Good evening
China today cut a key interest rate as new data confirmed the slowdown in the world’s second-biggest economy.
The People’s Bank of China unexpectedly reduced the medium-term lending rate — through which it provides one-year loans to the banking system — by 10 basis points to 2.75 per cent, the first reduction since January and highlighting anxiety in Beijing over shrinking consumer demand.
The country’s economy barely escaped contraction in the second quarter, according to new data released after the central bank decision, as consumer and factory activity faltered in the face of repeated pandemic lockdowns.
Retail sales and industrial production rose but by much less than expected, while youth unemployment hit a record 19.9 per cent. Growth in the second half of the year is likely to be further hindered by Beijing’s zero-Covid strategy and a slowdown in exports.
Chinese stocks fell on the disappointing data, setting them on a different path from rising equity markets in other major economies such as in the US and denting confidence in investors’ global outlook.
Several Chinese cities are experiencing new or extended lockdowns and in Shanghai authorities are testing drones to ensure residents scan their health codes on a compulsory smartphone app — dubbed “digital handcuffs” for their use in social control — when entering a building.
Falling consumer confidence has been highlighted by weakening sales of high-end goods, such as the market for second-hand luxury watches and bags. Rising geopolitical tensions are also worsening the outlook for industries such as semiconductor manufacturing, while demand for chips used in smartphones and consumer electronics has slumped.
Chinese investors, hit by market sell-offs and widespread defaults in the country’s stricken property market, have been seeking alternative assets such as jade, while cash-strapped consumers have started a new trend for soon-to-expire food.
Inflation, while lower than in other major economies, remains at its highest level in two years, according to data published last week.
Lockdowns and strict quarantine regulations however remain the main drivers of the new pessimism. To take just one recent example, Hong Kong’s international schools are struggling to hire teachers ahead of the new academic year.
“China is definitely in a very desperate situation,” said Xingdong Chen, an economist at BNP Paribas. “The problem now is no effective demand. If you don’t allow people to come out and consume . . . there is no demand.”
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Need to know: the economy
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Latest for the UK and Europe
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Global latest
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We apologise for a misspelling in the last issue of DT. Colombia is obviously spelt like this, rather than Columbia.
Need to know: business
Rising interest rates and increased building costs threaten to choke off recovery in Europe’s office market. In the UK, the switch to homeworking has seen off whole swaths of city centre restaurants, especially in London’s financial district.
Many of the UK’s 5.5mn small businesses, which employ three-fifths of the country’s workforce, could collapse without government intervention to help with surging energy costs on top of increasing wage bills and raw materials costs, supply chain problems and the fallout from Brexit. Talking of which, a new report highlights the damage from EU departure on the country’s labour market.
The sale of Britain’s largest semiconductor producer to a Chinese-controlled company has intensified the debate over how to protect the domestic chip industry, as our Big Read explains. Government intervention is also a hot topic in US politics, where conservative interest in rebuilding the country’s industrial base may finally be getting the upper hand over free-market fundamentalism.
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Energy update
A German energy official told the FT that the country needed to cut gas use by a fifth to avoid shortages this winter. He also warned that the longer-term cost of ending Germany’s dependence on Russia would be a “very high gas price” with big consequences for business.
State-controlled Saudi Aramco became the latest oil company to break quarterly profit records following the windfall gains caused by the war in Ukraine. Net income rose to $48.4bn, a 90 per cent year-on-year increase and the group’s highest earnings since listing in 2019.
US producers are still refusing to lift output even as they enjoy bumper profits. Oil prices are also the main topic in today’s News Briefing podcast.
Coal producers too are enjoying an extraordinary boom. Thungela, South Africa’s largest export of thermal coal, reported profits soaring more than 4,000 per cent in the first half of the year.
Mark Carney, former Bank of England chief and co-chair of the Glasgow Financial Alliance for Net Zero, said governments needed to seize the opportunity to switch to sustainable energy, supported by the firepower of the global financial sector.
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Some good news…
The start of the UK football season has highlighted the important community work carried out by many clubs and fan-led initiatives. One nice example comes from Partick Thistle supporters in Glasgow who have been successfully raising donations, match-funded by the club, to provide free season tickets for local causes and organisations.
Source: Economy - ft.com
