Aurelia Butler

China is scrapping a string of infrastructure projects in indebted regions as it struggles to reconcile a need to save money with this year’s target for economic growth.Beijing has ordered a dozen highly indebted areas, many of them less-developed and far from the coast, to curb infrastructure spending as it tries to unwind a decade-long investment binge many believe is unsustainable. But analysts say the austerity drive may make it even more difficult to achieve the ambitious 5 per cent target for annual growth set by Premier Li Qiang during China’s “Two Sessions” political gathering this month — with potentially far-reaching implications for the global economy.Among the projects being scrapped are a highway in Yunnan province and a tunnel in Gansu. Guizhou province has sidelined so many infrastructure schemes that provincial outlays for major projects this year are projected to fall 60 per cent.China’s economy is still bearing the impact of a real estate sector crisis that began after authorities sought to rein in developers’ vast borrowing.“In 2021 they went after property, this year they have been addressing the infrastructure side of the equation and local government debt,” said Michael Pettis, a finance professor at Peking University.Investment in property and infrastructure had been significant sources of economic expansion, Pettis said. “So the question is: where is growth going to come from?”In a policy document seen by the Financial Times, the State Council, China’s cabinet, ordered 10 debt-laden provinces and regions and two major cities to strengthen oversight and approvals of government projects.The rules, which took effect on January 1, bar the 12 areas from launching many types of new projects, such as building highways or government buildings, and call for a suspension of some early-stage schemes. “Governments of all levels better get used to belt-tightening and start to understand that this is not a temporary need, but a long-term solution,” finance minister Lan Fo’an told a press conference during the Two Sessions, which closed on Monday.Officials from several provinces sought debt relief from state bankers in discussions on the sidelines of the parallel sessions of the National People’s Congress, China’s rubber-stamp parliament, and the Chinese People’s Political Consultative Conference, an advisory body.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Provincial delegates hailed the government’s clampdown on infrastructure spending.“If you have an ulcer and you ignore it, you may just look healthy but actually are not,” said Wang Chunru, a CPPCC member from debt-stricken Inner Mongolia, one of the 12 province-level governments targeted. “Only by treating it and getting rid of it can you actually live longer and better.”But analysts at Goldman Sachs describe the push to shelve projects in some of the most indebted areas, while providing enough fiscal stimulus elsewhere to boost economic growth, as a “balancing act”. Beijing is betting that increasing infrastructure investment in richer coastal provinces such as Zhejiang or Guangdong can offset the cutbacks in the 12 targeted areas, which include the province-level cities of Tianjin and Chongqing and rustbelt north-eastern provinces. Together, Goldman said the 12 areas accounted for 22 per cent of China’s fixed-asset investment and 18 per cent of gross domestic product last year. Fixed-asset investment was expected to fall this year by 60 per cent for the western province of Guizhou and between 11 per cent and 15 per cent for several others, Goldman said.At the NPC, Premier Li said: “We will make concerted efforts to defuse local government debt risks while ensuring stable development.”But analysts believe that will be easier said than done. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Li has signalled more support for the economy in 2024, with plans to issue Rmb1tn ($140bn) in long-term central government special bonds, instruments used to raise extra funds.This should help overly indebted local governments to deleverage, said Chris Beddor of Gavekal Dragonomics. The deleveraging process started last year, with state banks restructuring debts. Local governments have also issued more than Rmb1.4tn in bonds to repay implicit debt from off-balance sheet financing vehicles.“It’s clear that policymakers think they can get around this by essentially having the central government issue more bonds and do more of the fiscal work itself for the local governments while at least some of them engage in a sort of fiscal retrenchment,” said Beddor. “I think it creates a lot of room for policy error.”While it was not his “base case”, it was possible the government could fail to calibrate the adjustment properly and the economy would actually “get a drag instead of a push”, Beddor said.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.The enthusiasm for a spending clampdown expressed by some attendees of the Two Sessions is also likely to fuel economists’ concerns about the strength of Chinese consumption.