Aurelia Butler

BEIJING (Reuters) – A slowdown in both the Chinese and global economies is the biggest issue affecting European firms in China, beating political tensions with the United States and decoupling, according to the European Chamber of Commerce in China.The number of European firms that see China as a top-three destination for future investment was at its lowest total on record, the chamber’s annual position paper released on Wednesday said. The EUCCC has recorded this figure since 2010. As rising interest rates and inflation squeeze demand in Europe and the United States, companies in China are in contrast battling a sharp decline in prices as the risk of deflation weighs on the world’s second-largest economy.The number of European companies reporting their China-sourced revenues had decreased in 2022 was three times higher than in 2021, the report said, while the importance of China to companies’ global profits fell for a second consecutive year.”The deterioration of business sentiment that has taken place over the last three years has been significant and cannot be reversed over night,” the chamber said. BASF, Maersk, Siemens, and Volkswagen (ETR:VOWG_p) are among the members of the chamber. The chamber’s findings, which were based on the views of members from February to early March, revealed that a record number of companies had lost business last year due to market access and regulatory barriers.President Xi Jinping’s increasing focus on national security – in particular a recent crackdown on consultancies and due diligence firms – has left many foreign companies uncertain about where the line is in a market where regulations can often be vaguely worded.”With new and forthcoming European and U.S. legislation set to compel many companies to demonstrate greater transparency in their China operations, the trend of supply chain diversification and divestment is likely to strengthen in the medium-term,” the chamber said. Foreign direct investment (FDI) into China has slowed substantially since the country abandoned its strict COVID-19 curbs late last year, with dollar-denominated FDI down 5.7% in January-May compared with the same period last year.The EU’s trade deficit with China widened in 2022 to reach 396 billion euros ($433 billion), leading European Commission President Ursula von der Leyen to call on the bloc to “de-risk” economically and diplomatically from China. More

(Reuters) -Bank of Japan (BOJ) policymakers agreed to keep ultra-low interest rates at Governor Kazuo Ueda’s debut meeting but some saw the need to avoid being too late in raising interest rates, minutes of the April rate review showed on Wednesday.While Japan was making progress toward achieving the BOJ’s 2% inflation target, the nine-member board saw the need to maintain ultra-loose policy given uncertainty over the global economy and the wage outlook, the minutes showed.But one member said the BOJ must ensure its policy “does not fall behind the curve,” as wages and inflation were already showing signs of accelerating.Another member said the BOJ must avoid a situation where it had to make abrupt changes to interest rates, as that would cause huge disruptions to businesses accustomed to extremely low interest rates.”The BOJ must humbly monitor price and wage developments, and respond not too quickly, but also not too slowly” the second member said.At the April meeting, the BOJ made no changes to its yield curve control (YCC) policy including the -0.1% short-term interest rate target and the implicit 0.5% cap for the 10-year bond yield.Many members saw no need to tweak the operational conduct of YCC, arguing that distortions in the yield curve seen in the past had been on the mend, the minutes showed.But one member said the BOJ could consider revising the conduct of YCC, as many market players were complaining that the functioning of Japanese government bond (JGB) market remained low, according to the minutes.”On this basis, the member said that yield curve control seemed, in some aspects, to have hampered smooth financing and the bank could consider revising its conduct at this time. However, it was appropriate to wait and see a little longer in light of the situation in global financial markets,” it said.The BOJ does not disclose the identity of the members who made the comments at the minutes. Earlier this year, however, board member Naoki Tamura publicly called for the need to assess the pros and cons of YCC. More

