critics as anti-democratic.

Lee, 64, a former security chief who oversaw the crackdown on Hong Kong’s democracy movement, was anointed the business hub’s new leader on Sunday in a near-unanimous vote by a small committee of Beijing loyalists.

He was the sole candidate in the race to succeed outgoing leader Carrie Lam at a time when Hong Kong is being remoulded in China’s authoritarian image. 

Ta Kung Pao and Wen Wei Po, two newspapers that answer to the office which sets Beijing’s Hong Kong policy, were filled with adverts on Monday from leading companies and business figures praising Lee’s selection.

The majority were from Chinese and Hong Kong businesses as well as community organisations. 

The “Big Four” accountancy firms — KPMG, Deloitte, EY and PwC — were among western multinationals placing adverts, as were city carrier Cathay Pacific and conglomerates Swire and Jardine Matheson.

Messages were also carried by Hong Kong’s family tycoon-dominated property giants, including Sun Hung Kai and Henderson Land Development. 

Western businesses have found themselves in an increasingly precarious position in Hong Kong, especially as geopolitical tensions have risen with China.

Many have embraced progressive political causes in western markets, such as the anti-racism Black Lives Matter movement, same-sex equality and ridding supply chains of labour abuses. 

But they usually steer clear of any criticism of China’s policies towards hotspots like Hong Kong, Xinjiang, Tibet and Taiwan.

Some companies such as HSBC, Standard Chartered, Swire and Jardine Matheson publicly backed Beijing’s national security law, which was imposed on Hong Kong after 2019’s democracy protests to curb dissent.

– Can Hong Kong reopen? –

The elevation of Lee, who is under US sanctions, places a security official in Hong Kong’s top job for the first time after a tumultuous few years for a city battered by political unrest and economically debilitating pandemic controls.

Despite the city’s mini-constitution promising universal suffrage, Hong Kong has never been a democracy, the source of years of protests since the 1997 handover to China.

After the 2019 rallies, Beijing responded with a crackdown and a new “patriots only” political vetting system that eradicated the city’s once outspoken political opposition.

Lee faced no rivals and won 99 percent of the votes cast by the 1,461-strong committee that picks the city’s leader — roughly 0.02 percent of the city’s population. 

Beijing hailed the process as “a real demonstration of democratic spirit”.

European Union foreign policy chief Josep Borrell countered that the selection process was a “violation of democratic principles and political pluralism”. 

Lee, a former police officer, has vowed to strengthen Hong Kong’s national security and integrate the city further with the mainland. 

He wants to reboot the city’s economy and slowly reopen its pandemic sealed borders at a time when rivals have moved to living with the coronavirus. 

But it is unclear how he can do that given China has doubled down on its strict zero-Covid strategy.

On Monday morning, Lam met her successor Lee and both gave short speeches stressing that they would prepare for an orderly transition between their administrations. 

Lee, who takes over on July 1, was Lam’s security chief and then her deputy.

He was asked by reporters whether Hong Kongers could criticise his administration or risk being arrested for “speech crimes” like dozens of democracy activists in recent years. 

Lee took umbrage to that description. 

“I think you are very wrong to describe that people are now charged simply because of their expressed opinions,” he said. 

“People are brought to court because of the suspicion against them and their actions contravening the law,” he added. “It is their action.”

Lee said his first port of call would be China’s top agencies in Hong Kong — the Liaison Office, the national security committee, the foreign ministry’s office and the People’s Liberation Army garrison.

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Zara owner Inditex profits up despite Ukraine war

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Spanish clothing giant Inditex, which owns Zara, is the world's biggest fashion retailer
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Global clothing giant Inditex, which owns Zara, posted Wednesday a surge in its first-quarter profits despite closing its stores in Russia after its invasion of Ukraine.

The world’s biggest fashion retailer said its net profit increased by 80 percent in the first three months of its financial year to April 31, compared to the same period last year.

It said it made 760 million euros ($812 million) in profit, against 440 million euros ($470 million) during the first quarter of the 2021 financial year, which was hit hard by the coronavirus pandemic.

