Aurelia Butler

The China Development Bank and the Export-Import Bank, two principal lenders for the BRI, will provide an additional $100 billion in loans. This move opens up financing opportunities totaling CNY 350 billion ($47.9 billion) for BRI projects. Moreover, the Silk Road fund is set to receive an extra injection of CNY 80 billion.However, there have been issues around opaque pricing in BRI projects led by Chinese firms. This has led to deal renegotiations by countries such as Malaysia and Myanmar. To address these concerns, Beijing has issued billions of dollars in bailout loans to BRI countries, thus facilitating loan extensions and ensuring solvency.The Belt and Road Initiative is a crucial part of China’s strategy to extend its influence across the globe through infrastructure development and investment. The fresh funding announced on Wednesday underlines the country’s commitment to this strategy despite the challenges posed by debt burdens and pricing transparency issues.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

SINGAPORE (Reuters) – September data from China offered plenty of welcome surprises, with faster-than-expected growth, falling unemployment and a glimmer of momentum in consumption, but investors are not rushing to buy into the story.China’s blue-chip stocks, down nearly 7% this year, compared to a gain of almost 10% for world stocks, were unmoved by the news and fell on Wednesday by another 0.8%.The yuan struggled to hold a small bounce, as buyers’ hands were stayed by concerns ranging from the crisis in the property sector to dim prospects for an acceleration in growth.”Just the Q3 growth data today is not yet enough to turn market sentiment around,” said Chi Lo, a senior market strategist for Asia-Pacific at BNP Paribas (OTC:BNPQY) Asset Management in Hong Kong.”If we see continued and broader easing filtering into growth and companies earnings in Q4, investors will come back.” Official data showed the world’s second-largest economy grew 1.3% in the third quarter, above markets’ forecast of 1%, to seemingly cap a season of disappointment. Year-to-date growth of 5.2% is on track for China’s full-year target of 5%.Yet property remains a millstone for growth and confidence and while the economy may have touched bottom, there are no signs of the sort of rapid rebound that would compel investment.Property investment in the first nine months of 2023 fell 9.1% on the year. The grace period for a late coupon payment on a dollar bond issued by China’s biggest developer, Country Garden, also expired without word of payment.”It’s not just about the opportunities in China,” said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management, adding that other factors included the performance of markets elsewhere and new risks to the safety of capital, amid wars and Sino-U.S. tension.”Unless China markets significantly outperform the benchmark … that actually makes the decision of underweight China very easy – I think (investors) may still take a lot of convincing to get back in.”BOTTOMS UPIn recent months, China has unveiled measures to revive its sinking stock market, from cutting trading costs to spurring margin financing and protecting small investors.But the effort was not enough to shift deeply negative sentiment, money managers said, suggesting that a turnaround in economics and earnings was key. Now there are signs that has begun, but it only seems to be stoking further doubt.”The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management in Hong Kong.”The focus of the government and the market will shift to the growth outlook for next year … what growth target the government will set and how much fiscal easing will take place.”Some bargain-hunters are enthusiastic, and point to a price-to-earnings ratio of 12 for the Shanghai Composite versus 22.3 for the S&P 500 as a signal to buy.”It comes back down to how the China market works,” said said Steven Luk, chief executive of FountainCap Research and Investment”When times are good, the Party gets a little fidgety and wants to make sure that they still have a few controls, so they intervene,” he said, referring to the ruling Chinese Communist Party.”But when they do that, business confidence lowers … so they will take a step back and then things will just start to recover again.”Rasmus Nemmoe, a portfolio manager at FSSA Investment Managers, said he took advantage of “weak market sentiment” towards Chinese consumer companies to buy shares in Chongqing Brewery. Still, a survey of more than 250 fund managers by Bank of America before the growth data was issued on Tuesday, showed investors worried things could still get worse.”A sustained lack of concerted easing has caused fatigue and frustration to take over,” BofA analysts said, with only a quarter of respondents having built or building exposure, and the rest looking elsewhere or unconvinced. More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is an FT contributing editor and executive director of American CompassHaving exhausted all other options, US policymakers are finally doing the right thing for domestic manufacturing: embracing industrial policy to channel capital towards expanding the nation’s productive capacity.Between the Infrastructure Investment and Jobs Act, the Chips and Science Act, and the clean energy programmes in the inaptly named Inflation Reduction Act, hundreds of billions of dollars in public spending and subsidies have prompted a building surge. Spending on US manufacturing construction nearly tripled from mid-2021 to mid-2023 after remaining flat for the previous six years. But celebration of a “manufacturing renaissance”, as US Steel chief executive David Burritt has called the surge, is premature.Certainly, a policy revolution has occurred. Leaders across the political spectrum have embraced the necessity of a public role in fostering productive investment. Many economists are acknowledging that making things matters in ways markets will ignore.Just