The writer is chief China economist and head of Asia economics at UBS Investment Research, and author of ‘Making Sense of China’s Economy’After a promising start, China’s economic recovery has waned in the past two months. Investors have been disappointed by the lack of policy responses, with some questioning whether China’s government still cares about economic growth. In the past week or so, hope has grown for a major stimulus package. What should we expect?I believe the government does care about growth and will intervene to stabilise the economy and the property market when necessary. Given the recent sharp deterioration in economic momentum, the time is ripe for action.However, policy support is likely to remain modest and could include easing property restrictions, a muted increase in infrastructure spending, funding support for property developers and local governments, and targeted consumption subsidies. Those expecting a large fiscal package similar to that of 2008 or even 2015, a wholesale bailout of local government debt, major monetary expansion or measures to reinflate the property market may be sorely disappointed.First, China has less fiscal room for manoeuvre. Total debt reached almost 300 per cent of gross domestic product in 2022, according to the Bank for International Settlements. We estimate government debt including that of local government platforms exceeds 90 per cent of GDP, with most of it at the local level where cash flow is usually insufficient to cover interest payments.China’s high domestic savings and state-owned banking system limit the risk of a liquidity-driven debt crisis, so in theory the central government could borrow more to fund a generous fiscal stimulus. However, the country faces huge fiscal challenges including rising pension and healthcare costs to support its rapidly ageing population.Second, while new property starts and sales have fallen excessively and need to be stabilised, shifts in supply and demand suggest a weaker housing market ahead. More than 127mn units of urban housing have been built since 2008. Most old city centres have been upgraded and shantytown dwellings replaced. Meanwhile, housing ownership reached 80 per cent in 2020. China’s population is declining, and most rural labour has already moved to work in cities. Household income growth has weakened too.Third, there is no guarantee that significant monetary expansion would work given the weak corporate and household confidence and high debt in both sectors. With low private sector credit demand, monetary expansion could end up simply supporting local government spending, perpetuating an unsustainable growth model. The Chinese government may also worry about the risk to financial stability and inflationary consequences.Most importantly, I think Beijing’s policymakers understand these economic woes are not just cyclical. Large stimuli cannot address deep-rooted structural issues. Willingly or not, China is transitioning away from growth led by property and local government, which is a painful process. Consumers lack confidence in future pension and healthcare coverage and continue to spend cautiously. Low investor confidence in the private sector is not just due to the weak economy but also the uneven playing field with state-owned enterprises (SOEs) and concerns about tighter regulation.To make matters worse, Chinese firms are battling reduced access to advanced technology and decoupling from the US and its allies. China’s exports and inbound foreign direct investment are also feeling the effects of global supply chain adjustments.Swift action is now needed to combat the sharp slowdown, especially in the battered property sector. But instead of sweeping spending, China should opt for a moderate stimulus package (1 to 2 per cent of GDP), accompanied by concrete structural policies.These could include reducing entry barriers and enhancing legal protection for the private sector; a well-publicised increase in healthcare and social protection spending; and deepening hukou (household registration) reforms to increase labour mobility and rural migrants’ spending power. While big SOE reforms are unlikely, measures could be taken to increase efficiency and curb their monopoly.While China may disappoint a market hoping for large fiscal stimulus, this need not harm its economy in the long run. A smaller role for the government in steering growth may lead to more pronounced economic cycles, but could also help clear inefficient market players, make more space for the private sector to develop, and boost resources for social spending. Such a realignment of the roles of the state and the market would be welcome. More

Two Sigma, which ended December with roughly $70 billion in assets, said its management committee has been unable to agree on topics such as “defining roles, authorities and responsibilities for a range of C-level officers,” corporate governance and succession plans.”If such disagreement were to continue, the adviser’s ability to achieve client mandates could be impacted over time,” the firm said in the filing from March. It added that it has already impacted the implementation of key research, engineering and corporate business initiatives.According to the WSJ, which first reported on the rift earlier on Tuesday, the management committee mentioned in the filing is comprised by its two founders only: John Overdeck and David Siegel.Two Sigma declined to comment on the matter. More

TOKYO (Reuters) – Business morale at big Japanese manufacturers edged up in June, staying in positive territory for a second straight month and reflecting a post-COVID economic recovery though uncertainty remains high amid slowing global growth, a Reuters poll showed.Underlining the prospects for a service sector-led recovery, the non-manufacturers’ index hovered near this year’s high, the Reuters Tankan poll showed on Wednesday, bolstering the view that strong domestic demand may offset an export slowdown – a rare thing that would happen to export-reliant Japanese economy.The monthly poll suggested there would be a steady recovery in business sentiment in the Bank of Japan’s (BOJ) closely watched tankan quarterly survey due next on July 3.The Reuters poll found manufacturers’ mood was expected to rise over the coming three months, and service-sector morale would hover above +20.In the Reuters poll of 493 large companies, of which 232 responded on condition of anonymity, many firms cited the post-COVID rebound in demand as a positive factor, while risks stemmed from overseas economies.”We can expect a recovery in consumption and inbound demand as the coronavirus pandemic has calmed down,” a manager of a paper/pulp firm wrote in the survey, noting that business conditions had turned for the better.”A prolonged war in Ukraine and intensifying trade frictions between Japan and China have curbed capital expenditures at our clients while competition has heated up with overseas rivals,” wrote a machinery maker’s manager, who called business conditions “not so good.”The sentiment index for manufacturers stood at +8, up 2 points from the previous month, led by textiles/papers, oil refinery/ceramics, food processing and auto industry, according to the survey, conducted from June 7-16.The manufacturers’ index was up 11 points compared with three months ago. The index is expected to rise to +13 in September.The service-sector index slipped one point from May to +24 in June, led by information/communications and transport/utilities.Compared with three months ago, the service-sector index was up three points. The index is expected to drop two points to +22 in September.The Reuters Tankan indexes are calculated by subtracting the percentage of pessimistic respondents from optimistic ones. A negative figure means pessimists outnumber optimists. More

