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Exclusive: China may raise Iran oil imports with new contract: sources

BEIJING (Reuters) – China may buy more Iranian oil next year as a state trader is negotiating a new light crude contract that could raise imports from Tehran to levels not seen since tough Western sanctions were imposed in 2012, running the risk of upsetting Washington.

An increase would go against the spirit of November’s breakthrough agreement relaxing some of the stringent measures slapped on Iran two years ago over its nuclear program.

The November deal between Tehran and the group known as P5+1 — made up of the United States and five other global powers — paused efforts to reduce Iran’s crude sales but required buyers to hold to “current average amounts” of Iranian oil imports.

That agreement was seen as a reward for a softer diplomatic tone from Tehran that was forced, some U.S. officials and lawmakers say, by U.S. and EU sanctions that slashed Iran’s oil exports by more than half to about 1 million barrels per day (bpd) and cost it as much as $80 billion in lost revenue.

But industry sources say Chinese state-trader Zhuhai Zhenrong Corp, which was sanctioned by Washington in early 2012 for supplying gasoline to Iran, is in talks with the National Iranian Oil Company (NIOC) for a new contract for condensate.

However, it was not clear how much of the light crude would be imported through any new term deal. Zhenrong or others could also continue buying condensate through spot deals.

“If they do step up imports from Iran, they are risking more sanctions from the U.S.,” said a trader with a Western trading house that sells to China. “The Chinese government may make some noises if overall imports from Iran rise too much, but not if there is a slight increase.”

Zhenrong, an affiliate of China’s defense authorities in the 1990s, acts largely as an import agent for China Petroleum and Chemical Corp, or Sinopec, whose refineries process Iranian crude.

Zhenrong also buys a small amount for a PetroChina-controlled refinery.

The new condensate contract would be through a subsidiary, Tianjin Zhenrong International Energy Corp, for delivery to independent petrochemical plant Dragon Aromatics in southeast China’s Fujian province, the sources said.

Dragon Aromatics since around August has been buying from Zhenrong on a spot basis about 66,000 bpd of condensate produced from Iran’s giant South Pars gas project.

A Zhenrong spokesperson declined to comment on any negotiations and whether they ran the risk of putting the company under pressure from Washington.

“More pressure? Do you think they really care?” said a former Zhenrong trader. Zhenrong, with no investments in the United States that could be targeted, has long thought it could be folded into a larger state company as a crude oil desk and probably has few concerns about any future sanctions, he said.

Besides the new deal, Iran’s largest trade partner and oil customer China is set to roll over its existing import volumes of about 505,000 bpd.

Actual imports from Iran in the first 11 months of this year have been lower at 421,520 bpd, down 0.6 percent on year, according to Chinese customs figures, due to pressure from the Western sanctions. China’s total imports from Iran averaged about 530,500 bpd in the year prior to the sanctions.

Of the total for next year, Zhuhai Zhenrong is set to renew its annual supply deal at around 240,000 bpd, not including any new deal for condensate.

“It’s almost done, and the volume will be the same,” said a trading official with direct knowledge of the supply talks. Senior Zhenrong officials may visit Tehran in the coming weeks to put final touches on the 2014 agreement, the official said.

Zhenrong was set up around 1995 to take oil from Tehran in payment for arms Beijing supplied during the 1980-88 Iran-Iraq war. It has been a commercial state-run enterprise since 1998.


The balance of China’s contract volumes from Iran would be going to Sinopec, through its trading vehicle Unipec.

Unipec agreed with NIOC early last year to an 8-year oil contract to end-2019 to lift around 265,000 bpd, about a quarter of which is condensate, according to a second trading official.

Under U.S. and European sanctions, Sinopec has been lifting below those contractual volumes to win waivers to the U.S. measures every six months, with one official estimating the cut at 11-13 percent. Sinopec has filled the gap mainly with Iraqi and Russian supplies.

Waivers for China, India and South Korea were extended in November.

China’s waiver, together with November’s diplomatic breakthrough, may have taken some pressure off the U.S.-listed Sinopec, the world’s single largest Iranian oil processor, to make further cuts.

“It’s at Sinopec’s discretion to decide whether to perform the contractual volume,” said a second trading official. “But the contract is there, signed through end of 2019.”

A Sinopec spokesperson said he was not aware of the contract and was unable to comment.