“All of us Chinese people need to tighten our belts, not just local governments,” said Zhang Shuyang, a Guizhou NPC delegate. “Living frugally is our glorious tradition as the Chinese nation.”Guizhou, one of China’s poorest provinces, is now home to nearly half of the world’s 100 highest bridges, including four of the top 10. Yuekai Securities estimates the province’s infrastructure building spree has left it with total debt, including off-balance sheet liabilities, at 137 per cent of its gross domestic product.Chinese local government debt, including off-balance sheet financing vehicles and shadow credit, was probably equivalent to between 75 and 91 per cent of national GDP in 2022, according to a paper last year by Victor Shih and Jonathan Elkobi of the University of California San Diego. Twelve province-level governments had outstanding bonds alone equivalent to more than 50 per cent of their GDP, they wrote. China says its total central and local government debt is less than 51 per cent of GDP.In the Chinese capital last week, Guizhou governor Li Bingjun said he understood living frugally was the new norm and pledged to strictly manage projects and cut expenditures.“We continue to reduce various festivals, forums and exhibition activities,” Li told reporters. “If it’s not necessary, we don’t hold it.”Additional reporting by Wenjie Ding and Nian Liu in Beijing More

TOKYO (Reuters) – The U.S. dollar held steady against a handful of rival currencies on Wednesday, as traders weighed what impact hotter-than-expected inflation data could have on chances of an interest rate cut at the Federal Reserve’s June meeting.The U.S. consumer price index (CPI) increased solidly in February, beating forecasts and suggesting some stickiness in inflation. Although the CPI rose 0.4% in February in line with forecasts, a 3.2% year-on-year gain came in just ahead of an expected 3.1% increase. Core figures also topped estimates.That has left analysts wondering whether the Fed will have sufficient data to justify more than a couple of rate cuts all year.Still, market expectations for rate cuts to begin at the Fed’s June 11-12 meeting have eased only a touch to about a 67% likelihood versus 71% earlier in the week, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.”(Fed Chair) Powell might now regret speaking of cuts during his testimony last week, as I suspect it explains why Fed Fund futures are still pricing in a June cut,” said Matt Simpson, senior market analyst at City Index.”As the U.S. dollar handed back most of its post-CPI gains, I suspect the rebound in the U.S. yield curve provides the more accurate picture; a June cut is less likely.” [US/]Still, with many of the greenback’s peer currencies holding close to flat, it suggests traders are taking the latest data in stride, he added.The dollar index, which measures the greenback against a basket of peer currencies, was little changed at 102.91.Attention now turns to U.S. retail sales, an indication of consumer spending which has been resilient so far, and producer prices due out later this week.Against the yen, the dollar eased 0.15% to 147.43, giving the Japanese currency some relief after it saw its biggest fall in a month on Tuesday following Bank of Japan Governor Kazuo Ueda’s slightly bleaker assessment of the nation’s economy.Traders are now looking to the initial estimates of spring wage negotiations to be announced on Friday, which will be crucial for the BOJ’s policy calculations on whether to exit negative interest rates at its meeting on March 18-19. The country’s largest trade union confederation has demanded pay rises of 5.85% this year, surpassing 5% for the first time in 30 years.Elsewhere, analysts expect the European Central Bank to announce on Wednesday the outcome of discussions on the Eurosystem’s operational framework review, which has kept rates at zero or lower and flooded banks with cash via bond purchases and loans.The euro was mostly flat at $1.0925, and so was sterling at $1.2793.In cryptocurrencies, bitcoin was up 0.58% at $71,478.00, remaining below the record high set on Monday.Ether rose 0.82% to $3,983.30, not far from Tuesday’s peak of $4,095.40, its highest since 2021. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Argentina has refinanced about $50.3bn worth of peso-denominated sovereign debt in a record bond swap aimed at relieving pressure on public accounts and easing the path for libertarian President Javier Milei to lift currency controls later this year.The economy ministry, led by former Wall Street trader Luis Caputo, said on Tuesday that it had swapped titles worth 42.6tn pesos ($50.3bn) — representing 77 per cent of treasury instruments due this year — for those maturing between 2025 and 2028.Caputo is attempting to eliminate Argentina’s fiscal deficit this year and end the government’s reliance on money printing. The ultimate goal, analysts say, is to curb both the country’s sky-high inflation and the exchange rate pressures that make it risky to lift strict currency controls introduced by previous governments.The controls, which fix the peso’s value — about 830 pesos to the US dollar — cause huge distortions in Argentina’s economy and are a barrier to investment. Milei has said he wants to scrap them in mid-2024.The debt swap was a big step forward in Caputo’s overarching strategy, said Salvador Vitelli, head of research at the Romano Group consultancy. “This will give the government a lot more room to breathe on financial matters,” he said.On Monday Argentina’s central bank, run by Caputo’s close ally Santiago Bausili, cut its benchmark interest rate from 100 per cent to 80 per cent. Analysts said the move aimed to reduce, in real terms, central bank liabilities.Argentina has been battling high inflation for years, and earlier on Tuesday official