Aurelia Butler

Intel is to build a $4.6bn semiconductor assembly and testing plant in Poland, as the US chipmaker bets that Berlin will yield to its demands for more subsidies in relation to a planned manufacturing facility across the border in Germany.The plant in Wroclaw will help meet “critical demand for assembly and test capacity” that Intel says it expects to be ready by 2027. That is also when its €17bn wafer manufacturing facility in the German city of Magdeburg is expected to be up and running.But the US chipmaker has, since announcing its German plans last year, launched into tough negotiations with Berlin, arguing that inflation and higher energy costs have rendered the €6.8bn in subsidies that the government originally pledged for the project insufficient. Intel is now demanding an additional €4bn in government support — a sum that Germany’s finance minister Christian Lindner ruled out in an interview with the Financial Times. “There is no more money available in the budget,” Lindner said two weeks ago.The German media has, however, been reporting that Berlin might be yielding to Intel’s demands.Several European countries are racing to reduce their reliance on Asian suppliers of semiconductors, after a shortage caused by the pandemic wreaked havoc in several of its important industries. The chips that Intel specialise in, though, are not the type on which, for example, Europe’s large automotive industry depends. It has led critics to question whether Berlin’s wooing of Intel is the best use of taxpayers’ money.Intel, which also manufacturers wafers in Ireland, said the Polish facility was expected to create 2,000 jobs.Poland’s prime minister Mateusz Morawiecki said he was “excited to expand Poland’s role in the global semiconductor supply chain”. Intel’s largest research and development centre in Europe is based in the Polish city of Gdansk, where it employs about 4,000 people. The Polish government did not immediately respond to a question over how much it would pay Intel to build its plant in the country. Intel declined to say what amount of subsidies it would receive from Warsaw but said that, “like in all locations where it operates, Intel will pursue appropriate incentives . . . to ensure its operations are globally competitive”. One person close to Intel chief executive Pat Gelsinger, who was in Wroclaw on Friday, said he would, after a short stopover in Gdansk, travel to Berlin for continued negotiations with the German government. More

Tesco’s chief executive said there were “encouraging” signs that inflationary pressures on Britain’s biggest supermarket chain were easing as the group reported an 8 per cent rise in quarterly sales largely driven by higher prices. “We do believe that we’re past the peak inflation,” Ken Murphy said on a call with reporters on Friday. “It does remain stubbornly high as you see energy hedging and wage inflation still in the system and working its way through, but the early indicators are positive.” In a trading update on Friday, the company said large stores had performed particularly well, with like-for-like sales up 9.9 per cent, while online sales rose 8.2 per cent. Overall sales also climbed 8.2 per cent, to £14.8bn in the past three months, fuelled by higher prices, while volumes continued to drop, particularly in general non-food merchandise. Like-for-like fuel sales plunged 15.7 per cent year on year.Tesco had not been involved in recent discussions with the UK government about plans to cap some food prices, Murphy said, insisting the company was not “profiteering” from surging food inflation. “The year before we had operating profits of about 4.4 pence in the pound and this last year it was down to 3.8 pence, so we don’t believe that would be called profiteering,” he said. “We think that’s a pretty slim margin to run a business our size on.”This week, Bank of England governor Andrew Bailey said that food price inflation had been slower to fall than global commodity prices. Murphy said on Friday it was unfair to blame the industry for not lowering prices more quickly.He added that labour costs were likely to remain a challenge for UK employers even as commodity prices fell. Tesco recently cut prices on own-brand bread by 12 per cent and pasta by 16 per cent, while broccoli is 16 per cent cheaper, it said. It also lowered the price of cereal as wheat prices have come down, as well as dairy produce and oil, but it was “hard to predict” what other prices would drop, the company said, adding that the price of some commodities, such as potatoes and rice, had not decreased.The company said it had benefited from shoppers switching from more expensive retailers as it expanded its “Finest” food range. Customers have been trading down and shopping around more as inflation has shot up.Tesco expects adjusted operating profits in its retail business, its preferred profit measure, will be flat this financial year. It made £2.5bn last year.William Woods, an analyst at Bernstein, said: “While food inflation has shown signs of softening, we continue to expect relatively high levels for 2023, which should continue to drive outperformance at Tesco versus peers.” More