Since November, Sinopec has loaded slightly above contractual rates following a meeting the previous month between Iran’s deputy oil minister Ali Mojedi and a Sinopec executive in charge of trading, said the second official.

But Sinopec may not risk raising imports significantly higher before more progress is made on easing sanctions on Iran.

“There are still potential risks without signs of sanctions being lifted in a meaningful way,” said a procurement official with a Sinopec refinery.

(Reporting by Chen Aizhu; Editing by Manash Goswami and Tom Hogue)

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Analysis: Transparency the crux in China’s struggle to deal with rising debt

BEIJING (Reuters) – China’s quest to solve its $3 trillion-and-growing public debt problem by starting a domestic municipal bond market hinges on the one thing its officials are most afraid of: transparency.

As markets absorb the results of China’s latest audit of its state finances, Beijing’s long-standing vow to develop a municipal bond market to curtail rapid growth in other types of hidden public debt will take centerstage once more.

By letting local governments sell bonds for cash, China wants to rely on nimble markets rather than inflexible regulations to keep spendthrift units in check.

The stakes are high. A bond market is the centerpiece in China’s blueprint to mop up fiscal troubles and keep its economy growing at an even pace, giving it needed room to start other bold financial reforms.

But analysts say China’s dreams of a municipal bond market are so far just that, as building one has been impeded by a lack of disclosure from local governments on how much money and assets they have, and how much they owe.

“If you want to lend to a specific government, you need to have a clue as to what the financial conditions are like,” said Tan Kim Eng, a senior director of sovereign ratings at Standard Poor’s in Singapore.

“There’s still a lot of work to be done on the fiscal transparency front.”


In the meantime, some investors are increasingly alarmed by the speed at which local governments are piling on debt to pay for public works.

China’s state auditor said in its report on Monday that local governments had total outstanding debt of 17.9 trillion yuan ($2.96 trillion), including contingent liabilities and debt guarantees, at the end of June.

Although the debt load shows China’s government to be far less indebted than fiscally-troubled Japan and Greece, it raised eyebrows among analysts for its 67 percent jump since the last state audit was published in 2011.

The auditor did not say which provinces have the heaviest burdens or face the biggest risks, except to note “certain” dangers in some unnamed regions.

“Any improvement to fiscal transparency will be limited unless the central government regularly publishes similar audit reports,” Standard Poor’s said separately in a note on Tuesday. “It’s also unclear whether China will disclose the debts of individual local and regional governments.”

Investors have long viewed China’s mountain of local government debt as one of the biggest threats to its economy.

Market fears that China’s banking system will be compromised if a portion of the government debt is not repaid were amplified by a dearth of information in the past year.


Amid growing public skepticism about China’s fiscal health, Beijing in August ordered a comprehensive review of all government balance sheets. A delay in its release – publication had been expected by October – fed speculation the debt-total could top $4 trillion.

In China’s defense, the audit is a massive task. The audit office said it deployed nearly 55,000 workers, who examined nearly 2.5 million loans and reviewed the books of 62,215 governments and organizations.

The need for transparency is not lost on Beijing.

In a plan published in November about China’s most ambitious road map for financial reforms in 30 years, Beijing said it would create a “standardized and transparent budget system” for local governments and the funding of public works. This was on top of frequent government pledges to “cast sunlight” on debt.

To be sure, China is mulling other options for cleaning up its debt mess, including allowing private investors to pay for public works, and letting the central government absorb more spending responsibilities.

But no plan resonates better with reform-minded officials than that for a municipal bond market, partly because it fits perfectly with China’s goal of reducing central planning to let financial markets work their magic.

Underscoring the importance placed on restructuring the economy, state news agency Xinhua said President Xi Jinping will head a group that will lead reforms which include relaxing state control over the yuan. CNY/


Under China’s laws, local governments are not allowed to borrow from banks even though they are responsible for as much as 80 percent of all public spending, but take only around half of fiscal income.

To get funds, local governments set up firms that borrow for them. When Beijing clamped down on this in 2011, governments changed tack and turned to shadow banks. Monday’s audit showed shadow banks accounted for at least 13 percent of all local government borrowings.

Facing savvy local officials quick to change financing strategies to evade rules, Chinese experts have championed creation of a municipal bond market. Such vehicles, they say, will decide which governments deserve funding, and spendthrift ones will be punished with higher borrowing costs.

