Aurelia Butler

China’s economy teetered on the brink of deflation in June, adding to calls for Beijing to launch a stronger stimulus package to sustain the country’s sputtering post-Covid recovery.The consumer price index was flat year on year and declined 0.2 per cent compared with the previous month, while factory gate prices fell at the fastest pace since 2016 as demand for consumer and manufactured products softened.Analysts expected the figures to lead China’s central bank, the People’s Bank of China, to reduce interest rates again, adding to a round of cuts last month that many believe Beijing will have to supplement with fiscal stimulus policies.“China is still growing — the question is whether it will hit its target,” said Heron Lim, economist at Moody’s Analytics. “In terms of that recovery, it is still there, but the concern is it’s slowing down.”China is targeting gross domestic product growth of 5 per cent this year as the economy emerges from draconian Covid-19 controls, but the recovery is proving fragile, with property prices and exports falling.

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Consumption is still growing, but there are concerns the government will have to do more to sustain the recovery as global economic growth slows, reducing demand for China’s exports.The weakening economy comes as Beijing is trying to cool tensions with the US, which many blame for a lack of investor confidence in China following a spate of tit-for-tat sanctions.US Treasury secretary Janet Yellen during a visit to Beijing at the weekend sought to reassure her hosts, including China’s number two official, Premier Li Qiang, that the US was not seeking full-scale economic decoupling. The fall in CPI missed analysts’ expectations in a Reuters poll of a 0.2 per cent rise.

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The producer price index declined 5.4 per cent compared with the same period a year ago, accelerating from a drop of 4.6 per cent in May and faster than the 5 per cent fall forecast by analysts polled by Reuters.Goldman Sachs analysts said the decline was partly due to weaker commodity prices and continued price cuts due to China’s mid-year “618” online shopping festival.Food inflation rose in June partly because of higher prices for vegetables, which increased 10.8 per cent year on year compared with a decline of 1.7 per cent in May.

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But pork prices were low due to weak demand, falling 7.2 per cent year on year in June.“The ultra-low inflation reading lends supports to our view that the PBoC is likely to implement two more rounds of policy rate cuts,” Nomura economists wrote in a research note. They added that the central bank might also seek to release more liquidity into the system by further reducing the reserve requirement ratio, which requires banks to retain a certain level of funds as a prudential measure.Lim at Moody’s said few were expecting a “bazooka”-style stimulus. “Despite the fact the economy is quite near deflation, it doesn’t look like the PBoC is looking at monetary stimulus of the kind the US Fed or European Central Bank would be doing.”

The weakening economic performance comes as Chinese economists are urging the government to shift from its traditional form of stimulus — investing in big-ticket infrastructure projects — to targeting consumers.“This can more directly correspond to our actual economic blockages and shortcomings,” said Cai Fang, a senior economist from the state-run Chinese Academy of Social Sciences, according to a transcript of a business forum published by Chinese news website Caijing.China’s onshore yuan opened at Rmb7.2256 to the dollar and was Rmb7.2339 at midday, slightly weaker than the previous late session close, Reuters reported.Additional reporting by Sun Yu in Beijing More

