The China Factor in America’s State and Local Economies

As the world’s second-largest economy falters, pensions and tax revenues here are feeling the pinch.




Earlier this summer, New York state’s pension fund announced a mediocre year. Investment earnings were essentially flat, and as a result the fund lost $5 billion because its other receipts — contributions from government and from current employees — didn’t cover retiree payouts.

The New York pension system was the victim of a global event that began halfway across the world a year ago this month. In August 2015, the world’s second-largest economy officially began to stumble. China’s central bank stunned investors by devaluing the yuan, lending credence to what outsiders had long been suspecting: China’s years of astounding annual economic growth — at times cresting at double digits — was slowing down.

Toward the end of that month, China’s stock market endured its biggest one-day fall since 2007. The state media dubbed it “Black Monday” and the result shocked the world. Emerging market currencies slumped, commodity prices fell and Western financial markets reeled. At one point, General Electric’s stock was down by more than 20 percent. The markets seemed to recover just in time for a January report from China that the country’s growth rate for 2015 — 6.9 percent — was the weakest in a quarter-century. Although robust by U.S. standards — GDP growth in the United States last year was 2.4 percent — the bad news from Beijing once again sparked market volatility here and abroad.

In short, China has made it a difficult year for institutional investors, public pension plans prominent among them. But financial markets aren’t the only way China’s economy can impact states and localities.

For the last decade, with China a reliable engine for economic growth, other countries around the world have been feeding off it. China is the leading destination for a handful of states’ exports and accounts for more than $115 billion in goods shipped annually from the U.S. The country is a key consumer of U.S.-made airplanes, cars and medical equipment. Meanwhile, Chinese companies have stepped up their investment in U.S. cities and industries, building auto plants, investing in oil fields and buying real estate — a Beijing-based company now owns the Waldorf-Astoria hotel in New York. There is essentially no region in the U.S. without some connection to China, and at least some vulnerability to a downdraft.

U.S. economists and state development officials are familiar with the ways negative economic events in Europe, such as Britain’s recent vote to leave the European Union, can have an effect here at home. And for the near future, events in Western Europe and some other developed powers, such as Japan, will continue to have the greatest impact on states and localities. But if things in China worsen, the economic pain for governments in this country could be severe.

Even before China’s crisis rattled the U.S. stock market, state and local pension plans were struggling. Last year, annual investment returns were meager. Because of the 2015 market plunge in China, most pension plans in the United States will likely report even worse returns for 2016. The two-year hit, says a Moody’s Investors Service analysis, will effectively wipe out the funding improvements seen in 2013 and 2014.

Under Moody’s most optimistic scenario, according to which U.S. investment returns average 5 percent for this year, overall pension plan liabilities will increase by 10 percent. Under the credit rating agency’s most pessimistic outlook, where investment losses are 10 percent for the year, Moody’s sees liabilities growing by more than half. In that case, governments would be faced with demands to put significantly more general fund money into pension plans than was previously forecast.

Market volatility doesn’t just affect pension plans. A number of state governments find their tax base is significantly exposed when investment income — capital gains revenue — has a bad year. California, Connecticut and New York all tend to “get clobbered” when financial markets have a down year, says Donald Boyd, the Rockefeller Institute of Government’s fiscal studies director. These three states and Oregon (which banks heavily on personal income tax payments in general), have the highest reliance in the nation on capital gains revenue. “If you have a lot of rich people and you tax them relatively heavily,” Boyd says, “then you’re going to be most affected by this kind of scenario.”

SOURCE: Rockefeller Institute of Government

SOURCE: Rockefeller Institute of Government

While there’s unlikely to be anything like the 20 percent revenue drops seen during the U.S. financial crisis in 2008 and 2009, states are already starting to feel the revenue impact of the past year’s stock market reactions to China’s slowdown. Income tax collections make up about one-third of the average state’s total revenue. In April, the single biggest income tax collection month for states, the average state’s income tax revenue was down nearly 10 percent from the previous year, according to a Reuters analysis.

It’s a taste of what could happen if China falters further. California had to trim its overall income tax revenue expectations for the 2016 fiscal year by nearly $2 billion, thanks to an April shortage of about $1 billion in collections. Connecticut, Massachusetts, New Jersey and Pennsylvania also announced declines in actual or projected income tax receipts after April.

What made this issue doubly challenging was that the news came in around the time state lawmakers were in the midst of the tricky business of drawing up the next year’s budgets. “This throws a monkey wrench into it,” Boyd says, noting that it creates future problems as well. “When you’re dealing with a budget shortfall with only a few weeks to go in the fiscal year, there’s a good chance lawmakers aren’t going to find some kind of [permanent] solution. So that sets them up a year down the road for more trouble.”