Beijing appears to like the idea, and is testing the ground for such a bond market in six prosperous cities including Shanghai and Guangdong.

But short of full disclosure of just how much governments take in and borrow, analysts doubt China’s experiments with its local bond market will go far.

“Banks and rating agencies do not have easy access to local governments’ overall fiscal position, which includes not only budgeted revenue and expenditure but also extra-budgetary revenue and expenditure,” the International Monetary Fund said in October.

“This lack of transparency prevents banks and rating agencies from pricing credit risk properly and prevents local governments from managing related risks prudently,” it said.

(Editing by Richard Borsuk)

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Japan’s whisky makers drum up global market for their drams

TOKYO (Reuters) – After years of being overshadowed at home and practically unheard of overseas, Japan’s whisky distilleries are expanding capacity as their malts become serious contenders against Scottish and Irish brands.

Exports are booming at Nikka, owned by Asahi Group Holdings, and at Suntory Holdings, which is ramping up production at its Yamazaki distillery for the first time in 45 years as domestic sales recover from a prolonged slump.

But some are concerned the distilleries may be caught out if the enthusiasm for whisky changes as it did in the 1990s, when several smaller players shut down as Japanese drinkers shifted to beer, clear spirits and imported liquor.

“At the moment, no one can see this boom busting. The difficulty is that you’re making it today for 20 or 50 years’ time,” said Marcin Miller, an importer of small-batch Japanese whisky with his British company Number One Drinks.

The drop in demand during the 1990s meant Suntory and Nikka had to cut production, industry experts say, leaving distilleries with a shortage of stock for their youngest single malts when whisky made a comeback in 2008.

Last year, Suntory stopped making its 10-year Yamazaki and Hakushu single malts and introduced “no age” versions instead. Nikka is expected to phase out its 12-year Taketsuru single malt after releasing a “no age” variety this year.

The slump had more a serious impact on minor distilleries such as Karuizawa, Mars and Hanyu. All three were mothballed by 2000 and their stock left dormant until a run of international awards for Japanese whisky brought buyers knocking.


In its earliest incarnation, Japanese whisky was a bootleg adulterated with spices and perfume. Lacking strict regulations of the Scottish and Irish varieties, it was largely ignored by foreign connoisseurs for much of its 90-year history.

“I thought going to drink Japanese whisky would be a bit like drinking a Welsh claret,” Miller said of his first trip to Japan in 1999, when he was editor of Whisky Magazine. “I wondered ‘Will my hosts be offended if I drink gin and tonic?’.”

Miller was soon converted but he found no one to share his enthusiasm with back in Britain, where Japanese whisky exports were practically non-existent.

The turning point came in 2001, when Nikka’s 10-year Yoichi single malt won “Best of the Best” at Whisky Magazine’s awards.

Japanese makers have stormed competitions ever since, with Suntory winning “Distiller of the Year” at the International Spirit Challenge for the third time in July and the Trophy prize for its 21-year Hibiki blend.

The acclaim nudged Japan’s distilleries to market overseas and sales jumped. Nikka’s exports grew 18-fold between 2006 and 2012, while Suntory is looking to double overseas shipments to 3.6 million bottles by 2016. They grew 16 percent in 2012.

While that is still a wee dram compared with sales of more than 72 million bottles at home, Suntory and Nikka export only premium varieties to the United States and Europe. In Japan, premium bottles make up 6 percent of sales.


Distillers and blenders toiled for years to replicate traditional techniques, following notes brought from Scotland in 1920 by pioneer Masataka Taketsuru, who worked for Suntory before founding Nikka.

Japan’s mountain water and icy winters proved ideal. Foreign fans rave about the authentic taste of Japanese whisky, a result of attention to every part of the process – from imported peat to the blending.

“While Scotch is about maintaining the flavor of a certain brand or label, Japanese distillers think mainly about increasing flavors,” said Atsushi Horigami, owner of the Zoetrope bar in Tokyo, which specializes in Japanese whisky.

Horigami said most Japanese drinkers go for blended whisky but the leftover stock from the mothballed distilleries – sold as single casks – has been a hit with foreigners.

Aficionados and speculators alike await the releases of batches of the Karuizawa stock, which was bought by Miller’s Number One Drinks in 2011. Miller says most bottles are snapped up within seconds, going for as much as £12,500 ($20,700).

