Xi Flexes Muscle in Asia as Trump Stays Home

(Bloomberg) --

The challenge facing Donald Trump's effort to push back against China would be clear to the U.S. president – if he was on the ground with other world leaders in Asia this week.

Attendees arrived at the Asia-Pacific Economic Cooperation summit in Papua New Guinea aboard shuttles donated by China. A banner for the state-owned China Railway Group flies over a job site near cruise ships housing delegations. Chinese firms adorn the sponsors list.

Such influence has helped make the Pacific island nation 4,000 miles from Beijing a strategic battleground between China and U.S. allies in the Pacific. A White House report in June aired concerns that China might even seek to establish a military presence there, just off the north coast of Australia.

Complicating matters was Trump's absence. He sent Vice President Mike Pence in his stead, as the administration focused on trade talks between Trump and Chinese President Xi Jinping later this month in Argentina. Even then, U.S. officials are lowering expectations for a breakthrough. Commerce Secretary Wilbur Ross said they were likely at best to agree to a “framework” for further talks.

This week's show of strength demonstrates why Xi won't easily accede to U.S. demands on security or trade.

 

Global Headlines

Brexit horror movie | Every time Theresa May looks like she's finished, she comes fighting back. The U.K. prime minister saw seven members of her government resign yesterday, including Brexit Secretary Dominic Raab, but pledged to keep going. “Am I going to see this through?" she told reporters. "Yes I am.” But while the public has sympathy for her, she’ll struggle to get lawmakers to approve her Brexit plans, more resignations are rumored and there’s the perpetual threat of a no-confidence vote taking her out for good.

Mueller watch | Without offering evidence, Trump accused Special Counsel Robert Mueller of “threatening” witnesses to cooperate in the probe into Russian meddling in the U.S. presidential election. Mueller and Trump's former campaign chairman, Paul Manafort, asked for a short delay before updating a judge on Manafort's cooperation with the inquiry. Acting Attorney General Matthew Whitaker, who's criticized the investigation in the past, assured a senior Republican senator that he'll let Mueller continue his work.

• Meanwhile, with the Florida senate race going to a hand recount, House Democrats are looking at alternatives to Nancy Pelosi for speaker.

The Saudi conundrum | The Trump administration's decision to impose sanctions on 17 Saudis implicated in the murder of columnist Jamal Khashoggi probably won't convince U.S. lawmakers it's doing enough to pressure Riyadh. A bipartisan group of six senators is challenging the president's stance by proposing stronger penalties, including a suspension of arms sales.

Sanctions work | Economic punishment from the European Union and the U.S. may have knocked as much as 6 percent off Russia's output over the past four years and the drag shows no signs of letting up, according to a Bloomberg Economics study. The findings show sanctions are working as planned – pressuring Russia without a spillover into other markets – even if the Kremlin has refused to change course on foreign policy.

Australia-Malaysia spat | A senior Australian lawmaker blasted Mahathir Mohamad for criticizing a proposal to shift the country’s Israel embassy to Jerusalem and cited the Malaysian premier’s record of comments disparaging Jews. Treasurer Josh Frydenberg yesterday dismissed Mahathir’s warning the embassy move from Tel Aviv would heighten the risk of terrorism and said Australia makes its own decisions based on national interest.

What to Watch

• An international tribunal today found two top Khmer Rouge leaders guilty of genocide, the first such ruling against the regime that killed 1.7 million Cambodians in the 1970s. Nuon Chea, 92, known as “Brother Number Two” to former leader Pol Pot, and ex-head of state Khieu Samphan, 87, were sentenced to life in jail. They are already serving the same sentence after convictions for crimes against humanity in 2014.
• The hike in interest rates triggered by faster growth from U.S. tax cuts may burst the debt bubble, according to billionaire hedge fund manager Paul Tudor Jones. Zero and negative interest rates have encouraged excess lending, putting markets in a perilous condition, he said.

And finally...A sister company of Google thinks it's solved the problem of how to bring fast internet to remote parts of Africa. Loon is teaming up with Telkom Kenya Ltd. to build a network of high-flying balloons to connect people in the east African country starting next year. As Loni Prinsloo reports, the prize for Alphabet Inc., the parent of Google, is the opportunity to profit from advertising and other businesses tied to bringing the web to more of sub-Saharan Africa, where hundreds of millions of people lack access to the net.

--With assistance from Alex Morales and Natasha Doff.

To contact the editor responsible for this story: Anthony Halpin at thalpin5@bloomberg.net, Karl MaierBen Sills

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