Washington sends about one-fifth of its exports to China from the Port of Seattle. (AP)

Washington sends about one-fifth of its exports to China from the Port of Seattle. (AP)

Over the past decade, states and localities have jumped at chances to increase their business with fast-growing China. U.S. merchandise exports to China increased by 177 percent between 2005 and 2015. Chinese investment in U.S. companies and properties went up exponentially over the same time period, from $2.5 billion in total investment across 24 states to nearly $63 billion spread over all but three states.

Admittedly, the growth represents only a tiny slice of overall U.S international business. Exports to China account for less than 8 percent of overall outbound U.S. shipments. Chinese foreign direct investment totals less than 1 percent of all foreign investment here.

Some regions, however, have more established business ties. When it comes to exports, Washington state-based businesses are by far the most exposed to fluctuations in China. Last year, Washington businesses exported $19.4 billion in goods to the Asian nation — about one-fifth of all the state’s exports. Over the past year, Washington’s dealings with China have been ratcheting down. Last year saw a 5 percent drop in exports to China; data through May of this year shows exports to China down by about 25 percent. Robert Hamilton, Gov. Jay Inslee’s trade adviser, says trade activity is being driven down from weak economies “everywhere — not just China.” Indeed, overall U.S. exports fell 5 percent last year, the largest decrease since the recession.

Data compiled by Amber Tong, from state trade offices and U.S. Census Bureau

Data compiled by Amber Tong, from state trade offices and U.S. Census Bureau

Still, Washington state’s exposure creates some concerns. Trade directly and indirectly accounts for one out of every four jobs in the state. Last year, Moody’s flagged it for being an at-risk state thanks to a slower China. This year, Moody’s has been careful not to sound apocalyptic about Washington state’s situation. “They’re pretty well insulated,” says Moody’s Washington analyst Kenneth Kurtz. But China-watchers in the state remain nervous.

Other regions in the U.S. will see an impact if China’s demand for consumer products wanes significantly. Computer equipment, for example, is a top export to China. Companies based in San Jose, Calif.; Boise, Idaho; and Austin, Texas, are the nation’s top producers of those products, and will feel a pinch if Chinese shoppers stop buying. Detroit and other regions reliant on auto manufacturing could also see a dip in business if China’s high demand for U.S.-made cars slows.

Chinese investment in the United States has grown rapidly over the past decade, although it has been concentrated on a limited number of targets. The vast majority of the investments from China have been in mergers and acquisitions. These ownership changes tend to grab headlines — like when Chinese insurance giant Anbang bought the Waldorf from the Hilton hotel chain for nearly $2 bllion last year. In most cases, new Chinese ownership does not change a company’s economic footprint. Hilton, for example, remains the Waldorf’s operator.

One other area where Chinese investment has had an impact is in so-called greenfield purchases. Those are investments where the parent company builds its operations here from the ground up, such as Yuhuang Chemical’s $1.85 billion methanol plant in Louisiana or Tranlin Paper’s $2 billion paper plant in Virginia, both of which broke ground last year. In the San Francisco Bay Area, which has long been a favorite of Chinese companies, more than one-quarter of greenfield investment value in the region comes from China, according to the Brookings Institution’s Joseph Parilla. Other top areas in the country for greenfield purchases are Chicago, New York City, San Jose and Seattle.

Most greenfield investments are typically made with a long-term view, so a Chinese slowdown like the current one might not have much immediate effect on them. It’s possible that a slower economy at home could cause Chinese companies to direct more new investment toward stable economies like the United States and away from riskier markets in emerging countries. But it’s also possible that a weaker economy at home could force Chinese investors to pull back in all world markets as foreign development becomes a more expensive proposition than the country’s corporations want to make.

From time to time, there are fears about a local real estate market in the United States “being gobbled up” by the Chinese and other private global investors. “If they all pull back, then all of a sudden, you’ve got this glut of really high-end real estate built for folks who are not necessarily in your metro area,” Parilla says, adding that this is something to watch in New York City and San Francisco, and to a lesser extent Chicago and Seattle.

For now, China is a lesson in perspective. Long isolated from the rest of the world, it has taken advantage of its rapid growth and fast-growing connections to other countries to become a major force in global markets. As state and local governments in the United States have become more enmeshed with the Chinese economy, opening offices in China to attract more direct development, they have increased their exposure. Fears about the effects of a prolonged Chinese downturn played a big role in the psychological contagion that roiled U.S. financial markets last year.

So far, most of the negative fallout in this country has been confined to a limited number of regions and economic sectors. But if the Chinese economy remains sluggish for a long period, the effects will be felt much more broadly by American investors and state and local governments. That is why even governments that haven’t felt the effects so far may want to train a wary eye on the fiscal picture in Beijing.