SINGAPORE (Reuters) – The dollar was on the back foot on Monday after a miss in U.S. jobs data scaled back market expectations on how much further the Federal Reserve would need to raise rates, while focus in the Asia day was on China’s inflation data release.The U.S. economy added 209,000 jobs last month, data on Friday showed, marking the smallest increase in 2-1/2 years and the first time in 15 months that payrolls missed expectations.That sent the dollar tumbling nearly 1% against a basket of currencies on Friday while the yen and sterling surged.The Japanese yen last bought 142.30 per dollar in early Asia trade on Monday, having jumped 1.4% on Friday in the wake of the greenback’s decline and a slump in U.S. Treasury yields. [US/]The dollar/yen pair is particularly sensitive to U.S. yields as interest rates in Japan are anchored near zero.”I suspect you got a market that was going into (the payrolls) high on expectations … so with that in mind, people pared back some of those dollar longs,” said Chris Weston, head of research at Pepperstone.”We’ve also seen large inflows back into the yen as well, we’ve seen some people looking to cover some of those yen shorts.”The British pound similarly firmed near an over one-year peak of $1.2850 hit on Friday and last traded $1.2829, as bets grow that stubborn inflation in the UK will force the Bank of England to raise interest rates to a 25-year high of 6.5% by December.The euro dipped marginally to $1.0958, paring some of its 0.7% gain on Friday, while the U.S. dollar index rose 0.09% to 102.38 but remained not far from Friday’s two-week low of 102.22.”I certainly don’t trust that U.S. dollar move…whether it’s sustained,” said Weston. “But it sort of screams out that the market obviously sees the Fed in the later stage of the (monetary tightening) cycle.”In Asia, focus turns to China’s consumer prices due later on Monday, where expectations are for inflation to have held steady at 0.2% in June, likely fuelling investor hopes for further support measures from Beijing.The Australian dollar, which is often used as a liquid proxy for the yuan, was last 0.14% lower at $0.6683, while the New Zealand dollar fell 0.16% to $0.6199.”We see CPI to remain low as demand stays persistently weak while producer prices fell deeper into deflation,” said MUFG analysts in a note.”We expect more policy measures from the (People’s Bank of China) to damp the yuan depreciation expectations, which should offer support to the currency going forward.”The offshore yuan, which has come under pressure in recent months as a result of the country’s faltering economic recovery, was last marginally lower at 7.2341 per dollar. More

Job opportunities scream from posters at an employment fair in central China’s Zhengzhou. “Join us for the future!” urges one advertising positions for graduates to sell electric vehicles. Others seek “courageous” candidates or “attractive females” to sell medical equipment.But many of the jobs require 70 hours of work a week and command salaries as low as Rmb3,000 ($400) a month. Wang, a commerce graduate, struggles to get enthused.Zhengzhou, the industrial capital of a province of about 100mn people and home to the world’s largest Apple iPhone factory, ought to be able to offer its graduates better career prospects, said Wang, who did not want his full name to be published.The first member of his rural family to get a tertiary degree, he wondered if he would ever be able to get a decent job, let alone buy a house. “Right now, experience matters more than a university degree because there are too many graduates around,” he said.As the world’s second-largest economy emerges from three years of Covid-19 restrictions, young jobless graduates such as Wang are bearing the brunt of a tepid recovery. In May, 20.8 per cent of 16 to 24-year-olds were unemployed, the largest proportion since the data series started in 2018 and higher than in European countries such as France and Italy.The Chinese economy is still generating millions of jobs, and the overall unemployment rate was stable at 5.2 per cent in May. Yet many openings are in low-end work unattractive to university graduates. Beijing’s crackdown of the last few years on the technology, finance and gaming sectors has choked off opportunities in what were once appealing sources of employment.

