Aurelia Butler

Debt-laden municipalities represent a major risk to the world’s second-largest economy and its financial stability, economists say, amid a deepening property crisis, years of over-investment in infrastructure and huge bills to contain the COVID-19 pandemic.Local government debt reached 92 trillion yuan ($12.58 trillion), or 76% of the country’s economic output in 2022, up from 62.2% in 2019.Part of that is debt issued by local government financing vehicles (LGFVs), which cities use to raise money for infrastructure projects, often at the urging of the central government when it needs to boost economic growth. Empty coffers could make it harder for Beijing to kickstart a sputtering economic recovery. The People’s Bank of China (PBOC) issued orders last week to major state lenders to extend terms, adjust repayment plans, and reduce interest rates on outstanding loans to LGFVs, according to the sources.Loans that were due in 2024 or before will be categorized as “normal” instead of non-performing if they overdue, and that won’t affect banks’ performance evaluations, one of the sources said. Reuters is reporting these measures for banks to defuse local debt risks for the first time.The sources didn’t specify how much of debt will be restructured.To ensure banks do not incur heavy losses from the debt restructuring, interest rates on rolled over loans should not be below China’s Treasury bond rates, said one source, adding that loan terms should not exceed 10 years. China’s benchmark 10-year government bond is now yielding around 2.7%, while the benchmark one-year loan prime rate is 3.45%.The two sources declined to be identified as the policies were confidential.”The borrowing costs of LGFVs’ loans are usually about 4%, and in some regions and cases the costs could be even higher at about 5% to 8%,” said a banker, who declined to be identified as he is not authorized to speak to media. “A large-scale loan extension and interest rate reduction will deal a heavy blow to banks’ operations,” he said.Despite the mounting local fiscal mess, China’s central government has taken a cautious stance on resolving the debt issues to avoid risks of moral hazard: Investors could be encouraged to take even greater risks if they assume Beijing will always come to the rescue of local governments or state companies.China’s deepening property crisis has added to the pressure on municipalities, with developers in no shape to buy more land, traditionally a key source of local revenue. Since the sector’s debt crisis unfolded in mid-2021, companies accounting for 40% of Chinese home sales have defaulted, most of them private developers.The People’s Bank of China (PBOC) and the National Financial Regulatory Administration didn’t immediately reply to Reuters’ request for comments.MAJOR RISKSChina’s Politburo, a top decision-making body of the ruling Communist Party, said in late July said it would announce a basket of measures to reduce local government debt risks, but no detailed plans have been officially unveiled yet.Gradually paying off total local government debt over 20 years would require annual payments of 6.5 trillion yuan, analysts at ANZ Research said in a note last week. That’s larger than China’s estimated annual nominal GDP growth over the next decade, they said.The central bank said it will prioritize resolving debt risks in 12 regions identified as “high risk”, including Tianjin city, Guizhou province and Guangxi province, with a focus on open market bonds and non-standard debt products due this year and next year, the sources said.Banks are being encouraged to issue new loans to LGFVs to repay bonds and non-standard debt, the sources said.And, Chinese investors are rushing to buy bonds of LGFVs, including from the riskiest issuers, as Beijing’s attempts to reduce local debt risks encourages them to bet on an implicit government guarantee.DEBT PAYMENT CLIFFLGFVs face significant bond maturity pressure in 2023 and the first half of 2024, according to a research note by UBS. Over 2.1 trillion yuan LGFV bonds matured in the first half of 2023, and another 1.75 trillion yuan in the second half of this year and 1.69 trillion yuan in the first half of 2024, the highest maturity pressure in history, the note said. Additionally, the PBOC will set up an emergency tool with banks to offer loans to LGFVs to solve any short-term liquidity stress, the two sources said. LGFVs will need to repay the loans within two years, a second source said.Financial news outlet Caixin first reported the central bank’s emergency liquidity tool in August.In the 12 high-risk regions, some local governments will need to pledge or transfer part of their stakes in local state-owned companies to banks in exchange for assistance from banks to roll over loans, the second source said.Last year, a Chinese government financing unit in southwestern Guizhou province extended loans worth $2.3 billion by 20 years, which adjusted interest rates to between 3% and 4.5% per year.($1 = 7.3146 Chinese yuan renminbi) More

