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China government orders farmers to increase soybean acreage

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One central Chinese province has ordered its farmers to more than double their soybean acreage, amid a trade dispute with the U.S. and Beijing’s push to reduce reliance on exports.

The agriculture department of Henan, which lies about 450 miles southwest of Beijing, said on its website Wednesday it will “actively guide” farmers to expand the soybean planting area by 500,000 mu (82,370 acres). The province had 300,000 mu dedicated to soybeans as of June 1, the provincial government said.

“China’s policy in 2017 had shifted toward encouraging soybean acreage [for 2018] instead of corn,” said Rich Nelson, director of research at Allendale, an agricultural market research and trading firm.

Henan province contributed 5 percent to Chinese soybean production in 2008-2010

Source: USDA

China is the world’s largest consumer of soybeans and the destination for well over half of U.S. soybeans. In April, Beijing threatened tariffs on U.S. soybeans and other products in retaliation against the Trump administration’s proposed duties on $50 billion worth of Chinese goods. The two countries are still in negotiations.

In the meantime, China’s agriculture ministry forecast in May that the country will cut its imports of soybeans in the 2018-2019 marketing year for the first time in 15 years.

Soybean acreage is set to increase 7.8 percent to roughly 21 million acres, the ministry said, according to a Reuters report.

That follows this year’s growth of 9.8 percent, the U.S. Department of Agriculture Foreign Agricultural Service said in an August 2017 report. The agency also noted that Heilongjiang, China’s largest soybean-producing province, increased its acreage for the crop by 15.8 percent to its largest since 2011.

Soybean futures fell 2 percent Thursday to their lowest since February, after overall export sales disappointed. Poor weather has also weighed on prices, Nelson said.

“Grain markets are still quite interested in the U.S. trade talks,” he said. But “no matter what type of trade disruptions are in place, the U.S. is going to supply 30 to 40 percent [of] soybean exports to the world.”



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Deere shares slide as higher costs leads to earnings miss

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A John Deere 8600 tractor is displayed on opening day of the World Ag Expo on February 10, 2015 in Tulare, Calif.

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A John Deere 8600 tractor is displayed on opening day of the World Ag Expo on February 10, 2015 in Tulare, Calif.

Shares of tractor company Deere fell about 4 percent in the premarket Friday after the company reported weaker-than-expected profit.

Deere posted adjusted earnings per share of $2.59 for its fiscal third quarter. Analysts at Reuters expected a profit of $2.75 per share.

CEO Samuel Allen said the company “continued to face cost pressures for raw materials and freight” during the quarter, “which are being addressed through a combination of cost management and pricing actions.” The cost of production as a percentage of net sales increased to 77 percent from 75.2 percent in the second quarter.

The rise in costs comes as the Trump administration engages key economic partners in a trade spat. The U.S. has already slapped tariffs on billions of dollars worth in imports from China, Europe and Mexico.

China, the European Union and Mexico have all retaliated with levies on U.S. goods.

Deere also reported better-than-expected revenue for the quarter, however. Sales totaled $9.286 billion versus an estimate of $9.211 billion. The company’s revenue got a boost from strong sales in its agricultural and turf business, which came in at $6.29 billion.

The company’s net income also rose 42 percent on a year-over-year basis to $910 million from $642 million, thanks in part to lower corporate taxes.

—Reuters contributed to this report.



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Chinese investors are picking other assets over stocks

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Stocks still rank low on the popularity list for Chinese investors, while private funds are playing a larger role in the country’s asset management market — which many predict will soon become the world’s second largest.

Mainland Chinese assets under management grew 22 percent last year to $4.2 trillion, outpacing growth of 13 percent in North American assets under management, Boston Consulting Group said in a July report. The North American market remains the largest at $37.4 trillion, but China has jumped to fourth place from eighth place in just five years, and BCG analysts said they expect Chinese assets under management to triple by 2025 to become the second-largest market.

The composition of investing in China looks quite different from that of the U.S. While equities account for a major portion of American portfolios, Chinese investors have preferred real estate to the volatile domestic stock market that is driven more by retail sentiment than long-term institutional holders. And as Chinese investors grow more sophisticated, local financial services are focused more on developing fixed income and private equity products.

On the mass market level, mobile-based money market funds dominate. The category accounts for 60 percent of investments in Chinese public funds, according to John Ott, Shanghai-based partner and lead in financial services practice at consulting firm Bain.

For example, the primary money market fund on Yu’e Bao, a mobile investment service run through Alibaba-affiliate Ant Financial, became the largest such fund in four years. It had more than 470 million users as of the end of 2017, according to Ant, and about 1.45 trillion yuan ($211 billion) in assets as of the end of June, public data showed.