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An employment index for graduates compiled by the China Institute for Employment Research, a Beijing-based think-tank, has indicated an oversupply of labour for six quarters in a row since late 2021. The situation could get worse, with a record crop of 11.6mn university graduates entering the job market in June and July.While the number of graduates may be small compared with the overall workforce, their plight is indicative of China’s sputtering economic recovery, which lost pace in the second quarter as the property market and manufacturing struggled. “The Chinese economy is very weak at this stage, confidence is low, so I would say that’s the biggest factor in youth unemployment,” said Larry Hu, chief China economist with Macquarie.Others said there were indications the rise in youth unemployment was a structural issue that could eventually even threaten political stability.“We estimate that the problem of youth unemployment may continue for 10 years in the future and continue to worsen in the short term,” said a report from the China Macroeconomy Forum think-tank co-authored by prominent economist Liu Yuanchun. “If handled improperly, it will lead to further social issues outside the economic field and even become the trigger for political issues.”President Xi Jinping, who was himself forced to labour in a rural village during the Cultural Revolution, has little sympathy for graduates reluctant to do low-paid jobs. He has constantly urged young people to zizhao kuchi — “ask for hardship”.The government recently launched a campaign to persuade graduates to “find a job first and then choose a career”. However, such messaging only confirms what many young graduates suspect: despite shelling out for degrees that can cost roughly Rmb30,000 a year at public universities — about a fifth of the average household income for a family of three — qualifications from all but the best universities lack value in the job market.In Chengdu, a city known for its more relaxed character and tech industries that typically attracted young workers from around the nation, a statue of a grinning panda holds a sign with the slogan “happiness comes from arduous work”.Yang, an accounting graduate from a private second-tier university, has secured a job that pays just Rmb3,000 a month, about a third of what her father earns as a construction worker.“My father has paid so much money for my education, he thinks the investment is not worthwhile,” she said, adding that she could not imagine saving enough money to buy a home, marry or start a family.The jobs crisis afflicting China’s graduates is all the more surprising given that this cohort is the country’s most highly educated ever.Covid restrictions are partly to blame, economists said. With travel, restaurants and other businesses shut down for three years, new jobs in the services sector probably contracted last year, after adding 16mn jobs in 2018-19, according to Macquarie. A job fair for recent graduates in Zhengzhou, China, in June. The industrial capital of a province of 100mn people, the city has struggled to provide adequate jobs for its youth © Qilai Shen/FTThe private sector in general, which accounts for 80 per cent of urban employment in China, still lacks confidence post-Covid, analysts said. Private fixed-asset investment, a measure of business activity, turned negative in May for the first time since 2020.Government crackdowns on high-growth sectors that were big employers of young people, including ecommerce, education platforms, gaming and finance, have not helped. Worried about tech competition with the US, Beijing is now emphasising advanced electronic hardware such as semiconductors. Youth unemployment has more than doubled since the government began this “de-risking” in 2018, Macquarie’s Hu said in a report.“A policy focus more on security and less on growth also puts pressure on youth unemployment,” Hu said.“There is a skills mismatch,” said Eswar Prasad, senior fellow at the Brookings Institution. He added that the government was trying to shift the economy to high-tech manufacturing, but the services sector was lagging and unable to provide enough employment for graduates, while the high-tech sector was not ready to absorb all the engineering students coming out of universities.

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Some argue the underlying causes go deeper. Michael Pettis, a senior associate at the Carnegie China Center, said Beijing’s investment model remained geared towards manufacturing and investment rather than the domestic consumption ultimately needed to create jobs.“Chinese growth is not very labour-intensive,” Pettis said. Chinese policymakers’ instinct is to invest in infrastructure, manufacturing and property to pump up growth. But the country’s ratios of investment to gross domestic product are already among the highest in history for a large economy, he said.“When you build your manufacturing competitiveness based on low wages, once low wages become a problem because of weak domestic demand, you’re sort of stuck,” Pettis said.Young people are resorting to whatever they can to improve their employment prospects. Until last year, Beijing’s Lama Temple was mainly frequented by older people praying for good health. But on a recent hot Sunday, the Tibetan Buddhist haven received hundreds of jobless young people conducting shaoxiang baifo — burning incense to pray for better fortune.Lu, an accounting graduate, wished to set up a dance training business in her hometown of Guiyang in south-western China, having failed to find a job after graduating from a second-tier university in Beijing. “There’s no chance for me to land a job in Beijing,” said Lu, outside the gold-inscribed Falun Hall — a favourite among the temple’s many pavilions for the young jobless.People pray at the Lama Temple in Beijing © Francois Nadeau/FTAlong with many other young people, Lu sat China’s gruelling national civil service examination, which drew a record 2.6mn applicants this year, nearly twice the number in 2019. She failed — the success rate was just 1.4 per cent.But she said her second wish at the temple was to sit the exam again next year and get a job at the Guiyang tax bureau.“That’s what my parents want,” she said. “They think I should prioritise stability.”Some have had luck. Zhou, 26, visited the temple in February to pray for work after losing her job and was returning to offer the deity her thanks.She successfully secured a position at a medical equipment maker in Zhengzhou. Although the new job pays less than half what she previously earned at a metaverse company in Beijing, she said she was “OK with this”.“There’s not much opportunity in Beijing,” she said, “so I just had to get a job first.” More