Human resources data firm XpertHR said the median basic pay settlement in the three months to the end of May remained at 6%, matching the record increases seen in the five rolling quarters before but well below inflation which stood at 8.7% in April.XpertHR has been tracking settlements since 1991. Wednesday’s data includes pay awards agreed in April, a key month for pay deals between employers and workers.”Although inflation is beginning to fall as we enter the second half of this year, it still lies far ahead of pay rises, meaning employees will remain grappling with the effects of a real-terms pay cut,” Sheila Attwood, senior content manager at XpertHR, said. Consumer price inflation data for May is due to be published at 0600 GMT on Wednesday. Economists polled by Reuters expect the pace of prices rises to have eased to 8.4%. The BoE is concerned that price rises could be harder to tame if pay deals keep growing. It is expected to increase Bank Rate by a quarter percentage point to 4.75% on Thursday, its 13th hike in a row.Official labour market figures last week showed stronger-than-expected wage growth in April. XpertHR said employers continued to report skills shortages and issues with staff retention, despite some signs of easing labour market conditions. More

Marks and Spencer, WHSmith and Argos are among the high-profile retailers heading a list of more than 200 companies named and shamed by the UK government for failing to pay staff the minimum wage. The Department of Business and Trade released details on Wednesday of 202 companies that left 63,000 low-paid workers out of pocket to the tune of £5mn. The breaches of the UK minimum wage law, which were investigated by HM Revenue & Customs between 2017 and 2019, resulted in financial penalties of about £7mn in total, while the offending companies also repaid the money their employees were owed.WHSmith, which reported pre-tax profits of £63mn in its most recent financial year, topped the list of rule-breakers: it underpaid 17,607 staff a total of more than £1mn. Lloyds Pharmacy failed to pay more than £900,000 to 7,916 workers. Marks and Spencer and Argos, which is owned by Sainsbury’s, left thousands of employees out of pocket by £578,000 and £480,000 respectively. Football club Oxford United and rugby league side Warrington Wolves were also among the businesses named. “Paying the legal minimum wage is non-negotiable and all businesses, whatever their size, should know better than to short-change hard-working staff,” said Kevin Hollinrake, a junior business minister.The government was “sending a clear message to the minority who ignores the law: pay your staff properly or you’ll face the consequences”, he added. Bryan Sanderson, chair of the Low Pay Commission, said failure to pay the minimum wage also had a wider impact. “Where employers break the law, they not only do a disservice to their staff but also undermine fair competition between businesses,” he said. The government did not disclose the size of fines against individual companies but said 39 per cent of the employers named had deducted pay from workers’ wages while a similar proportion had failed to pay workers correctly for their working time. More than one-fifth had paid the wrong rate to apprentices. Not all underpayments by companies were intentional but “there is no excuse for underpaying workers”, the business department said. The delay in publishing the details was to allow time for repayments and appeals, the government said.

The publication of the details of the cases comes as low-paid workers are increasingly struggling in the cost of living crisis following months of high inflation. The government raised the national minimum and living wages by 9.7 per cent in April, a move it said would boost the incomes of 2.9mn workers. Marks and Spencer said it had been included on the list “because of an unintentional technical issue from over four years ago”. Temporary staff were not paid within the required time periods and the error was rectified as soon as the company became aware, it said. “Our minimum hourly pay has never been below the national minimum wage,” the company added. WHSmith said its underpayments were caused by it misinterpreting how minimum wage rules applied to its staff uniform policy, an issue it said had been faced by other employers. “This was a genuine error and it was rectified immediately,” it said. Lloyds Pharmacy said its breach of the rules was also “unintentional” and related to staff uniforms. Workers had been reimbursed when the issue was uncovered, it said, adding that all its employees were paid above the national minimum wage.Argos’s owner Sainsbury’s said its underpayments had also been rectified and related to an error discovered in 2018, which dated back to 2012, before its acquisition of the business. Oxford United and Warrington Wolves did not respond to requests for comment. More