EU & China On The Brink, How China Got F-35 Parts, Spain's Richest Woman

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0:10 This is the Bloomberg Daybreak Europe podcast. Good morning. It's Thursday, the 8th of October. I'm Caroline Hepkett in London. Coming up today, the EU raises the stakes with China ahead of crucial talks as they stand on the brink of a full-blown trade war. You've got fail. Bloomberg uncovers that China was able to get hold of potentially sensitive F-35 parts because a UPS worker missed an email. plus the billionaire next door inside the soaring fortune and modest lifestyle of Spain's richest woman. Let's start with a roundup of our top stories. Europe is stepping up pressure on China as both sides try to prevent their trade dispute becoming a trade war. EU Trade Chief Maros Shevkovich is in Beijing today for talks with China's Commerce Minister. The bloc

1:01 is currently preparing measures to limit imports of Chinese hybrid vehicles, but that risks retaliation from Beijing, including tighter controls on rare earths. Now, the tension comes as the head of the World Trade Organization has told Bloomberg that global commerce faces its biggest test since the 1940s.

1:21 This is an unprecedented time for global trade because we are seeing disruptions to trade and emerging fragmentation in a way we've not seen since really 80 years. Global trade is under tremendous stress and that is because many members of the WTO are beginning to feel that the rules no longer work for them the same way that they used to work in the past.

1:49 Ngozi Okonjo-Iweala was speaking there to Bloomberg's Leaders with LACWA podcast as the EU looks to narrow a trade deficit with China that Bloomberg Economics says now tops 1 billion euros a day. Its analysis estimates Chinese competition cost the EU about 0.7% of GDP last year. America's top diplomat has warned Europe that it risks decline unless it rebuilds its economic and military power. Speaking in Athens, Marco Rubio said that the next decade could determine whether the West remains at the head of the world.

2:27 We believe that Europe can awaken from its long slumber and rekindle the fire that was lit here millennia ago. There are already signs. Across this continent, we are witnessing what we hope will be the beginning of a generational shift, skyrocketing defense spending, a flurry of new partnerships and programs, expanded manufacturing and production.

2:50 US Secretary of State Marco Rubio, who added that he believes the US had chosen the unapologetic pursuit of national power, including rebuilding defence, industry and critical supply chains. Now, the warning came during a four-day trip to Greece, Iceland and Portugal by Rubio, focused on defence and security with NATO allies.

3:11 It was quite an extraordinary speech, though, of course, Marco Rubio standing in front of the Parthenon. Now, China obtained F-35 fighter jet parts after a UPS employee missed a warning not to route them through Hong Kong. Bloomberg has learned that the sensitive technology was meant to travel via South Korea and Taiwan, but was rerouted to speed delivery, Bloomberg's Freddie Fulston reports.

3:37 We've all missed an email at some point, but few of us can say it resulted in China getting parts from the world's most advanced warplane. The shipment included components coated with radar-absorbing material, something China has not yet produced on its own. Pentagon officials outlined the previously unreported details in a lengthy meeting with staff from two House committees.

4:03 While UPS declined to comment, Bloomberg's reporting sheds new light on embarrassing errors that may have given China access to some of America's most advanced technology. In London, Freddie Fullston, Bloomberg Radio.

4:19 Oil is climbing this morning after a report that President Trump might order new strikes against Iran. The Atlantic says that the White House is debating its offensive options before the midterms. Bloomberg's John Herskovitz says that that comes as an oil tanker was struck off the coast of Qatar for the first time in weeks.

4:39 It shows the threat to shipping as we've seen an increase in oil getting out of the Strait of Hormuz. By going deep in there, it shows that ships in various parts of this waterway are at risk, renews worries about what may happen next. So it's a renewal of the threats that we've seen before and just raises new worries about shipping and oil supplies.

5:06 That was Bloomberg's John Herskovich, who added that the Atlantic story has also helped to push prices higher. Brent crude is currently trading at $ 102. 42 the barrel. Samsung has reported a nearly ninefold profit increase, but still fell short of forecasts. The world's largest chipmaker posted a record preliminary operating profit of over $ 80 billion for the third quarter. Bloomberg's Anthony Stephen says the results were in line with industry peers.

5:35 The reaction has since faded as the numbers miss very elevated estimates. And that's something that we've been seeing across the tech space in the US and in Taiwan. And you're seeing the shares trade around the lows of the day.

5:47 Our markets reporter Anthony Stevens speaking earlier this morning. Now, the news comes as technology providers rush to secure supplies of memory needed to power AI services, prompting elevated spending, of course. Here in the UK, British politics is turning away from technocrats to an ideological battleground. The two largest political parties, Labour and Conservatives, are returning to the old divide between tax cuts and a bigger state. During this party conference season, leader Kemi Badenoch told her party faithful, we are going back to the authentic Conservative Party.

6:22 Conference, we have a fight on our hands and we need to be ready. No one else is going to solve these problems. No one else is going to deliver a stronger economy and a stronger country.