But with just two years of auctions left and the remaining bottles from Hanyu and Mars also in short supply, some wonder where Japanese whisky lovers are going to find their single cask kicks in years to come.

“We may be on the crest of a wave now and in a few years see a completely different scene,” said Stefan van Eycken, editor of Nonjatta, a blog on Japanese whisky.

That’s where Suntory and Nikka hope to step in. But time will tell whether they can sustain the fashion for their brands for the decade or more it will take to produce their famed single malts. ($1 = 0.6051 British pounds)

(Editing by John O’Callaghan and Robert Birsel)

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China halts imports of Pfizer drug on paperwork glitch

SHANGHAI (Reuters) – China suspended imports of U.S. drugmaker Pfizer Inc’s AIDS-related drug Diflucan on Tuesday, citing a problem with late paperwork, the country’s food and drug watchdog said in a statement on its website.

Pfizer, the largest drugmaker in the United States, contravened Chinese law when one of its France-based factories failed to submit a supplementary application on time, the China Food and Drug Administration (FDA) said in the statement.

With the country’s healthcare spending forecast to nearly triple to $1 trillion by 2020 from $357 billion in 2011, according to consulting firm McKinsey, China is a magnet for makers of medicines and medical equipment.

Pfizer has taken steps to resolve the issue and is working with China’s FDA to ensure its products comply with Chinese law, it said in a statement on its Chinese-language website. The issue is not linked to quality or safety, it added.

Some analysts said the incident looked like a paperwork “glitch” and should be short-lived.

“It should not impact too much Pfizer’s business in China and I am sure the imports will be resumed once the procedure is complete,” said Simon Li, Shanghai-based general manager at Kantar Health China.

China has been cracking down this year on the healthcare sector, with investigations ranging from allegations of corporate bribery to how drugs are priced, as well as drives to increase quality and safety levels across the sector.

Diflucan, which treats fungal infections linked to AIDS, had worldwide sales of $259 million in 2012, according to Pfizer’s latest annual financial statement, a small fraction of the firm’s $59 billion revenue that year. Pfizer has more than 9,000 employees in China and operates in more than 250 Chinese cities.

(Reporting by Adam Jourdan; Editing by Matt Driskill)

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Deutsche Telekom’s new CEO faces twin tests

FRANKFURT (Reuters) – When Deutsche Telekom’s new Chief Executive Tim Hoettges takes office on Wednesday, a revival of mergers and acquisitions in the sector and a dramatically changing competitive landscape in Germany will pose his biggest challenges.

Having negotiated key deals in the United States and Britain during his four-year tenure as finance chief and having previously turned around the German fixed-line business while under fire from cable rivals, the 51-year-old is no stranger to the territory.

Hoettges will draw on such experience to decide how Deutsche Telekom, Europe’s third-largest telco by sales, should navigate consolidation on both sides of the Atlantic and take on a rejuvenated Vodafone in Germany.

Born in Solingen, a city in the prosperous eastern state of North Rhine-Westphalia, Hoettges is said to be straightforward, traditional and intense, unlike his long-time friend and outgoing CEO Rene Obermann, who is known for his easy charm.

“Hoettges is not known for schmoozing corporate colleagues or politicians,” said another banker who worked for him.

“He handles such relations in a cool and businesslike way. He is not the kind of person who is buddies with politicians and the rich and beautiful of the world.”

Hoettges treads a more adversarial path.

“Unlike some CEOs, he wants to be contradicted,” said another banker who has worked with him. “He wants an intense discussion and will challenge you, too. He’s also like that in negotiations: clear goals, minimal compromises.”

While he immerses himself in the details, he never forgets the broad strategic lines, the banker added.

The piano-playing running enthusiast also has a less severe side than his angular physique and bald pate might suggest, say those who know him. Some recall the riverboat party to celebrate his 50th birthday, when Hoettges donned a wig and moustache to give guests a glimpse of what he looked like in his youth.

He and Obermann became close friends over the past decade as they climbed the ranks of Deutsche Telekom together, even becoming neighbors after building houses on adjacent plots.


Bankers and analysts do not expect Hoettges to suddenly alter the strategy set by Obermann in recent years, which consisted of cleaning up overseas businesses including the money-losing T-Mobile US, while defending its leadership in Germany by investing heavily in the network.