figures showed its annual inflation rate hit a three-decade high of 276.2 per cent in February. However, the monthly rate fell to 13.2 per cent on average in February from a 20.6 per cent rise in January — a sharper decline than most economists expected. The central bank said it saw signs that inflation would continue to slow in the coming months despite the rate cut. Argentina’s economy has entered a severe recession, with the IMF predicting a 2.8 per cent contraction this year.Argentina’s monetary base — the pesos in circulation — had contracted by 17 per cent a month in real terms since Milei’s government took office in December, thanks partly to it halting money printing to finance spending, the central bank said.Meanwhile, the closely watched gap between Argentina’s official exchange rate and the black market rate for dollars has held relatively steady in recent weeks, at about 20 per cent. Economists say the gap must remain narrow for the government to remove currency controls, More than 70 per cent of the titles eligible for Tuesday’s debt swap were held by public sector entities, including the central bank and Argentina’s social security agency, almost all of which accepted the trade. Private sector holders swapped 17 per cent of their titles.Ramiro Blazquez Giomi, head of research and strategy at Buenos Aires-based investment bank BancTrust, said the private sector participation was “relatively good” given that the government had declined to offer pledges to buy back bonds if they fall below a certain price, which are commonly used in Argentine bond auctions.This week’s actions showed the government “was speeding up its efforts to remove excessive liquidity” in the economy, “which is the demand that will exist for the dollar when they remove currency controls”, he said.“But the government must still build up its [dangerously low] foreign exchange reserves or secure a loan from the IMF, in order to calm market expectations of a sudden drop in the peso against the dollar,” he added. “That is a precondition for lifting controls.” More

LONDON (Reuters) – Corporate dividends globally hit an all-time high of $1.66 trillion in 2023, with record payouts by banks making up half of the growth, a report showed on Wednesday.On a worldwide basis, 86% of listed companies either increased dividends or maintained them, according to the quarterly Janus Henderson Global Dividend Index (JHGDI) report, which also forecast that dividend payouts would hit a new record of $1.72 trillion this year.The world’s biggest dividend payers in 2023 were Microsoft (NASDAQ:MSFT), followed by Apple (NASDAQ:AAPL) and Exxon Mobil (NYSE:XOM).The total value of corporate dividends rose from $1.57 trillion in 2022 with underlying growth – which accounts for currency movements, special dividends, timing changes and index changes – of 5% from 2022, UK asset manager Janus Henderson said.”Corporate cash flow in most sectors remained strong and this provided plenty of firepower for dividends and share buybacks,” said Ben Lofthouse, head of global equity income at Janus Henderson.According to LSEG data, earnings growth for the S&P 500 in the fourth quarter of 2023 was expected to come in at 9% year-on-year.High interest rates have boosted bank margins and banks paid out a record $220 billion to shareholders in 2023, an underlying rise of 15% from 2022 and continuing a rebound after bank payouts were frozen during the pandemic.Any positive impact from higher banking dividends was almost entirely offset by cuts from the mining sector, the report found, as lower commodity prices weighed on mining profits.Hefty dividend cuts by five prominent companies – miners BHP and Rio Tinto (NYSE:RIO) as well as Petrobras, Intel (NASDAQ:INTC) and AT&T (NYSE:T) – reduced the underlying 2023 global dividend growth rate by 2 percentage points.”Beyond these two sectors (banking and mining), whose impact was unusually large, we saw encouraging growth from industries as varied as vehicles, utilities, software, food and engineering, demonstrating the importance of a diversified portfolio,” the report said. On a geographical basis, Europe (excluding the UK), was a key growth driver, contributing two-fifths of the global increase as payouts rose 10.4% on an underlying basis to $300.7 billion. Japan was also a major contributor, though it was somewhat tempered by a weak yen, the report said.While the United States made the most significant contribution to global dividend growth due to its size, a 5.1% growth rate was in line with the global average. Emerging markets dividends were flat on an underlying basis, with Janus Henderson highlighting steep cuts in Brazil and lacklustre growth in China. Janus Henderson sees another 5% growth in corporate dividends this year to $1.72 trillion. Even though the rapid increase in bank dividends is likely to slow, rapid declines from the mining sector might also be less impactful, said Lofthouse.”Energy prices remain firm so oil dividends look well supported and the big defensive sectors like healthcare, food and basic consumer goods should continue to make steady progress.” More