6:36 The economy was the primary focus of both Badenoch's conference speech yesterday and also Prime Minister Andy Burnham's the week before. But the political landscape has changed. Labour and the Conservatives now command less than half of the vote between them, according to the latest polls, as smaller parties gain support.

6:55 President Donald Trump is seeking approval to turn his Florida golf course into an official retreat. The residence would be used to host leaders and summits under the proposals. Bloomberg's Hira Adebayo has more.

7:08 Donald Trump is seeking permission to turn his private Florida property into a designated presidential retreat in the style of Maryland's Camp David. That's according to a September letter seen by Bloomberg from a lawyer representing the president written to the Palm Beach County Commission outlining the plans. Trump says the military and Secret Service asked him to turn the facility into a space for high-level meetings, which a White House official has confirmed. At the golf site, the Trump family operates a club that would potentially benefit if the course becomes a major presidential hub. In London, Tiwa Adebayo, Bloomberg Radio.

7:47 Those are our top stories for you this morning. Looking at the markets, the record-breaking run that we've seen in stocks seems to be hitting a Global All-Country World Index is down by two-tenths of 1% this morning. And you've got a sell-off in Asia, MSCI Asia-Pacific Index down nine-tenths of 1%. You also have oil prices up significantly, $ 102. 48 for break-through, up 2.3% this morning. And also, obviously, the pressure from rising yields, treasury yields continuing to rise this morning, 5.3% for 10-year U.S. treasuries up by two basis points this morning.

8:22 That's a look at where we are in the markets. Now, in a moment, we are going to be talking about the EU trade discussion. So, you've got the EU trade chief, Mara Sefcovic, in Beijing and a really spikier trade rift, plus the next generation of Zara owners. This in a special Bloomberg report. But before that... The results are in.

8:46 Barn owls, a puffin, bumblebees, hedgehogs, they're all going to appear on the new Bank of England notes. Cash here in the UK. Almost half a million people responded to a public consultation. We did talk about it when it first came up. So I wanted to give you the results. The animals replace historical figures, including Churchill. The polymer notes harder to forge, says the banks. Earlier this year, though, it was obviously quite controversial that you were replacing icons like Jane Austen on the bank notes with cuddly animals, or at least reform UK's leader thought that. Nigel Farage called the change the definition of woke. The Wildlife Trust, though, saying today that this comes at a pivotal time. for

9:30 the UK because we're off track, apparently, for meeting the target of halving or reversing nature loss by 2030. So, putting cute animals that we love on the banknotes, perhaps it's more appropriate this time of the year that we have a moth or a house spider on them, or even, heavens forbid, a fox. But no, you've got a puffin and other things instead. Look out for those. They're not coming anytime particularly soon, but the bank is going to be working on it apparently. I'll put a link to the piece that we've written about Britain's bank notes in our podcast show notes. Now, the EU is preparing tougher measures against China as it grapples with a soaring trade deficit.

10:10 But will it impose restrictions that could see Chinese retaliation? Meanwhile, that missed email may be at the root of Beijing getting its hands on potentially sensitive US F-35 parts. Joining us is Rebecca Chung Wilkins, who covers government affairs in Asia. Rebecca, good to speak to you. Look on the EU-China trade discussions.

10:31 Does China think that the EU is going to use tougher measures, either on hybrid vehicles or this bigger trade bazooka, the anti-coercion instrument? I think that's the really critical question.

10:45 And I think Beijing does understand that the European Union is facing pressure from within the bloc to strike this more assertive approach to try and take a more robust approach to rebalancing trade and fix trade. or at least go some way to try and repair some parts of that really hefty trade deficit going on. But I think that many in Beijing will, of course, have been eyeballing all of these measures for some time. The bigger question is not really whether or not the European Union has the tools to hit back, but whether it's actually prepared to use them. I think this sort of reporting around hybrid cars certainly suggests that perhaps that is in the offing.

11:27 And that sort of safeguarding approach, essentially limiting the amount of hybrid cars that China could import into the European Union, that actually could perhaps be used as a playbook in other industries. But as you say, the EU already has this pretty set of anti-coercion tools, which give it quite a lot of room to really push back in a much, much, much more aggressive way than it has. But on the other hand, China has continuously seen the EU also being very cautious about wading into or triggering some kind of much more escalatory, retaliatory cycle from China. And so it has always, as much as it has sort of lent into or used much stronger language, it has always lent back from really rolling out and enforcing some of the

12:15 mechanisms that it has at its disposal.

12:18 Yeah, whether it's more than rhetoric. I mean, it does seem potentially a major change by the EU. The question is, China has this rare earth leverage and it has used it already.

12:30 Yeah, I think that's absolutely right. And I think to some extent, there's a practical understanding on the Beijing side that some of these tools and some of the sort of discussion around these tools, this is just part of the kind of to and fro that often comes ahead of these negotiations before lead negotiators will actually sit down and try and thrash out some of this. I think the dominance that China has over its rare earths has given it a lot more confidence going into negotiations.

