China hopes for better luck in Year of the Dragon

Today’s top stories

• Russian officials have refused to tell Alexei Navalny’s family the probable cause of his death or the whereabouts of his body, which the late opposition activist’s team claims is a Kremlin-orchestrated cover-up.

• Yemen’s Houthis hit a bulk carrier in one of their most damaging attacks yet in the Red Sea area, forcing the crew to abandon ship. The Rubymar was carrying cargo from the United Arab Emirates to Bulgaria.

• Ursula von der Leyen began her campaign for a second five-year term as European Commission president, focusing on increased defence spending, improved business competitiveness and green policies.

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Good evening.

Chinese premier Li Qiang urged officials today to work on “boosting confidence” in the first meeting of the country’s cabinet after the lunar new year holidays, as new data highlighted a striking drop-off in foreign direct investment and tensions with the US continued to dog the outlook for China’s trade balance.

The FDI data underlined foreign companies’ nervousness in putting money into China amid slowing growth and higher interest rates on offer in other countries.

Policymakers will however be pleased that consumer spending and travel during the holiday period, an important barometer of consumer confidence, seem to have given a kick-start to the Year of the Dragon (said to be the luckiest Zodiac animal). Domestic trips were up 34 per cent on the previous year and 19 per cent on pre-pandemic travel in 2019. Tourists spent Rmb633bn ($89bn) during the period, up 47 per cent from a year earlier and 8 per cent on 2019. 

With Chinese shoppers making up more than a third of the world’s luxury goods consumption before the pandemic, the holiday period is also an important time for Europe’s high-end groups, as the Lex column (for Premium subscribers) explains. With visits to Europe by large groups of free-spending Chinese tourists yet to resume, the industry is making a special effort to target the country’s domestic market, as seen in elaborate marketing campaigns from the likes of Kering, owner of Gucci.

The role of domestic demand in getting a moribund economy back on track is all the more important given the geopolitical tensions affecting China’s foreign trade, including new accusations from the FBI that Beijing has been trying to hack critical US infrastructure.

As we report today, Washington has also warned Beijing that the US and its allies will take action if China tries to ease its industrial overcapacity by dumping cheap goods on international markets. The US is most concerned about advanced manufacturing and clean energy sectors such as electric vehicles, solar panels and lithium-ion batteries. 

Brussels and Washington are increasingly concerned about excessive EV manufacturing capacity in China, where a “bloody sea” of competition is expected to lead to a wave of consolidation that will leave only a handful of companies in the world’s largest car market. The impact of China’s EV push was also seen in today’s announcement of 10,000 job cuts from French car parts supplier Forvia, citing Chinese competition.

In the meantime, Chinese EV companies appear confident that their lower costs and technological leadership will continue to help secure western partners, despite the tense political backdrop. Working with Chinese EV companies means foreign companies can develop cars much faster while reducing costs by as much as half.

Need to know: UK and Europe economy

Sir Robert Chote, the chair of the UK Statistics Authority, admonished ministers for making potentially misleading claims about the level of personal taxation in Britain.

Angela Rayner, deputy leader of the UK Labour party, writing in the FT, promised a new relationship with business that would move the country away from its low-productivity, low-security and low-wage doom loop.

FT architecture critic Edwin Heathcote says a government proposal to make it easier to convert shops and department stores to residential use is a terrible idea. Instead, with their industrial-scale loading docks and back-of-house facilities, vacant stores lend themselves to anything from immersive theatre and food halls to workshops, he argues.

The Bundesbank warned that the German economy would shrink again in the first quarter, blaming policy uncertainty, transport strikes, cautious consumers and weak industrial demand. As conditions at home and in China, their largest trading partner, worsen, German companies are flocking to invest in the US.

France is also struggling: the government said it would cut another €10bn out of this year’s budget as weaker economic growth makes its earlier fiscal plans untenable. The economy is expected to expand only 1 per cent this year, according to revised forecasts.

Competition authorities in the UK, EU and Switzerland are stepping up their scrutiny of consumer companies as inflation increases the risk of suspicious behaviour such as collusion on prices, labour practices and consumer rights.

Need to know: global economy

Israel’s economy has taken a big hit from the war against Hamas, partly due to businesses struggling as 300,000 reservists were called up to fight in Gaza. Gross domestic product fell 19.4 per cent in the final quarter of 2023 compared with the preceding three months. 

A new energy “gold rush” is beginning for a previously neglected carbon-free resource: hydrogen generated naturally within Earth. As much as 5tn tonnes exists in underground reservoirs worldwide and recovering just a small fraction of this would still supply all projected demand — 500mn tonnes a year — for hundreds of years.

US natural gas prices hit a near-three-decade low as what is set to be the country’s warmest winter on record slashes demand for heating fuel just as production surges to record levels. 

Our new US Election Countdown newsletter launches tomorrow with authoritative, impartial analysis and behind the scenes insights from FT journalists across the campaign trail. Sign up here.

Need to know: business

The FT revealed that Brussels was to impose its first ever fine on tech giant Apple for allegedly breaking EU law over access to its music streaming services. The fine, about €500mn, is the culmination of an antitrust probe into whether Apple has used its own platform to favour its services over those of competitors. Start-ups are worried about the EU’s Big Tech crackdown.

On a more positive note, the world’s biggest tech companies have agreed to fight “deceptive” artificial intelligence-generated content such as “deepfakes” from interfering with the elections taking place across the globe this year.

IT businesses in Kharkiv, the Ukrainian industrial powerhouse turned tech centre, have shown remarkable resilience despite being the target of rockets launched from Russia across the border just 20 miles away.

Russian state-run energy giant Gazprom is struggling to adapt to a collapse in sales in Europe caused by the Ukraine conflict. Russia’s share of EU gas imports dropped from more than 40 per cent in 2021 to 8 per cent last year, while prices have collapsed from their peaks in the early days of the war.

A sweeping shake-up of the rules underpinning US financial markets is under way but Wall Street is kicking back. A new Big Read explains.

English private schools are on the hunt for more overseas students as they prepare for the prospect of a new tax on fees should Labour win the general election.

The World of Work

FT readers have been sharing their pay details with us. Even well-paid professionals say they are feeling the pinch as less generous pay and bonus packages are eaten away by bigger mortgage repayments, higher taxes and rising living expenses.

One way to miss out on higher pay is to work from home, writes columnist Pilita Clark, who says lower wage growth and higher productivity might be why bosses like remote working more than we think.

Transparency on pay meanwhile seems like a straightforward objective but the process can have unintended consequences, writes Soumaya Keynes.

Some good news

Artificial intelligence is enabling researchers to read ancient works from the library at Herculaneum, almost 2,000 years after the papyrus rolls they were on were carbonised during the eruption of Mount Vesuvius.

Source: Economy - ft.com