LONDON (Reuters) – An increasing number of countries are repatriating gold reserves as protection against the sort of sanctions imposed by the West on Russia, according to an Invesco survey of central bank and sovereign wealth funds published on Monday.The financial market rout last year caused widespread losses for sovereign money managers who are “fundamentally” rethinking their strategies on the belief that higher inflation and geopolitical tensions are here to stay.Over 85% of the 85 sovereign wealth funds and 57 central banks that took part in the annual Invesco Global Sovereign Asset Management Study believe that inflation will now be higher in the coming decade than in the last. Gold and emerging market bonds are seen as good bets in that environment, but last year’s freezing of almost half of Russia’s $640 billion of gold and forex reserves by the West in response to the invasion of Ukraine also appears to have triggered a shift.The survey showed a “substantial share” of central banks were concerned by the precedent that had been set. Almost 60% of respondents said it had made gold more attractive, while 68% were keeping reserves at home compared to 50% in 2020.One central bank, quoted anonymously, said: “We did have it (gold) held in London… but now we’ve transferred it back to own country to hold as a safe haven asset and to keep it safe.”Rod Ringrow, Invesco’s head of official institutions, who oversaw the report, said that is a broadly-held view.”‘If it’s my gold then I want it in my country’ (has) been the mantra we have seen in the last year or so,” he said.DIVERSIFY Geopolitical concerns, combined with opportunities in emerging markets, are also encouraging some central banks to diversify away from the dollar.A growing 7% believe rising U.S. debt is also a negative for the greenback, although most still see no alternative to it as the world’s reserve currency. Those that see China’s yuan as a potential contender fell to 18%, from 29% last year.Nearly 80% of the 142 institutions surveyed see geopolitical tensions as the biggest risk over the next decade, while 83% cited inflation as a concern over the next 12 months.Infrastructure is now seen as the most attractive asset class, particularly those projects involving renewable energy generation. Concerns over China mean India remains one of the most attractive countries for investment for a second year running, while the “near-shoring” trend, where companies build factories closer to where they sell their products, is boosting the likes of Mexico, Indonesia and Brazil. As well as China, Britain and Italy are seen as less attractive, while rising interest rates coupled with work-from-home and online shopping habits which became embedded during the COVID-19 outbreak meant property is now the least attractive private asset.Ringrow said the wealth funds that performed better last year were those that recognised the risks posed by inflated asset prices and were willing to make substantial portfolio changes. It would be the same going forward.”The funds and the central banks are now trying to get to grips with higher inflation,” he said. “It’s a big sea change.” More