“The next wave, we think, will be into fixed income,” Ott said. He predicted allocation to money market funds will fall to about 50 percent in the next five years, while the proportion of fixed income investment will rise to 20 percent from 15 percent.

Equities will likely see some inflows as well, but still remain low overall, Ott said.

China’s wealthiest also prefer other investments to stocks. A leading Chinese wealth manager for high net worth individuals, Noah Holdings, told CNBC that about 60 percent of assets under management are in alternative investments such as private equity and venture capital.

The heavy allocation to private investments makes sense in a country of many fast-growing young companies soon to go public or get acquired.

Last year, through its asset management arm Gopher, Noah said it invested in nearly half of 120 unlisted companies in greater China with valuations of more than $1 billion, according to a first quarter earnings presentation. Those so-called unicorns include Meituan Dianping — which combines features similar to Groupon, Yelp and Seamless and is expected to raise more than $4 billion in a Hong Kong IPO — and video streaming platform iQiyi, which held a $2.3 billion public offering in New York in March.

Chinese high net worth investors are also putting more money into real estate funds than houses, and hedge funds rather than individual stocks, according to Yue Zhang, senior vice president at CreditEase, another major Chinese wealth manager. More and more of those affluent investors are allocating assets overseas, she added.

At the high end of the market, total investable assets were expected to reach 188 trillion yuan in 2017, up from 165 trillion a year ago, according to the latest report available from Bain.

Western firms such as UBS and BlackRock have also been attracted to the growth opportunity, and a PwC survey of 126 global asset management CEOs found 40 percent of non-Chinese leaders are looking to China this year.

But the future development of the Chinese asset management industry still depends on government regulation. Beijing is trying to encourage more stable investment in the stock market, including from foreigners, and increasing supervision of financial firms overall.

“While private wealth is arguably growing faster there than anywhere else, and the government is taking steps to open up the asset management market, serious obstacles to doing business remain,” the PwC report said. “Indeed, several asset and wealth managers have been disappointed.”



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Google CEO Sundar Pichai on Project Dragonfly censored search in China

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Sundar Pichai, chief executive officer of Google Inc., speaks during the Google I/O Developers Conference in Mountain View, California, U.S., on Tuesday, May 8, 2018. 

David Paul Morris | Bloomberg | Getty Images

Sundar Pichai, chief executive officer of Google Inc., speaks during the Google I/O Developers Conference in Mountain View, California, U.S., on Tuesday, May 8, 2018. 

At an internal meeting on Thursday, Google CEO Sundar Pichai expressed interest in continuing to expand the company’s services in China, but told employees that the company was “not close” to launching a search product there and that whether it would — or could — “is all very unclear.”

Pichai’s remarks, shared with CNBC by a Google employee, come in the of wake of internal and external backlash following a report from The Intercept in early August that the company was secretly building a censored version of its search engine to launch in China. The effort, dubbed “Project Dragonfly” internally, reportedly included blocking search results for sensitive queries, like “peaceful protest,” or suppressing certain search results off of the first page.

Google initially withdrew its search service from China in 2010 due to increased concerns about censorship and cyber attacks, subsequently losing access to the enormous market of 772 million internet users there. Earlier on Thursday, hundreds of employees signed a letter saying that the reported plans raised “urgent moral and ethical issues” and calling for more transparency.

At the company meeting, Pichai said that Google has been “very open about our desire to do more in China,” and that the team “has been in an exploration stage for quite a while now” and “exploring many options.”

To launch a censored search app in China, Google would face both regulatory and technical hurdles.

The relationship between China and the United States is currently strained by trade conflicts, and a Chinese official told Reuters at the beginning of August that a censored search product did not yet have approval from local authorities.

Plus, Pichai admitted on Thursday that a potential Chinese search engine would be “very, very behind from a quality standpoint.” Before Google’s search shut down in China, it had less than 30 percent market share, while local giant Baidu had more 76 percent.

Despite not offering search since 2010, Google never actually left China completely, maintaining office space and employees, and releasing a translation and file organization app there in recent years.

“Stepping back, I genuinely do believe we have a positive impact when we engage around the world and I don’t see any reason why that would be different in China,” Pichai said.

Google co-founder Sergey Brin, who was vocal about Chinese censorship when Google departed in 2010, also spoke at the meeting, saying that any service that Google has launched or prototyped in China has had “a certain set of trade-offs.”

“There’s a handful of things we have been able to ship in China and that’s great,” he said. “You know, it’s slow going and complicated.”



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