In: governing

Old Navy interracial ad resurrects heated debate

By Adam Howard

Three years after a Cheerios ad featuring an interracial couple sparked backlash, the advertising industry is being rocked again by reactions to another campaign – this time it’s Old Navy that’s under fire for putting a mixed race family front in center in one of their spots.

The retail chain has been accused of promoting “miscegenation,” “white genocide” and “anti-white propaganda” by mostly anonymous social media users this week. That hostility has already been met by its own counter-punch, delivered by Sen. John McCain’s son Jack, a Navy helicopter pilot who has been married to an African-American woman since 2013. The McCains are no strangers to pushing back against racial animus towards mixed race families, since they’ve had to fend off below the belt attacks of their adopted daughter from Bangladesh for years.

Jack McCain has posted several photos with his wife, Renee Swift McCain, who is a captain in the USAF reserve, while calling out “ignorant racists.” Later, Swift McCain tweeted a photo of herself and her husband with the caption: “I was just in @OldNavy this weekend! Bought something for me and my husband. #LoveWins.”

This so-called controversy is another example of how our nation’s retail stores are becoming a new battleground for its culture wars (Target has been vilified for its pro-equality bathroom policies), and of the challenges advertisers face when trying to present a more realistic portrait of multicultural America.

“Sometimes there are folks in the room who actually believe we live in a post-racial society,” cultural strategist Denitria Lewis, who has been been working in advertising for 15 years, told MSNBC Thursday. “If you pay only a modest bit of the attention to the news, you know we don’t.”

Lewis, who has worked with brands like Toyota and Wal-Mart to help address how internal and external biases might effect their commercial messaging, didn’t find the backlash to the Old Navy ad shocking, but admitted she is “tired” of hearing critics cast any ad that portrays mixed race couples in a positive light as an act of political provocation.

“This Old Navy ad was pretty benign on the surface. There’s nothing about that ad that would have stood out to me as edgy,” she said.

The same could have been said for the Cheerios ad, which simply showed a family playfully enjoying their breakfast together. But perhaps it’s the normalcy with which these ads approach multiracial families that has proved most threatening to prejudiced viewers.

I think this [past] year we’ve seen a resurgence of people who are just anti-diversity and inclusion and anti-being politically correct, and very much rising up against anything that is around equality,” said Neisha Tweed, a creative strategist at Facebook who is in an interracial relationship. “I think partially it’s Donald Trump … it existed and now it’s more exposed and kind of mainstream.”

Tweed, who hails from the Caribbean and rose up the ranks on the creative side of the business writing ads, is hopeful companies won’t get discouraged by a small, albeit loud minority of critics.

“You can’t let them win,” she said. “I think it’s brave for brands to start doing that and start reflecting the way America is.”

Though Barack Obama, the child of an interracial relationship, has now served as president of the United States for nearly eight years, and a 2010 Census recorded a 28 percent rise in the number of inter-ethnic and interracial couples in the U.S., the Old Navy ad is getting hit with the same ominous accusation of promoting “white genocide” that the blockbuster film “Star Wars: The Force Awakens” received when its trailer prominently featured black actor John Boyega.

When you have been in a position where you have been promoted and praised your entire life, anything [else] is going to feel like oppression to you,” Lewis opined. Also working against advertisers, according to Lewis, is the perception that they are “almost the enemy, because we’re trying to relieve you of the money in your pocket.”

Tiffany R. Warren, the Senior VP and Chief Diversity Officer at Omincom Group, as well as the founder of ADCOLOR, says that most companies are also becoming increasingly aware of the fact that “we have to respond to diversity or we die.”

“I think they’re responding to their consumer base,” she told MSNBC. “The core reason why they do is that they are reflecting their consumers, they are not reflecting people who might hate them.”

According to Warren, most companies either have an already diverse base of consumers, or they’re looking to grow. As someone who came of age in Boston during the 1970s battles of multicultural diversity programs, and who saw firsthand how few people of color had risen in the ranks of advertising when she was getting started, she is well aware that there are growing pains across the board when it comes to incorporating inclusion into a person’s mindset.

“It’s a talent issue, not a creative issue,” Warren said. “We are really moving the ball forward in terms of equality. Are we moving a little faster than everyone else? I’m not quite sure. But the key part is we are connecting with consumers.”

Although Lewis said she has seen some significant improvement on race matters in the last two to three years, she concedes that the makers of the ads we watch are often just as off-base as their haters. “Working in this business can still be very frustrating,” she said, “and it is because of that lack of representation in the room a lot times.”