Nevertheless, as telecoms acquisitions gather pace, Hoettges could soon be playing a very different hand to his predecessors’.

In Europe, U.S. telco ATT has been scouting for acquisitions, and if it bids for Vodafone as some analysts and bankers say it could, Deutsche Telekom and other European groups would be forced to react against a formidable new player.

In the United States, third-placed mobile operator Sprint, which is backed by Japan’s Softbank, has been studying a bid for Deutsche Telekom’s T-Mobile US to bulk up.

That T-Mobile US is even of interest to Sprint and has been poaching customers from larger rivals in recent quarters can in part be credited to Hoettges, who was instrumental in negotiating deals and a turnaround for the unit.

It all began when ATT’s $39 billion bid for T-Mobile in 2011 fell apart because of regulatory opposition. Fortunately, Hoettges and others had insisted on a big break-up fee if the deal with ATT fell through, which included cash and mobile spectrum worth $6 billion.

The package, especially the spectrum, turned out to be particularly useful to T-Mobile, enabling its launch of superfast mobile broadband services known as 4G. “Tim knew the technology that the team was negotiating for,” said a banker.

The banker said T-Mobile was now well positioned in the United States in the event of further consolidation.

“Hoettges created a cookie jar in the U.S. which will provide cash in case of a disposal or a bargaining chip, however the consolidation trend goes,” the banker said.


Gervais Pellissier, chief financial officer at Orange, dealt head to head with Hoettges in negotiations to merge their British mobile businesses in 2010.

“He is tough in negotiations but always tries to understand where the other person is coming from,” said Pellissier.

During a testy meeting over whether to kill the Orange and T-Mobile brands in Britain, Hoettges sensed that the two sides were at an impasse and suggested everyone take a break for a beer. “I think he knew everything was about to descend into a fight, so he cut it off. He called me a few hours later and we were able to make progress,” said Pellissier.

The future of that venture, now called EE, will be among the strategic decisions Hottges has to take. The owners have said they will consider floating a minority stake in the operator, Britain’s largest, valued at about 10 billion euros, though they have pushed back the final decision as EE won 4G customers in recent quarters.

Hoettges will also have to keep a close eye on the German market, which generates about half of group operating profit.

Vodafone, which disputes the top mobile spot with Deutsche Telekom, has bought Kabel Deutschland to boost its broadband offering, while third and fourth-placed mobile groups Telefonica Deutschland and KPN’s E-Plus are seeking to merge. Both deals could force operators to adopt new commercial strategies to win customers, and mobile prices have already come down in recent quarters.

Hoettges has shown he can play hard ball. As head of the German fixed business in 2007 he held out during a month-long strike over a plan to outsource some workers.

Backing down is not something he takes lightly.

One union official said Hoettges reluctantly agreed a deal to raise German wages in 2009 but was never entirely reconciled to the defeat.

“It still irritates him even today. He is very persistent.”

(Additional reporting by Arno Schuetze and Peter Maushagen; Editing by Will Waterman)

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Netflix hikes CEO salary by 50 percent for 2014

(Reuters) – Netflix Inc raised the salary of its Chief Executive Reed Hastings by 50 percent to $6 million for 2014, a regulatory filing showed, as its stock quadrupled in value this year amidst new programming and a growth in subscriber base.

Hastings will receive $3 million each in cash and stock options for the year, according to the filing with the U.S. Securities and Exchange Commission made late on Monday.

Other top executives including Chief Financial Officer David Wells and Chief Content Officer Ted Sarandos will also get a pay hike in 2014, it said.

The Internet movie and TV show streaming service has been trying to lure subscribers with original programming.

Its success with a series of programs such as political satire “House of Cards” and dark prison comedy “Orange is the New Black” helped its U.S. customer base rise to 31.1 million streaming subscribers last quarter.

In November, Netflix added four new television series and one miniseries from Disney’s Marvel unit, and in December it secured the rights to make new episodes of a spinoff of the “Breaking Bad” television series, available within days to customers in Latin America and Europe, starting in 2014.

Shares of Netflix have risen nearly 300 percent so far this year. The stock closed down 51 cents at $366.99 Monday on the Nasdaq.