The hike in profits came despite a 216-million-euro provision for estimated costs arising from the impact of the Ukraine war, without which its income would have risen to almost “940 million euros”, it said.

The group, which since April has been led by Marta Ortega, daughter of its multi-billionaire founder Amancio Ortega, reported sales of 6.74 billion euros, up 36 percent from the same period in 2021. 

The fashion group, which owns eight brands including upmarket Massimo Dutti and teen label Stradivarius, had warned that 2022 sales would be impacted by Russia’s invasion of Ukraine.

After Russia sent in troops in late February, Inditex closed all its stores in Ukraine and on March 5 suspended all retail activity in Russia, its biggest market after Spain, shutting its 502 shops and suspending all online transactions. 

Inditex said that stopping sales activity in Russia had been offset by “strong growth” in other regions, notably the United States.

Analysts had expected the Spanish retail giant to be hard hit by its Russian pullout decision given that it generates 10 percent of its turnover and 8.5 percent of its operating profit in the country. 

Wednesday’s results were broadly in line with analysts’ expectations, with Factset seeing profits of 770 million euros against a turnover of 6.27 billion euros. 

Online sales, which had surged during the pandemic, fell by 6.0 percent, although Inditex said it expected the figure to reach “30 percent of total sales” by 2024.

Shares in the world’s biggest fashion retailer were trading 4.23 percent higher in late morning trade on the Madrid stock exchange. 

When the pandemic first took hold two years ago, the group saw its profits nosedive as the virus forced it to shutter most of its shops in the first half of 2020. 

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US lays out more pledges as Biden woos Latin American leaders

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US President Joe Biden heads Wednesday to a Latin America summit on a mission to woo back the region as his administration pushed out pledges, including a plan to train half a million health workers.

The long-awaited Summit of the Americas was marred by a boycott from Mexico’s president, who was upset that Biden did not invite the leftist leaders of Cuba, Nicaragua and Venezuela on the grounds that they did not meet democratic standards.

The Biden administration insisted there were no hard feelings and moved forward on initiatives aimed at cementing ties across Latin America, where a rising China has increasingly made inroads despite the historic US influence.

Hours before Biden was to arrive, his administration announced a new Americas Health Corps that will aim to improve the skills of 500,000 health workers across the region, building on the lessons from Covid-19, which hit the Western Hemisphere especially hard.

The health training will cost $100 million, although the United States will not contribute all of it and will seek to raise funds, including through the Pan American Health Organization.

The pandemic “showed us the many cracks in our global health systems and underscored the importance of strong and resilient health systems for the entire population,” a White House statement said.

China has stepped up its role in Latin America since the pandemic started, moving early to supply vaccines. 

Cuba has also long exported its state-employed doctors, a practice that so infuriated the previous administration of Donald Trump that he suspended funding for the Pan American Health Organization over alleged ties.

The health announcement comes a day after Vice President Kamala Harris detailed another $1.9 billion in commitments by businesses to invest in impoverished and violence-ravaged El Salvador, Guatemala and Honduras.

The troubles in the so-called Northern Triangle, as well as Haiti, have generated a soaring number of migrants to the United States, setting off a domestic furor as Trump’s Republican Party demands efforts to stop them.

“We know the American people will benefit from stable and prosperous neighbors. And when we provide economic opportunity for people in Central America, we address an important driver of migration,” Harris said.

– ‘Nearshoring’ –

Mauricio Claver-Carone, the president of the Inter-American Development Bank (IADB), said that Latin America can increasingly be seen as a “sea of peace” for investors amid the global turbulence from Russia’s invasion of Ukraine and rising risks associated with manufacturing juggernaut China.

The head of the IADB, which provides development funding in Latin America, said he saw a rise of “nearshoring,” with businesses moving closer to markets rather than in China.

Since the first Summit of the Americas in 1994, “each dollar that went to China was one dollar, one investment, one job less for Latin America and the Caribbean,” he told AFP in an interview in Los Angeles.

In Latin America, “whether they are governments of the left or the right, they all want foreign investment, they all want nearshoring, they all want economic growth,” he said.

The first summit, held in Miami by Bill Clinton, aimed to create a vast free-trade zone that would span the hemisphere other than communist Cuba.