LONDON (Reuters) – Recent labour market data shows a softening economy which is likely to lead to slower wage growth and reduced inflation pressure, Bank of England policymaker Swati Dhingra said on Tuesday.”Now when the labour market is really loosening … it’s very hard to imagine where further momentum in wage growth is going to come from,” Dhingra said at an event hosted by Britain’s Royal Economic Society.”We should see some relenting of domestic inflationary pressures,” she added.Labour market data earlier on Tuesday showed the number of job vacancies dropped to a two-year low while growth in regular pay slowed for the first time since January after hitting a record high of 7.9% in the three months to the end of July.Dhingra, like BoE Chief Economist Huw Pill on Monday, said the headline wage data gave an exaggerated picture of strength in the labour market.”Other measures, as well as what is more important – forward-looking measures – seem to be suggesting somewhere in the order of 5% to 6% wage growth,” she said.Before the COVID-19 pandemic, when inflation was mostly close to its 2% target, wage growth was typically in a 3% to 4% range.Dhingra – who has consistently voted against rate rises this year – reiterated her view that the BoE would have done better to raise interest rates more slowly.”A more moderate path of interest rates for a longer period of time would have been preferable because it would allow a much more balanced transmission to firms and to households, and wouldn’t have the sharp peaks and troughs that come with raising interest rates to very high levels,” she said.Last month the BoE voted to keep rates on hold for the first time since starting its rate-raising cycle in December 2021. More

Japanese wages had remained stagnant for decades until last year, when rising raw material costs pushed up inflation and piled pressure on firms to compensate employees with higher pay. Major companies agreed to average pay hikes of 3.58% this year, the highest increase in three decades. A Rengo official declined to comment on the NHK report when contacted by Reuters.Rengo will kick off debates this month on pay rises for the coming year and set its expected wage demand by year end, before it negotiates with management early next year so that major firms can offer pay rises around the middle of March.Prime Minister Fumio Kishida has emphasised the need to achieve sustained, broader wage increases to cushion the blow to households from rising living costs and to enable Japan to decisively break free of deflation, which has hobbled economic growth for decades. Bank of Japan Governor Kazuo Ueda has also repeatedly stressed the need to keep monetary policy super-loose until wages increase enough to keep price growth sustainably around 2%. More

Ireland’s improvement was noted on Tuesday, with an index value that has consistently risen over the past three years, moving from 70.0 in 2022 to 70.2 in 2023. The country’s pension system comprises a basic social security scheme, a means-tested benefit for those lacking sufficient insurance coverage, and voluntary occupational and personal pension schemes providing supplementary income during retirement.Despite Ireland’s progress, it still ranked below Finland, Norway, Sweden, and the UK but outperformed Belgium, Portugal, Germany, and France.Meanwhile, the Netherlands topped the Global Pension Index with a score of 85, followed by Iceland and Denmark. This achievement comes despite an impending major reform of its pension system from collective to individual funds. The reform aims to sustain high-quality benefits for retirees amid global pension challenges such as aging populations and economic factors including inflation and rising interest rates.CFA Institute underscored these challenges as increasing the importance of individual retirement planning. The study covered 47 pension systems representing 64% of the world’s population and identified Argentina as having the worst-performing pension system.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK wage growth slowed marginally in the three months to August, according to official data that will offer the Bank of England limited reassurance that pressures in the labour market are easing.The Office for National Statistics said on Tuesday that average total pay was 8.1 per cent higher over the three-month period than a year earlier, down from a growth rate of 8.5 per cent the previous month, but still close to record highs. Regular pay growth, excluding bonuses, slowed from 7.9 per cent to 7.8 per cent.With inflation at 6.7 per cent in August, pay has been growing faster than prices for several months, helping to bolster household finances against the impact of higher interest rates. “Pay packets have staged a mini recovery this