(Reporting by Sakthi Prasad in Bangalore; Editing by Gopakumar Warrier)

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Wall St. closes mostly flat, but Dow hits record

NEW YORK (Reuters) – Stocks closed mostly flat on Monday, with the Dow edging up to another record closing high and the SP 500 index’s advance stalling in response to light trading volume and weaker-than-forecast housing data.

The benchmark SP 500 .SPX had climbed 3.7 percent over the previous two weeks, the index’s best fortnight since July. The gains came after mounting signs that the economy was gaining strength, leading the Federal Reserve to announce that it will scale back its stimulus.

The SP 500 has soared 29.1 percent this year and is on track for its best year since 1997, powered largely by the central bank’s stimulus measures. The Dow .DJI has jumped 25.9 percent and the Nasdaq .IXIC has surged 37.6 percent this year.

Volume continued to be light during the holiday season, with about 4 billion shares traded on U.S. exchanges, below the 6 billion average so far this month, according to data from BATS Global Markets. The U.S. stock market will be closed on Wednesday for New Year’s Day.

“It’s hard to imagine anyone would jeopardize their gains with this little time left on the clock,” said Brian Battle, director of trading at Performance Trust Capital Partners in Chicago.

Trading was in an unusually narrow range on Monday, with the SP 500 moving only 3.7 points between its high and low over the session, marking its tightest trading range since December 2010. The Dow, meanwhile, moved just 27.5 points, marking its narrowest trading range since February 2007.

The National Association of Realtors said its pending home sales index, based on contracts signed last month, rose 0.2 percent in November, below expectations of a 1 percent rise.

The Dow Jones industrial average .DJI rose 25.88 points, or 0.16 percent, to end at 16,504.29, a record close. The Standard Poor’s 500 Index .SPX dipped just 0.33 of a point, or 0.02 percent, to finish at 1,841.07. The Nasdaq Composite Index .IXIC declined 2.40 points, or 0.06 percent, to close at 4,154.20.

About 47 percent of stocks traded on the New York Stock Exchange closed higher on the day, while 45 percent of Nasdaq-listed shares ended in positive territory.

“I wish I had extended my vacation, is the only thing going through my head because volume is just anemic,” said Sam Ginzburg, head of trading at First New York Securities in New York. He added that the thin holiday volume could inject “a little bit of added volatility in the tape.”

Twitter Inc (TWTR.N), among the most actively traded stocks on the New York Stock Exchange, continued its dive on Monday, falling 5.1 percent to close at $60.51. Monday’s drop followed a 13 percent slide on Friday from its all-time closing high of $73.31 on Thursday.

Social networking company Facebook Inc. (FB.O), meanwhile, was the SP 500’s second-worst performer. The stock fell 3.12 percent to close at $53.71.

Walt Disney Co (DIS.N) gained 2.5 percent to $76.23 and ranked as the best performer in both the Dow and the SP 500 after Guggenheim raised its rating on the media conglomerate’s stock to “buy” from “neutral” and raised its target price to $87.

Cooper Tire Rubber Co (CTB.N) rose 5.4 percent to $24.20 – recovering from earlier losses – after the company said it was not going ahead with a $2.5 billion merger with India’s Apollo Tyres Ltd (APLO.NS).

Shares of Crocs Inc (CROX.O) shot up 21.1 percent to close at $16.14 following news that private equity firm Blackstone Group LP (BX.N) was investing $200 million in a 13 percent stake in the shoemaker.

Trina Solar Ltd (TSL.N) climbed 6.5 percent to $14.01 after the company signed an agreement to develop a solar power plant in China.

(Additional reporting by Curtis Skinner and Chuck Mikolajczak; Editing by Bernadette Baum, Kenneth Barry and Jan Paschal)

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Boeing tells state leaders 777X wing plant is at risk

OLYMPIA, Washington (Reuters) – Boeing Co (BA.N) will not build the wing for its new 777X jetliner in Washington state if members of its largest union reject its latest contract offer in a Friday vote, company executives told Seattle-area elected officials on Monday.

But the company did not rule out locating final assembly of the plane or construction of its fuselage in the Puget Sound area if members of the 31,000-strong International Association of Machinists and Aerospace Workers District Lodge 751 turn down the proposal, three officials at the meeting said.