Five months after China’s president Xi Jinping declared victory over the pandemic and relaxed stringent social controls, new data this week revealed that the country’s economy was far from returning to full health.While consumers are venturing out to spend, buyers are shunning property, one of the Chinese economy’s central growth drivers. Exports, another important engine, are flagging as high inflation abroad saps demand for Chinese goods.The government has already begun cutting interest rates, but analysts said fiscal rather than monetary stimulus would be needed to keep the recovery in the world’s second-largest economy on track. Here are the sectors imposing the greatest drag on the economy as well as those with a brighter outlook — and policymakers’ options for reviving growth.Property warning signalsChina’s property sector, which accounts for about 30 per cent of its economic output, is at the root of the economic malaise, according to analysts. “It’s not an exaggeration to say that property is at this point jeopardising the entire economic recovery,” said Chris Beddor, deputy director of China research at Gavekal Dragonomics.Consumers are suspicious of the sector. Many bought flats before buildings were constructed, only to find the properties were not delivered after a regulatory crackdown on leverage levels sent a number of developers into default.

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The real estate market showed signs of stabilisation in the first quarter following a prolonged slump, but it has begun to slip again in recent weeks. Sales, new project starts and floor space under construction all declined in May when measured as a share of seasonally adjusted pre-pandemic 2019 levels, Gavekal said. Completions slowed to 24 per cent year on year, from 42 per cent a month earlier, the research group added.The government is expected next week to cut the five-year lending rate that is used to benchmark mortgages, but analysts said more measures were needed to revive the sector, such as credit for cash-strapped developers and incentives including reductions in mortgage down payments.Exports slow dramaticallyExports fell 7.5 per cent year on year in US dollar terms last month after rising 8.5 per cent in April as slower growth abroad hit demand, erasing what was a critical lifeline for the Chinese economy during the depths of the pandemic.

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Analysts said the weakness in exports and property had also probably spilled over to industrial production, which decelerated in May. To cap it off, private fixed-asset investment also turned negative for the first time in more than a decade — with the exception of the start of the pandemic in 2020 — indicating that businesses were not investing.“The manufacturing sector is dead on its feet at the moment and exports are poor,” said Rob Carnell, Asia-Pacific head of research for ING. He added that there might be a structural shift, with US export restrictions on high-tech goods, notably semiconductor components and chipmaking equipment, affecting China’s trade with regional powerhouses such as South Korea, Japan and Taiwan.Policymakers could choose to stimulate trade by tolerating a weaker renminbi. Lower interest rates would support that tactic — after the People’s Bank of China trimmed its main policy rate on Thursday, the currency fell as much as 0.3 per cent against the dollar to Rmb7.1807, a six-month low and putting it down about 4 per cent year to date.

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Retail sales a beacon of hopeEconomists said the best hope for reviving growth across the economy was to fuel strong domestic demand, which would lead to a tighter job market, higher salaries and eventually a resurgence of confidence that could spill over into property and manufacturing.Retail sales expanded 12.7 per cent year on year as rattled consumers returned to stores after last year’s tough pandemic restrictions. But economists said on a seasonally adjusted basis, the gauge fell month on month, as a boost following the reopening began to fade. Catering was the strongest component, followed by automotive purchases, helped by policy incentives and discounts.Infrastructure loses momentumInfrastructure investment grew 8.8 per cent in May year on year, according to economists. But the gauge also lost ground from last year, when it was growing at a rate of 10 per cent, and growth in the segment was probably not strong enough to offset the property and exports weakness, analysts warned.“Infrastructure investment momentum is slowing,” said Michelle Lam, greater China economist at Société Générale, which she attributed to “very weak land sales from local governments”.

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Economists said Beijing would need to resort to infrastructure to spur growth, suggesting policymakers could unleash local government special bonds (LGSBs) to spur investment.Analysts at Nomura forecast that this could amount to an extra Rmb500bn ($70bn) of LGSBs, on top of the untapped portion of this year’s annual quota of Rmb1.86tn. The bank also noted that Beijing could consider issuing special central government bonds to raise additional funds.No ‘bazooka’ expectedChina’s economic bounceback is fragile — a challenge the government itself has acknowledged. “The foundation for the economic recovery is not yet solid,” the National Bureau of Statistics said this week. More stimulus will be needed to return growth to pre-pandemic levels, and the central bank is expected to enact further rate cuts, which will be accompanied by tax breaks and other support for small businesses.Tao Wang, chief China economist at UBS, said the government should prioritise putting a floor under the property sector’s woes. “Otherwise it’s very hard to stabilise the economy as a whole,” she warned.Wang added that she had reduced her full-year economic growth forecast to 5.2 per cent from 5.7 per cent. JPMorgan Chase, Bank of America and Standard Chartered have also cut their projections, though all exceed the government’s official target of 5 per cent — its lowest in decades.