as important, implementation has validated the basic premise that the private sector will respond to industrial policy with investment. This is no small accomplishment. Other policies intended to trigger greater investment — for instance, tax cuts and stimulus spending — failed repeatedly. Now, the semiconductor plants and the battery factories are going up as intended.That is the good news. The bad news is that the Biden administration’s framework will not go beyond these tentative steps towards a genuine manufacturing renaissance, because it is not designed to.The problem is most obvious with the IRA, which first and foremost is climate legislation. Stipulating that a reduction in fossil fuel use is the worthiest of goals, it remains fundamentally inconsistent with strengthening US manufacturing. The win-win rhetoric of rebuilding industry via a green transition makes no sense, as should be obvious: if fossil fuels did not have environmental drawbacks, for instance, would a heavily subsidised transition away from them be a savvy strategy for industrial revival? Of course not.Indeed, putting climate change to the side and considering the green transition purely as industrial strategy, the project is absurd. Manufacturing is energy intensive. Access to a cheap, reliable, abundant supply of fossil fuels — especially natural gas — is one of America’s key competitive advantages.Development of those abundant fossil fuels is itself among America’s major industrial activities and gives rise to some of its most robust exports. The production of combustion engine vehicles is among the sector’s most significant segments. Yet the IRA succeeds only to the extent that the US abandons its energy advantage and relies upon lower-productivity solar and battery technologies and foreign supply chains.Energy loss: access to a cheap and abundant supply of fossil fuels has been a key competitive advantage for the US More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Drug gangs have infiltrated shipping supply chains to an “extreme” degree, a leading industry executive has warned, as the European Commission unveiled plans to crack down on illegal drugs flooding into Europe’s ports.Cocaine shipments to the EU have surged in recent years, rising to a record 303 tonnes in 2021, according to the latest continent-wide figures from the EU’s drugs monitoring agency, EMCDDA, with criminal gangs directing the flow of drugs via global shipping routes. As a result, shipping companies are dealing with “some of the most dangerous people in the world. The way that these people are infiltrating the whole supply chain, not only the shipping side or the port side, is rather extreme,” said Keith Svendsen, chief executive of APM Terminals, a division of Danish shipping group Maersk.The warning comes as the European Commission will on Wednesday propose more co-ordination among European ports, governments and private companies by setting up a “European Ports Alliance”, according to a draft of the communication seen by the Financial Times.One proposal involves setting up common risk criteria and priorities for customs controls at EU level. €200mn will be allocated to fund equipment to scan containers from 2024.The commission will also urge member states to implement existing security rules for ports, including providing ports and shipping companies with the means to “screen and vet their employees to avoid corruption by criminal networks”.Belgium’s port city of Antwerp is the largest cocaine trafficking hub in Europe, with a record of 110 tonnes seized in 2022, according to customs authorities. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Antwerp scans only about 2 per cent of the goods that pass through the port but plans to scan all containers coming from Latin America and considered “high-risk” by 2028. Of those, about 5 per cent are checked at present.For the shipping industry, the increasing pressure to clamp down on the drug trade risks disrupting the commercial operations of container carriers, which transport millions of steel boxes every week.Claudio Bozzo, chief operating officer of MSC, told the FT in August that it “suffers consequences when it comes to costs” to make containers available for customs inspections. Svendsen declined to provide details on the costs of increased checks on Maersk but said the “impact on the supply chain is the same across the companies”. He said “more problem solving needs to be done” before Antwerp’s 100 per cent target can be reached. Instead, he said, checks should be reinforced on exports in Latin America, pointing to a €1bn investment APM Terminals has made in a container terminal it operates in Moín, Costa Rica. However, Svendsen said his bigger concern was a “duty of care” towards his staff, rather than costs. “There have been incidents where there is infiltration where employees are being coerced into helping” drugs gangs, Svendsen said. Rotterdam port authorities detected eight tonnes of cocaine on a Maersk ship in July at a street value of €600mn, the largest seizure of cocaine in the Netherlands. Svendsen said Maersk was not responsible for the drugs in its containers. “What has gone wrong is that we have international drug trafficking using legitimate infrastructure to move that product by infiltrating supply chains.” The commission declined to comment on the leaked document, which is still subject to change until its publication.Despite growing political consensus to tackle the problem, there are knock-on effects for the global shipping industry from stricter customs controls, experts said. Richard Neylon, a shipping lawyer at HFW, said it was sometimes “not within the shipowners’ power to open and inspect” containers. “[Shipping is essential] for international trade. The risk of drug [smuggling] is a very difficult reason to turn down international trade.”Additional reporting by Oliver Telling in London More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Israel-Hamas war is creating new challenges for Europe’s economy, from energy market disruption to an influx of refugees, Greece’s central bank governor has warned.Yannis Stournaras told the Financial Times that the turmoil in the Middle East shifted the balance against any further tightening of monetary policy. “It is a question of common sense,” Stournaras said a week before he will host a meeting of the European Central Bank’s governing council in Athens. The meeting is widely expected to yield no change in eurozone interest rates for the first time in 15 months.