year,” said Hannah Slaughter, senior economist at the Resolution Foundation think-tank, but added: “With the labour market continuing to cool, the big question . . . is how long this will last.”The ONS has delayed the release of key data on employment and labour force participation, which are usually published at the same time as the wage figures, because of problems with data collection.However, the agency did publish figures for payrolled employment, which are drawn from HM Revenue & Customs records, as well as data on vacancies. These suggested hiring has continued to slow while the number of payrolled employees fell slightly over the summer. “Wage growth has passed its peak, but we suspect it will fall only gradually from here,” said Ashley Webb, an economist at the consultancy Capital Economics, which expected the BoE to hold interest rates at 5.25 per cent for most of next year to squeeze inflationary pressures out of the economy.Policymakers are likely to want to see more convincing signs that the labour market has turned, and pay pressures eased, before they contemplate any easing in monetary policy.Huw Pill, BoE chief economist, said at an online event on Monday that wage growth — as measured by a range of indicators — was running at a pace that was “not consistent with price stability”. However, he also cast doubt on the accuracy of the ONS data, saying the official measure of wage growth increasingly looked like an “outlier” with other measures pointing to slower pay growth.  Thomas Pugh, economist at the audit firm RSM UK, said slowing pay growth would allow the BoE to keep interest rates unchanged next month, rather than resuming rate rises. But he added that “an MPC which is less confident in the data may decide to err on the side of caution”.The monetary policy committee still had “work to do” to bring inflation sustainably back to its 2 per cent target, Pill said on Monday, but added that if policymakers waited to see “the decline in inflation itself or the decline in wage growth itself”, they risked waiting too long and doing unnecessary damage to the economy.Nonetheless, Pill said, he was not convinced that recent wage growth was supported by gains in productivity. “Would I be happier if wage growth was 5 per cent rather than 8 per cent on the official measure? Yes, I would be happier. Would I be happier if wage growth was going down from 5 per cent? Yes, I probably would be because I am not an optimist about productivity at that horizon,” he said. More

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China will on Wednesday release third-quarter economic growth data as Beijing chases a target of about 5 per cent this year.Economists polled by Reuters expect gross domestic product to have expanded 4.4 per cent in the third quarter. That means China remains on track to claw its way to the 5 per cent target, following year-on-year GDP growth of 4.5 per cent in the first quarter and 6.3 per cent in the second.While the target is one of the country’s lowest in decades, Chinese officials have in recent months ratcheted up financial stabilisation efforts across the property and banking sectors and shored up support for the country’s stock market and renminbi. Dozens of China-listed companies also announced or conducted share buyback plans on Tuesday, following a raft of official measures taken to boost the ailing stock market.Those measures highlight how the world’s second-biggest economy has failed to deliver on expectations for a post-pandemic rebound and how China’s economic planners are struggling to find drivers for growth.Forecasts for next year’s GDP growth are being trimmed to about 4.5 per cent. Consumer and business confidence remains weak, while the war between Israel and Hamas in the Middle East is adding uncertainty to bleak external demand for Chinese exports. You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Here are five things to watch out for in tomorrow’s release:Consumer spending green shootsRetail sales, which had been consistently poor this year despite the end of Covid-19 restrictions, finally showed green shoots in August, adding 4.6 per cent year on year.With property market woes still undermining consumer confidence, however, Alicia García-Herrero, chief Asia-Pacific economist at Natixis, is wary of overstating the latest improvements to this key gauge of activity, especially as they compare to a period of lockdowns in 2022.“You can’t fall from the floor,” she said. “Any number that looks slightly better [than the last] will be cheered, especially with what is going on in the world.”This month’s eight-day Golden Week holiday probably helped to maintain some momentum — domestic tourism and revenue were near pre-pandemic levels — but that will not show up in Wednesday’s data.