Biden is holding only the second Summit of the Americas on US soil at a time that the political appetite for free trade has waned in Washington, with Trump rising to power in part by attacking trade liberalization as hurting workers.

But Biden has stood firm on another core principle of the Summit of the Americas — democracy — even as he considers going next month to Saudi Arabia, a critical oil supplier.

Mexican President Andres Manuel Lopez Obrador insisted that all nations of the hemisphere should be included, a stance backed by several other regional leaders who nonetheless agreed to come.

Biden is separately expected to meet President Jair Bolsonaro of Brazil, Latin America’s most populous nation, despite rising fears that the Trump ally will not accept the legitimacy of upcoming elections.

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OECD sees lower world growth due to Ukraine war’s ‘hefty price’

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The Ukraine war has sent food and energy prices soaring
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The OECD warned Wednesday that the world economy will pay a “hefty price” for Russia’s invasion of Ukraine as it slashed its 2022 growth forecast and projected higher inflation.

The Paris-based organisation, which represents 38 mostly developed countries, is the latest institution to predict lower GDP growth due to the conflict, which has sent food and energy prices soaring.

In its latest economic outlook, the Organisation for Economic Co-operation and Development said global gross domestic product would grow by three percent in 2022 — down sharply from the 4.5 percent estimated in December.

The OECD also doubled its forecast for inflation among its members — which range from the United States to Australia, Japan, and Latin American and European nations — to 8.5 percent, its highest level since 1988. 

“The world is set to pay a hefty price for Russia’s war against Ukraine,” wrote the OECD’s chief economist and deputy secretary-general, Laurence Boone, adding that a “humanitarian crisis is unfolding before our eyes”.

“The extent to which growth will be lower and inflation higher will depend on how the war evolves, but it is clear the poorest will be hit hardest,” Boone said.

“The price of this war is high and will need to be shared.”

Before the war broke out, the outlook had appeared “broadly favourable” for 2022-23, with growth and inflation expected to return to normal after the devastating Covid-19 pandemic, said the OECD.

However, “the invasion of Ukraine, along with shutdowns in major cities and ports in China due to the zero-Covid policy, has generated a new set of adverse shocks,” it said.

– Food shortage risk –

The OECD was supposed to publish its outlook in March, but it delayed its detailed assessment until now due to uncertainty over the war. At the time, it said the conflict could cut global GDP growth by “over one percentage point”.

The World Bank revised its own figures on Tuesday, lowering its global growth forecast from 4.1 percent to 2.9 percent. The IMF cut its forecast by nearly one point to 3.6 percent in April.

The OECD cut its growth forecast for the United States from 3.7 percent to 2.5 percent and that of China, the world’s second biggest economy, from 5.1 percent to 4.4 percent. The eurozone’s GPD is now seen growing by 2.6 percent instead of 4.3 percent while Britain’s outlook was lowered to 3.6 percent from 4.7 percent.

The OECD noted that commodity prices had risen, hitting real income and spending, “particularly for the most vulnerable households”.

“In many emerging-market economies the risks of food shortages are high given the reliance on agricultural exports from Russia and Ukraine,” it said.

The report warned that the “effects of the war in Ukraine may be even greater than assumed”, raising as an example a scenario of Russia cutting gas supplies to Europe.

As central banks tighten their monetary policies to counter inflation, the report said sharp increases of interest rates could also hit growth more than anticipated.

– Covid risk –

The Covid pandemic, meanwhile, could take another turn for the worse.

“New more aggressive or contagious variants may emerge, while the application of zero-Covid policies in large economies like China has the potential to sap global demand and disrupt supply for some time to come,” the OECD said.

Faced with these challenges, governments needed to protect the most vulnerable from the economic shockwaves, it added.

In the short term, “temporary, timely and well-targeted” fiscal measures would help the poorest households, the OECD said.

Over the medium- and long-term, governments would have to invest more in clean energy and defence spending.

“The world is already paying the price for Russia’s aggression,” wrote Boone.

“The choices made by policymakers and citizens will be crucial to determining how that price will be distributed across people and countries.”

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