WASHINGTON (Reuters) -Polish Prime Minister Donald Tusk warned U.S. House of Representatives Speaker Mike Johnson on Tuesday that “the fate of millions of people” and “thousands of lives” depends on whether the Republican allows a vote on $60 billion in military aid to Ukraine.”This is not some political skirmish that (only) matters on the American political scene. Mr Johnson’s failure to make a positive decision will cost thousands of lives. He takes personal responsibility for that,” Tusk told reporters.Tusk made the comment after he and Polish President Andrzej Duda met at the White House with U.S. President Joe Biden, who told them that U.S. support for Poland is ironclad amid concerns in Europe about Russia.Biden and the Polish leaders urged Johnson to move ahead with a vote on an aid package that passed the Senate, but that the House Republican leader has held up. Former President Donald Trump, the front-runner for the Republican party’s 2024 presidential nomination, opposes aid to Kyiv. Tusk made clear what he feels are the stakes for Ukraine in its battle against Russian invaders.”He must be aware … that the fate of millions of people depends on his individual decisions, and thousands of lives in Ukraine today and tomorrow depend on his decisions,” Tusk said of Johnson.Johnson’s office declined comment. Earlier, after Johnson met Duda, his office issued a statement that did not address the Ukraine funding impasse.”In an increasingly dangerous world with growing threats, America must remain united with our friends against those who threaten our security,” Johnson said.Biden and the Poland leaders took stock of the security situation in Europe and what recent Russian territorial gains in Ukraine might mean for the region.Duda brought up with Biden his campaign for NATO allies to increase their defense spending from 2% of GDP to 3% in response to what he called “the full-scale war launched by Russia right beyond NATO’s eastern border.””Russia’s aggression against Ukraine clearly demonstrated that the United States is and should remain the security leader,” he said. “But other allies must take more responsibility for the security of the alliance as a whole.”Biden, celebrating Poland’s 25 years as a NATO member, reiterated U.S. support for NATO’s Article 5 mutual defense treaty, under which an attack against one ally is considered an attack against all. He said American support for Poland is ironclad.Last month, Democrat Biden’s likely general election rival, Republican former President Donald Trump, said he would not protect NATO allies who did not spend enough on defense and would encourage Russia “to do whatever the hell they want” with such countries.The U.S. president urged Congress to approve legislation that would send $60 billion in security aid for Ukraine. The Senate passed the bill last month in a bipartisan vote, but Republican hardliners in the House of Representatives have stalled it.”We must act before it literally is too late because, as Poland remembers, Russia won’t stop at Ukraine. Putin will keep going, putting Europe and the United States and the entire free world at risk, in my view,” said Biden.Tusk said ahead of the meeting that he would raise with Biden the need for NATO to strengthen its capabilities on its eastern flank to deter Russia.White House national security adviser Jake Sullivan told reporters ahead of the talks that the United States will offer to sell 96 Apache attack helicopters to Poland and will approve a $2 billion direct foreign aid loan for Warsaw.PLEAS FOR AMERICAN HELPSpeaking before the talks, Polish Foreign Minister Radoslaw Sikorski urged Johnson to allow a vote on the Ukraine funds, but toned down an earlier plea in which he said the Republican speaker would be blamed if the bill failed and Russian troops advanced.”If the American package doesn’t arrive … Ukraine might be in difficulty, and that might eventually mean the need for more American troops in Europe,” he told reporters at a Monitor breakfast.Sikorski also appealed to Johnson’s Baptist faith, saying that Russia “persecutes religious minorities, including Baptists” in Russian-occupied areas of Ukraine. More

TOKYO (Reuters) – Some of Japan’s biggest companies are expected to formally offer sizeable pay increases at annual talks with unions that wrap up on Wednesday, clearing the way for the central bank to end negative interest rates as early as next week.Economists see substantial wage increases as a prerequisite for the Bank of Japan (BOJ) to declare that its long-held goals of sustainable wage growth and stable prices are in sight and usher in an end to negative rates in place since 2016.The bank, which has stuck with massive stimulus and ultra-low rates for years longer than other developed countries in an attempt to jumpstart a moribund economy, is set to hold its next policy setting meeting on March 18-19.Workers at major firms have asked for annual increases of 5.85%, topping the 5% mark for the first time in 30 years, according to Japan’s biggest trade union grouping, Rengo. As a result, some analysts expect this year’s wage increases at 5% or more, from just under 4% previously. That would be the biggest increase in some 31 years.Unions across industries, including automobiles, electronics, metals, heavy machinery and the service sector have all demanded hefty pay hikes.While rising wages are one of the few bright spots in the world’s No. 4 economy – Japan narrowly escaped a technical recession at the end of last year – it remains unclear whether the country is soundly back on the path top recovery. “Labour shortages and rising costs of living are the two driving factors behind the rising wages,” said Hisashi Yamada, a professor at Tokyo’s Hosei University professor and an expert on labour policy. “Going forward, it’s unclear whether further wage growth will or spread through the economy.” Toyota Motor (NYSE:TM) Corp, the world’s biggest carmaker and long a bellwether of the annual talks, has not yet reached a deal with its union. Toyota workers are asking for monthly pay increases of as much as 28,440 yen ($193) and record bonus payments.Other companies have reached early agreements, however.Rival automakers Honda (NYSE:HMC) Motor and Mazda Motor (OTC:MZDAY) struck deals last month and fully met demands from workers.Representatives of the government, labour and management are due to hold a joint meeting later on Wednesday to take stock of their talks this year. All of them are “in the same boat, looking at the same direction,” they previously said.