“They made it very clear that if there is a ‘no’ vote on the contract, they will not build the composite wing here,” said Suzette Cooke, mayor of Kent, Washington. “It left the other parts of the plane in question.”

The location of the final assembly and wing fabrication is in question because union members rejected Boeing’s contract offer, prompting Boeing to look for other locations around the country, and prompting 22 bids from rival states.

The new 777X jet program, an updated version of Boeing’s best-selling wide-body plane, represents a good slice of Washington state’s aerospace future. Combined, the assembly line and wing factory would be worth thousands of jobs and billions of dollars to the region that lands them.

Japan has bid for the wing work, too, building on its experience making composite wings for Boeing’s advanced 787 jet. Officials in Washington are concerned that without the wing factory, the state would fall behind in composite technology and would lose out in the future.

Boeing spokesman Doug Alder declined to confirm what company officials said at the closed-door meeting, but said by email that Friday’s union contract vote will be the last chance for workers to weigh a Boeing offer before the airplane maker decides where to locate work on the new aircraft.

Snohomish County Executive John Lovick described the hour-long meeting with company officials, led by Boeing Commercial Airplanes Chief Executive Ray Conner, as “very positive” and said the company appeared genuine in its desire to build the 777X – the only jet it is likely to develop in the next 15 years – in Washington state.

“They weren’t threatening us, just giving us information,” Lovick said.

In November, machinist union members voted 2-to-1 against the company’s initial contract offer.

The eight-year contract extension would have kept 777X production in Washington state. But in exchange, management wanted to replace the workers’ pension plan with a 401(k)-style retirement savings account and raise their healthcare costs.

Boeing later made a revised offer that included a larger signing bonus and other concessions, and asked union leaders to endorse it. But the local union leaders refused to endorse it or put it up for a vote, saying the changes were insignificant.

National machinist union leaders, who have been more open than local union officials to making concessions in exchange for an extended contract, subsequently announced that the proposal would be put to a vote.

Construction of the 777X wing is particularly important because the technology in making it likely will be used in future Boeing aircraft. Boeing has proposed building a 1.2 million square-foot factory to house production of the 777X wing.

“The composite wing is the wave of the future,” said Renton Mayor Denis Law. “It is one of the ways that aerospace can grow in this state.”

Cooke said she was optimistic that union members would pass Boeing’s eight-year contract extension proposal.

“It is such a sweet deal,” she said, noting that under the proposal Boeing machinists would enjoy better pay and benefits than most other American manufacturing workers.

(Reporting by Jonathan Kaminsky; Editing by Alwyn Scott and Bill Trott)

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Fed’s Fisher says his FOMC vote will reflect concerns on bond buying

WASHINGTON (Reuters) – Dallas Federal Reserve Bank President Richard Fisher said his votes on the central bank’s policy panel in 2014 will reflect his concern that the Fed’s bond-buying risks stoking inflation and exposing the institution politically.

In an interview conducted on December 2 but posted to the Internet as a podcast on Monday, Fisher called the excess reserves piling up in the U.S. banking system potential “tinder” for inflation, and he said the central bank’s plans to eventually unwind its extraordinary policies relied on an untested “theoretical exit strategy.”

“I expect that my own voting behavior will reflect this concern I’ve just stated,” Fisher said in the interview hosted by the private educational foundation Liberty Fund. “I worry about the fact that we’ve already painted ourselves into a corner that’s going to be very hard to get out of.”

Fisher, who rotates into a voting spot on the Fed’s policymaking Federal Open Market Committee next month, expressed concern that as interest rates rise the Fed could begin to face paper losses on its massive portfolio.

“Will Congress remember that we made three years of substantial profits if interest rates go up … and the market value of our portfolio declines?” Fisher asked. “My suspicion is that they would turn on us once again,” he added, referring to the political attacks on the Fed in the wake of its efforts to help banks threatened by the 2007-2009 financial crisis.

The Fed has held overnight interest rates near zero since December 2008 and has roughly quadrupled its balance sheet to about $4 trillion through three massive bond purchase programs.

On December 18, the central bank said it would trim its bond purchases to $75 billion in January from a previous $85 billion per month pace as a first step toward winding the program down. Officials will need to decide whether to trim the buying pace further at their next meeting on January 28-29.

Fisher has long been among the internal critics of the program.

(Reporting by Timothy Ahmann; Editing by Cynthia Osterman)

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