12:57 These discussions.

12:58 And just think back to last year, a couple of years ago, Beijing itself was not doing something too dissimilar from what the European Union was doing. It was expanding its toolkit to try and push back against US attempts to increase tariffs, essentially to launch a trade war. And it has very effectively used this card of rare earths to push back and essentially create the sort of detente, or however you might like to phrase it, that is currently underway with the U.S. And so, I think as much as Beijing does really need the European Union as a market to export, not just autos, but a whole range of goods, particularly because that sluggishness that we've seen in the Chinese economy, The other hand, like the sort

13:42 of rare earth card has, I think, given the Chinese side much more confidence going into these discussions.

13:49 Yeah.

13:50 OK, so that's on the EU and China. But I wanted to ask you, Rebecca, also about China. the F-35 stealth fighter jet issue, the Bloomberg reporting, I mean, absolutely fascinating reporting that China, Beijing may have got its hands on these parts because of a missed email.

14:11 Yeah, this is sort of almost agonizing to read and imagine one possibly ever doing this. But essentially, yes, the reporting is that a UPS employee who were part of the shipment from Australia, eventually intended to go to the US, missed this email specifically around the guidance and the rules. So, there are rules there. that prevent U.S. sort of sensitive goods getting into the hands of U.S.

14:41 Adversaries.

14:42 And one of those locations is Hong Kong. And reportedly, there was an email that was sent out reminding the freight forwarder that these were sensitive parts and that they should certainly not be going through Hong Kong. In fact, they were both intended to be going via South Korea and Taiwan. So, these are sort of two U.S. defense partners.

15:03 But because there was some tardiness that the parcels had been sent out late, there was a desire to then speed up the transit. Somehow the email was missed and somehow then this ended up in Hong Kong where it was then kind of seized by officials there.

15:23 Yeah, and Bloomberg reporting on that. Thank you so much, Rebecca, for being with us and talking through those issues, the big issues with China. Rebecca Chung-Wilkins, who covers government affairs in Asia, the EU's trade chief, Marius Sefcovic, in Beijing for two days of talks with Chinese Commerce Minister Wang Wentao.

15:42 Stay with us. More from Bloomberg Daybreak Europe coming up after this. Succession. It's often a huge question for family-owned businesses. But in the case of Inditex, Amanthia Ortega's children and descendants from his two marriages have had almost no relationship for decades. Clara Hernan Felizarraga is Bloomberg's companies reporter in Madrid and has the story. Clara, we're talking about Spain's richest woman, Sandra Ortega. This is Amanthia Ortega's daughter by his first wife. who is intensely private, as you say.

16:19 Her wealth is expected to grow. What do we know about her? What have you discovered?

16:24 Good morning, Caroline. So Sandra Ortega is Spain's richest woman, but most people have never heard of her. She's the daughter of Amancio Ortega and Rosalia Mera, the couple behind Zara's origins. And she inherited her mother's stake after she died over 10 years ago. That made Sandra the company's second largest shareholder after her father with a stake that's currently worth about 8.5 billion euros. And what's striking is how little public role she has. So after her parents' separation, her mother stepped down from the family business and Sandra has also never held a role at the company. And instead, her life revolves around Galicia, the northwestern region where she lives, and a foundation her mother created that's dedicated to education

17:15 and social inclusion. So the story is really about a major shareholder and investor who has an enormous economic weight, but has chosen to remain almost just entirely outside the public realm and outside of the company. And so I guess the question that's raised is what happens once her father is no longer with us?

17:40 Yeah, indeed. The thing is, Amanthi Ortega apparently does have a shareholders pact and a family governance structure already in place. You know, I talked about succession. So why is there a sort of any concern there?

17:55 Yeah, we don't have any details on the pact, whether it exists or it's, you know, what it says. But the enigma, I guess, is what happens in a company where family ownership matters so much. So her father owns 60% of Inditex. She owns 5%. Whatever happens with the inheritance, she's entitled to about 8.3% of the value of her father's assets. So... because the local law in Galicia says that the descendants are entitled to a part of the estate, but the value of the estate, not necessarily the assets themselves.

18:36 So she won't necessarily receive more shares, but she does already own some of the companies through her mother. So unless she sells her stake, she will remain a major shareholder of the company. But because she's very private and has been removed from the from the company. Investors don't know what role she could play in the family ownership going forward. Yeah.

19:01 Okay.

19:02 So, lots of questions then. What do we know though? Because there are some hints and you've been writing about this about Sandra Ortega because she has a family office and a philanthropy that she's involved in. So, that gives us some very small clues as to what perhaps she might do in future.

19:18 Yeah. Yes, so if you look at her family office, it has about 11 billion euros in assets. That includes the endotech stake. It includes some smaller investments, private equity, a range of funds, and also properties. So this is similar to her father's, things like luxury hotels all around the world. But then the other side of her is her activities mostly revolve around her foundation, which has a budget of a little over 3 million euros. And that seems to be like her main interest, the philanthropy side of things.

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