HONG KONG (Reuters) – For most young adults, moving out of home is a rite of passage but in Hong Kong – notorious for its chronic lack of housing – it’s usually an unaffordable dream.Silver Ho, a 26-year-old hair stylist assistant who was tired of arguing with his parents, counts himself as one of the lucky ones. Two months ago, he landed a spot at a new so-called “youth hostel”, which offers rooms for young adults that are subsidised by the Hong Kong government and can be rented for up to five years.His 22 square metre (240 square foot) twin-bed room he’ll share with another person is only a bit smaller than the public housing unit he shared with his parents.Ho also pays rent of just HK$4,400 ($560) per month, 27% cheaper than a space in a sub-divided flat in the same neighbourhood. Such partitioned units often have no personal bathroom and are barely big enough for a bed.The hostel programme, ramped up last year under pressure from Chinese President Xi Jinping, is aimed at tackling youth frustration with housing – a factor Beijing believes contributed to the anti-government pro-democracy protests that rocked the city in 2019.It’s also aimed at nurturing what the government considers to be good responsible citizens and providing opportunities for self-development. Applicants – who must be younger than 31, earn less than HK$25,000 ($3,200) a month and have less than HK$380,000 in assets – are chosen after interviews. They are also required to do 200 hours a year of community service or approved activities to keep their rooms.For Ho, gaining a room at the BeLIVING hostel has meant independence and saving on commuting time. It’s the first to have been converted from a hotel under a new scheme and unlike the city’s three other hostels, is conveniently located in the bustling commercial area of Causeway Bay.”I now have more time in the salon to learn new skills and practise. That helps increase my chances of getting a promotion,” he said.HOME TRUTHSHong Kong has been the world’s least affordable housing market for 13 consecutive years, according to research firm Demographia, and housing woes are widely blamed for most of the city’s social problems. Public housing units are available for low-income people but the average waiting time is 5.3 years. Families and the elderly are favoured, so the chances of one going to a young single person are close to nil.Hong Kong’s hostel programme first started in 2011 but only gained momentum after Xi visited the city last July and said the government must do more to tackle youth housing and job problems while creating more opportunities for self-development.At the time, the city had only one hostel with 80 beds. Since then, however, the government has pledged to boost supply.It now aims to provide 3,000 beds in five years through hotel-to-hostel conversions, which would come on top of 3,400 planned under the first programme that are either being built from scratch or through redeveloping properties owned by non-profit groups.A survey by the Concerning Youth Housing Rights Alliance published in May suggests the hostels will have limited appeal with close to 90% of respondents saying they don’t plan to apply. Most are instead prioritising saving up to purchase their own flat one day.That said, applicants for the BeLIVING hostel outstripped the number of beds 5 to 1.New BeLIVING resident Chelsea Tung sees her move as both a chance to live with her boyfriend while putting aside money for a flat of their own.”I’ll be able to save up for a downpayment here,” the 23-year-old insurance agent said.The programme faces several hurdles.It may be hard to boost the number of hostels as hotels, previously hit hard by three years of pandemic restrictions, are now seeing more demand.Non-profit groups that run the hostels are also struggling to find a sustainable financing model. The group that runs the city’s first hostel built under the government scheme said all its rental income goes towards building maintenance and project management. “We need to think of ways to cut costs and to raise funds to keep operating,” said Carrie Wong, a supervisor at the Hong Kong Federation of Youth Groups.Ngai Ming Yip, a professor of housing and urban studies at City University of Hong Kong, said the hostel scheme will only provide a limited amount of supply and only goes so far in ameliorating frustration among the city’s youth.”The root of the problem is not only housing. Research has shown it’s related to young people’s views towards opportunity, outlook, politics, democracy, everything,” he said.($1 = 7.8136 Hong Kong dollars) More

The Recruitment and Employment Confederation (REC) and accountants KPMG said increases in starting salaries for permanent and temporary staff were the weakest since April 2021.The BoE, which has raised interest rates 13 times since late 2021 in an attempt to tame the highest inflation rate among the world’s big rich economies, has said it expects pay growth to weaken, easing price pressures.The monthly REC survey showed the availability of staff rose for the fourth month in a row to 57.6 from 55.6 in May, the steepest month-on-month increase since November 2009 excluding the coronavirus pandemic period.”This is likely driven by people reacting to high inflation by stepping up their job search, and by some firms reshaping their businesses in a period of low growth,” Neil Carberry, REC’s chief executive, said.Claire Warnes, partner for skills and productivity at KPMG UK, said the sharp upturn in people looking for work reflected a drop in recruitment and increasing redundancies.REC said uncertainty over the economic outlook weighed on hiring decisions in June. Its monthly permanent placements index came in at 46.4 last month, picking up from the near two-and-half-year low of 43.8 in May but still below the 50.0 no change level.Temporary hiring, which often rises when firms are uncertain about the economic outlook, increased moderately. Vacancies ticked up further in June although the pace of growth was the weakest since records started in March 2021. More