When it comes to the uproar over Old Navy, Lewis suggested that ”to place that much meaning on it is very much a projection of that person’s normative way of life. It’s frightening to see a couple that is antithesis of what you think a wholesome family would be. I don’t know if the general public is prepared to have their brands are tell them how to live.”

Still, the backlash could cut both ways – with more progressive-minded consumers embracing a company because it takes the risk of appearing more tolerant. Tweed says Target’s bathroom stance and Old Navy’s interracial couple ad actually made her personally more motivated to shop in those stores.

“Brands could actually win a little bit more in that way,” she said. “Taking such a strong stance could actually be better for your business … you might end up getting people who want to be on your side because you’re doing the right thing.”

“I think that’s a comforting thought,” Warren said. “But at the end of the day it really does signal that there’s a lot of cultural insensitivity in our country.” However, she cites diversity efforts by well-established brands like Marvel and Barbie as a positive step in the right direction.

“I’m glad that people are talking about this,” Tweed said. “But I’m glad that they’re talking about it more in a positive way around the need for it to continue to be done, and how people are supporting [Old Navy] for doing this, versus giving too much airtime to the people who are saying the bad things.”

In: nbc

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Andrés Sepúlveda dice haber espiado a la oposición mexicana

En una entrevista, el ‘hacker’ aseguró manipular elecciones en toda Latinoamérica. México lo negó.

Foto: Carlos Ortega / EL TIEMPO El hacker Andrés Sepúlveda fue condenado a 10 años de cárcel.

Foto: Carlos Ortega / EL TIEMPO
El hacker Andrés Sepúlveda fue condenado a 10 años de cárcel.

Andrés Sepúlveda, conocido por diversos casos de espionaje en el país, aseguró en una entrevista para la revista digital ‘Bloomberg Businessweek’ que intervino en las campañas electorales de Nicaragua, Panamá, Colombia, Venezuela y México.

En la publicación de Bloomberg, basada en diálogos con el pirata informático, su supuesto socio Juan José (JJ) Rendón y las partes afectadas, detalla el ‘modus operandi’ de sus espionajes y aclara que fue contratado por el Partido Revolucionario Institucional de México (PRI) para sabotear las campañas presidenciales de Andrés Manuel López Obrador, del Partido de la Revolución Demócrata (PRD) y de Josefina Vázquez Mota, de la derecha del Partido de Acción Nacional (PAN), en 2012.

A través de su cuenta en Twitter, Rendón también negó vínculos con Sepúlveda. “Las declaraciones de Andrés Sepúlveda son un desvarío”, escribió.

El ‘hacker’ habría liderado un equipo de personas con conocimientos informáticos con un presupuesto de 600.000 dólares para apoyar la campaña de Enrique Peña Nieto robando estrategias de campaña, manipulando redes sociales e instalando un software malicioso en las oficinas de la oposición para conseguir su victoria. (Además: ‘Hacker’ Andrés Sepúlveda pagaría cárcel y aceptaría colaborar)

“Sepúlveda manejó miles de cuentas falsas (de redes sociales) y las usó para dirigir el debate sobre el plan de Peña Nieto para acabar con la violencia vinculada al tráfico de drogas, inflando el impacto en redes, que luego replicaban usuarios reales”, añade la publicación de Bloomberg.

Además, en la entrevista aseguran que Sepúlveda contaba con los detalles de los discursos de Vázquez Mota tan pronto su oficina de prensa los redactaba y mantenía interceptados los teléfono y computadoras de del cuartel general del candidato del PRD, entre otros detalles.

México fue el primer país en reaccionar. En un comunicado, el Gobierno mexicano negó haber realizado labores de espionaje y manipulación de la opinión pública en las redes sociales durante la campaña presidencial de 2012.

“Rechazamos cualquier relación del equipo de la campaña presidencial de 2012 con Andrés Sepúlveda”, defendió el Gobierno en un comunicado, en el que también clamó contra “el uso de la información y metodologías planteadas por dicho artículo”.

La historia del ‘hacker’

Sepúlveda fue condenado en el 2015 a 10 años de cárcel por espiar e interceptar conversaciones ilegalmente de los negociadores del proceso de paz entre el Gobierno y las Farc. Además, se le imputaron cargos como concierto para delinquir, acceso abusivo informático, uso de software malicioso y violación de datos personales.

Incluso, en la publicación se le atribuye haber pirateado el correo electrónico del líder de las Farc Rodrigo Londoño, alias Timochenko.

El paso final y que dejó en evidencia las colaboraciones de Sepúlveda fue la publicación de un video por la revista ‘Semana’, en la que se evidencia el interés del entonces candidato presidencial del partido Centro Democrático, Óscar Iván Zuluaga, por la información de inteligencia que el ‘hacker’ había obtenido de manera ilegal.

En: eltiempo

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