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Property woesLacklustre apartment sales and debt defaults by developers have become a persistent feature of a property market in a deep funk.Beijing, which wants to avoid another unsustainable cycle of credit-driven investment, has been providing more support. That includes removing price restrictions on home purchases in some big cities. On the one hand, there have been signs that the stabilisation measures are having the desired effect. New home prices across 70 major cities were flat month on month in August. But on the other, property investment in the first eight months of the year is down nearly 9 per cent. And markets are worried about potential contagion from a debt crisis at Country Garden, China’s biggest private sector developer, which has warned that it might not be able to meet all its offshore payment obligations.Export outlook darkensSoft international demand has become an acute pressure point for policymakers in Beijing, a stark change from much of the three years of closure during the pandemic when China’s exports helped prop up the economy.Official data for July showed that China’s exports, in US dollar terms, had tumbled 14.5 per cent, the sharpest fall since the beginning of the pandemic. While still in negative territory, the picture has improved, with exports for September down 6.2 per cent year-on-year in September, from an 8.8 per cent decline in August.Data for July showed that China’s exports, in US dollar terms, had tumbled 14.5%, the sharpest fall since the beginning of the pandemic More

Businesses around the world are taking steps to boost their geopolitical expertise to help with increasingly delicate judgments about target markets and supply chains.While some are using specialist consultancies, others such as Hitachi and Lazard have been hiring former diplomats, senior civil servants and politicians to give advice directly to executives.Lord Malloch-Brown, a former diplomat and president of the Open Society Foundations, said that in the past “there was always some retired diplomat in the corner office of a multinational company ready to advise the chief executive on some local political difficulty”.“What’s happened more recently is that we’ve moved from peak globalisation, where markets determine the location of manufacturing and selling, to the era of a much more politicised global marketplace.” Russia’s invasion of Ukraine last year caught a number of businesses unprepared for the fallout. Now they are looking much more closely at political flashpoints such as China’s relations with Taiwan, the fallout in the Middle East from the deadly Hamas attack on Israel, and a possible second presidential term for Donald Trump.In Japan, which has strained relationships with neighbours including China and Russia, multinational companies such as Hitachi, Suntory and the country’s biggest banks have in the past three years hired former diplomats, international relations experts and foreign correspondents in a bid to expand their expertise in assessing geopolitical risks.Four people with direct knowledge of the situation said that in the most recent rounds of hiring, diplomats and other experts had been poached by two of Japan’s largest insurance companies and three of its biggest trading houses, Mitsubishi, Mitsui and Itochu. Elsewhere in corporate Japan, the role of “chief geopolitical risk officer” has been specially created in a sign of how seriously the subject is now taken. “Two of my colleagues have recently gone to work at trading houses, and one went to an energy company,” said one Japanese diplomat currently based outside Japan, who added he has also had at least one offer.“[Companies] are desperate for a more granular understanding of risk and basically using the foreign ministry as a source of expertise, and they figure they can give themselves what they don’t have by offering [diplomats they are trying to hire] money. Unfortunately it seems to be working.” Mitsubishi told that Financial Times it had established a global intelligence committee headed by the president last year and had a system to feed back information on “geopolitical risks, economic conditions, new technologies, policy trends” to management. “We are proceeding with these initiatives based on the increasing importance of this.”Meanwhile smaller Japanese companies are hiring outside consultants at what advisers say is an unprecedented rate. The invasion of Ukraine, said one consultant providing advice to multiple Japanese companies, solidified the idea that risks were becoming less predictable and that some of those that were closer to home — including military action by China and tougher US sanctions — had reached a point where companies needed outside help.“They don’t just want us to tell them about one or two situations. They are asking us to rank all the risks they could be exposed to around the world,” said the adviser. Lord Malloch-Brown: ‘We’ve moved from peak globalisation to the era of a much more politicised global marketplace’ More