“If you have a new source of uncertainty in the Middle East, where it is totally unknown what is going to happen — we are in the dark — it is better to keep all of our options open and be careful to retain the resilience of the European economy,” he said.The Israel-Hamas conflict has contributed to a moderate rise in oil and gas prices. That has led to concern of a fresh wave of inflation. But Stournaras said the ECB should avoid any “knee-jerk reaction”.“Taking into account the fact that the eurozone continues to be a large net energy importer, it is likely to have a stagflationary impact if it becomes a problem,” he said, adding that “a humanitarian crisis” in Gaza could also cause a surge in refugees arriving in Europe. “We have to be prepared; if there is an exodus of people, we know by definition that Europe and the European south is going to be the first stop, so that is going to be a serious economic and social problem,” he said.The eurozone economy is already at “a critical point where if we continue to raise interest rates we run the risk of something being broken”, he said. “There is a lot of progress where inflation reduction is concerned, we are almost stagnant in eurozone activity and we have experienced a reduction of lending by banks.”The ECB has raised its benchmark deposit rate from a record low of minus 0.5 per cent to an all-time high of 4 per cent to tackle the biggest inflation surge for a generation. Asked when he thought the ECB could start cutting rates, Stournaras said: “If inflation in the middle of next year . . . falls close to 3 per cent, that is perhaps the time to start thinking about a rate cut.”Eurozone inflation remains more than double the ECB’s 2 per cent target, but a reversal of energy prices helped it drop to almost a two-year low of 4.3 per cent in September. Core inflation, which excludes energy and food to give a clearer picture of underlying price pressures, is also the lowest for more than a year at 4.5 per cent.Even some of the more “hawkish” ECB council members have started to indicate rates are high enough. Klaas Knot, head of the Dutch central bank, said at a recent conference he was “comfortable with the current stance of policy . . . we are now getting on top of inflation”. Croatia’s central bank chief Boris Vujčić said: “What we are seeing now is a soft landing.”Some hawks have shifted their focus to calling for the ECB to speed up the shrinking of its vast bond portfolio by stopping reinvestments in its €1.7tn Pandemic Emergency Purchase Programme, or PEPP, earlier than planned at the end of next year.Stournaras said there were “pros and cons” to the idea and he expected it to be discussed next week. But he said the PEPP was the ECB’s “first line of defence” against a divergence in borrowing costs between eurozone members. “At this stage, given everything going on in the world, isn’t it better to retain our flexibility?” he said.He also expressed concern about the recent sell-off in bond markets that has pushed up borrowing costs for governments. “I worry when I see countries with deficits above 6 or 7 per cent of GDP — it reminds me of the Greek crisis,” he said. Italy’s budget deficit was 8 per cent of GDP last year and Rome expects it to fall to 5.3 per cent this year.The ECB’s first council meeting in Athens since 2008 underlines how Greece has gone from Europe’s Achilles heel, which needed bailing out during its sovereign debt crisis a decade ago, to one of the region’s best-performing economies.This year it regained an investment grade credit rating.Yet Stournaras, who was Greece’s finance minister during its debt crisis, said the country must increase its primary surplus — excluding debt costs — from 1.1 per cent this year to more than 2 per cent next year, a goal that might prove challenging given the state of the European economy.Greece’s debt is the largest of any EU country at 171 per cent of gross domestic product last year. But it is expected to fall to 152 per cent next year thanks to the primary budget surplus and the boost from inflation to nominal growth. Athens is also insulated from rising borrowing costs because low rates were locked in until 2032 under its bailout. The country’s growth is, however, threatened by its shrinking population. “Many organisations like the IMF, in the very long run, think that the Greek growth rate would fall by 1 to 1.5 percentage points because of a declining population,” said Stournaras. He urged the government to boost productivity by reducing judicial delays, speeding up digitisation of the public sector, and improving the quality of schools, public transport and hospitals.Officials in Athens are counting on more than €55bn in EU funds in the next six years to support public investments. “The Greek government should continue with the reform agenda and fiscal consolidation,” he said.  Additional reporting by Raphael Minder More