($1 = 147.5700 yen) More

The ECB held rates unchanged at a record high last week, but its chief Christine Lagarde said discussions over easing policy have begun, hinting strongly that this easing would mostly likely happen in June, when wage data will have been published.”We are going to have to make a bet at some point,” Wunsch told a news conference on the Belgian national bank’s annual report, in comments embargoed until Wednesday.Wunsch said he had been pleading for the ECB to wait, but now felt it should act “before so long”, without specifying a month.He said the ECB was getting to a point where it could react to inflation heading in the right direction.”But it will remain a cautious move on the basis of what I know today because of the problem that has been commented again and again and again that service inflation and wage developments are still running at levels that are ultimately not compatible with our objective,” he said.Euro zone inflation fell in February to 2.6%, but underlying price growth remained stubbornly high, with prices for food, alcohol and tobacco up 4.0% year-on-year and for services 3.9% higher.”But of course in our projections we have these going down so we are not going to wait until we see wage development at 3% before we cut rates. I guess we’ll do it before and that’s why I say it’s important we need to take a bet,” Wunsch said.Wage costs rose 5.3% from a year earlier in the third quarter of 2023, the fourth consecutive quarter in which growth has exceeded 3%. More

TOKYO (Reuters) -The Bank of Japan will likely offer numerical guidance on how much government bonds it will buy upon ending negative interest rates and yield curve control (YCC), to avoid causing market disruptions, said four sources familiar with its thinking.With inflation exceeding the BOJ’s 2% inflation target for well over a year, many market players expect the central bank to pull short-term interest rates out of negative territory either next week or in April.Upon ending negative rates, the BOJ is also likely to ditch yield curve control (YCC) – a policy that guides the 10-year bond yield around 0% with a loose cap of 1%, the sources said.While such a step would allow market forces to play a bigger role in bond price moves, the BOJ will likely provide guidance on the pace of bond buying to prevent long-term interest rates from rising too much, the sources said.”The BOJ would have to keep buying government bonds to some extent, and present some form of guidance to avoid any abrupt spike in yields,” one of the sources said, a view echoed by another source.”The BOJ will likely use bond buying as a backstop against unwelcome spike in yields,” another source said, adding that setting a loose quantitative guidance would be among options.Currently, the BOJ does not set an explicit target on the amount of bond purchases. But it buys roughly 6 trillion yen ($40.7 billion) worth of government bonds per month to achieve its yield target.The central bank is likely to roughly maintain the current pace of bond buying after ditching YCC, and forgo sharp cuts in the amount for the time being, the sources said.As part of efforts to reflate growth and fire up inflation to its 2% target, the BOJ deployed a massive asset-buying programme in 2013 under former Governor Haruhiko Kuroda.As the inflation target proved elusive, the BOJ began applying in 2016 a 0.1% charge on financial institutions’ excess reserves under its negative rate policy. It also adopted YCC in September of that year.Upon ending negative rates, the BOJ will likely set the overnight call rate as its new policy target. By paying 0.1% interest on reserves parked with the central bank, the BOJ will guide the overnight call rate around zero, the sources said.With a near-term exit from negative rates seen as a done deal, market attention is shifting toward any clues the BOJ may give on the pace of subsequent interest rate hikes.But the BOJ is likely to forgo offering explicit guidance on how soon it will hike rates again due to uncertainties over the economic outlook, the sources said.BOJ Governor Kazuo Ueda has said the central bank will maintain accommodative monetary conditions even after ending negative rates, and avoid causing any “discontinuity” from the current ultra-loose policy.Any guidance on the future policy path will likely be in line with such comments, the sources said.As for the BOJ’s risky asset buying, Deputy Governor Shinichi Uchida said in February that it was natural for the purchases to be discontinued when conditions fall in place to phase out the bank’s massive stimulus programme.($1 = 147.3000 yen) More