By the end of the second world war, the US made half of all manufactured goods globally — shipping gleaming home appliances and cars to an emerging middle class. The state of Pennsylvania alone produced more steel than the defeated nations of Germany and Japan combined.But, over the past 50 years, manufacturing’s share of gross domestic product in the US has more than halved to 12 per cent. Cheap Chinese imports began flowing into the US in the early 2000s and, by the end of that decade, China had become the world’s dominant manufacturer, at the cost of almost 6mn American jobs. Today, US consumers buy fewer domestically produced goods than consumers in Germany or Japan.Now, though, a boom in factory building has raised hopes of a “manufacturing renaissance” in the US.More than 100 construction projects, worth in excess of $200bn, have been announced since the passage in August 2022 of two pieces of legislation, the Chips and Science Act and the Inflation Reduction Act, according to FT research. That is more than double the capital spending commitments in 2021 and more than 20 times those in 2019.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.However, some question whether this boom is sustainable, given that it is driven, at least in part, by $369bn in clean energy tax credits and subsidies that are set to expire in 10 years.“I certainly think the clean energy stuff is entirely driven by policy,” says Douglas Holtz-Eakin, a former official in the George W Bush administration who is now president of the American Action Forum, an economic think-tank. “And if you turn the policy off, you’re going to stop a lot of that construction.”But others insist the flurry of activity represents a historic shift. The building boom erases “a couple of decades of conventional wisdom about the future of manufacturing in the United States”, according to Scott Paul, president of the Alliance for American Manufacturing, a non-profit lobby group.“A number of these factories that are under construction are quite large, and each of them employs, in some cases, thousands of people. Conventional wisdom . . . 15-20 years ago was that the era of big factories, particularly in the United States, was over.”While previous manufacturing booms were in response to pent-up demand or war, this one “is significant because it is in response to both public policy levers and changing political, economic circumstances globally”, says Paul.President Joe Biden’s policies have spurred foreign investment in semiconductor, electric vehicle and clean energy plants. But, after Covid disruptions exposed the risk of sourcing materials and parts far from home, many US companies are rethinking their production.Increasing political risk in China and the impact of climate change on the transportation of materials and goods are also prompting companies to consider shortening supply chains.During the pandemic, “we really learnt that resilience and domestic provision are valuable and the previous 30 years emphasised exactly the opposite point,” says Suzanne Berger, a US political scientist at Massachusetts Institute of Technology and the author of Making in America. “Zero inventory . . . that Toyota system goal . . . means zero resilience.”Since the Covid outbreak, mentions in companies’ earnings reports of reshoring, onshoring and nearshoring have increased almost tenfold, according to the IMF. To Berger, what we are seeing is nothing less than the “reversal of globalisation”.“Globalisation was very good for developing countries and particularly for Asia,” she says. “It has been very bad for liberal democracies. And part of what has fuelled the kind of polarisation that we see in this country is the loss of manufacturing jobs. So I think . . . [in] the push for the expansion of manufacturing — which you see both on the side of Republicans and Democrats in the US — there is a political driver.”One factor spurring the localisation of production is what IMF managing director Kristalina Georgieva called in January a “global surge in new trade restrictions”. In the US, the Biden administration has restricted investment in China’s tech sector, limited availability of tax credits for green vehicles to those produced in the US, and maintained tariffs put in place by his predecessor Donald Trump.“I know that is very fashionable to beat on the tariffs that Trump put in place, but I think they also had a measurable impact in starting to reduce the level of imports that have been coming from China,” says Paul.Though both sides of the political divide talk of reviving US manufacturing, consensus breaks down over how to achieve it. Several 2024 Republican presidential candidates have vowed to repeal the Inflation Reduction Act, despite the bulk of the investment being concentrated in Republican states.“I don’t see why the government should have these industrial policies,” says Holtz-Eakin. “A reliance on letting the market allocate capital has been a very successful strategy for years and I don’t see any reason to change that basic input.”A change in government would be just one barrier to making the boom sustainable. Consultancy McKinsey has also cited a shortage of the critical minerals required for clean energy, such as the rare earth elements needed for electric motors. And a more immediate concern is the tight labour market.In July, chips giant Taiwan Semiconductor Manufacturing Company said work on its first US plant in Arizona would be delayed because of a shortage of workers. The Semiconductor Industry Association has warned that more than half of the 115,000 new jobs expected by 2030 would go unfilled because of a lack of skills.Berger says there is a disconnect between the type of worker required by the average American factory and those produced by the country’s community colleges. This is due in part to a lack of advanced processes in domestic manufacturing, 90 per cent of which is done by small to medium-sized enterprises. There is nothing in the Biden legislation to change that.Many older businesses “still have the milling machines that their grandparents had purchased for the company”, says Berger. The conundrum then becomes what kind of manufacturing will replace old postwar model.“The big question,” says Berger, “is whether the manufacturing that gets built is just an extension of the kinds of manufacturing system that we have today in the US, which is low-tech, low-skill, low-wage, low-cost, low-productivity growth and high-carbon emissions, or whether we can build a new manufacturing system.” More