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Despite the critical obstacles to recovery, there are few expectations for a “big bang”-style stimulus.In the past, China injected investment into the property sector to overcome downturns. But Beijing has long made clear its view that “houses are for living in, not for speculation”, damping expectations of a glut of activity in the sector to drive growth.“The ‘bazooka’ policies in the past have typically just ended up helping the property developer sector and I don’t think Xi wants to do that,” said ING’s Carnell. More

Micron plans to invest more than $600mn in its factory in the Chinese city of Xi’an, in a demonstration of its commitment to China just weeks after the US memory-chip maker was barred from supplying the country’s critical infrastructure operators.Last month, Beijing banned key operators from purchasing from the Idaho-based company after an investigation found its products “posed serious network security risks”.The company made no mention of Beijing’s action in its announcement posted on the WeChat social media app on Friday. Micron said it would invest Rmb4.3bn ($603mn) over the next few years in upgrading its chip packaging and testing equipment at the Xi’an factory.“This investment demonstrates Micron’s unwavering commitment to its China business and team,” said the group’s chief executive Sanjay Mehrotra.Micron’s announcement comes as Chinese consumer electronics groups are drawing up plans to replace the group’s memory chips, according to two people with knowledge of the matter. Beijing’s announcement last month did not specify how broad the restrictions were, but industry insiders said tech groups had been pre-emptively working on redesigns in case Micron were cut out entirely from use in the country’s products.Micron did not respond to a request for comment.

Under the planned investment, Micron will add 500 new jobs, bringing its total headcount in China to more than 4,500.The chipmaker will also purchase packaging equipment from a Xi’an-based subsidiary of Taiwan’s Powertech Technology that it has been using in the factory since 2016. Micron also plans to build a new production line for memory chips in the facility, saying it had been “preparing for the project for some time”.Beijing’s action against Micron was seen as the first significant punitive action against a US semiconductor company in response to Washington’s tightening restrictions on chip-related exports to China.It followed a seven-week probe into Micron led by China’s Cyberspace Administration. More

Fifty miles north of what is now Edinburgh and nearly 2,000 years ago, the Roman empire’s Twentieth Legion began to build a fort near the River Tay. By Roman standards, it was unremarkable, despite its 20-hectare size and earthworks several metres thick. It boasted a forge, hospital and granaries, but lacked baths and aqueducts — perhaps because it was abandoned just a few years after construction started, as the Romans began to pull out of Scotland. They left behind a curious treasure: 10 tons of nails, nearly a million of the things. The nail hoard was discovered in 1960 in a four-metre-deep pit covered by two metres of gravel. The outer nails had rusted into a protective shell, leaving the inner nails in good condition. There were so many that archaeologists were somewhat at a loss as to what to do with them all. Many of the nails were sold off as souvenirs to help fund the excavation, some as sets of five in commemorative boxes. It seems a little disrespectful today, but as the head of the dig, Sir Ian Richmond, commented, “Even if a set were sent to every museum on earth there would still be many tons left over.”Why had the Romans buried a million nails? The likely explanation is that the withdrawal was rushed, and they didn’t want the local Caledonians getting their hands on 10 tons of weapon-grade iron. The Romans buried the nails so deep that they would not be discovered for almost two millennia.Later civilisations would value the skilled blacksmith’s labour in a nail even more than the raw material. As Roma Agrawal explains in her new delightful book Nuts and Bolts, early 17th-century Virginians would sometimes burn down their homes if they were planning to relocate. This was an attempt to recover the valuable nails, which could be reused after sifting the ashes. The idea that one might burn down an entire house just to reclaim the nails underlines how scarce, costly and valuable the simple-seeming technology was.The high price of nails at the time was partly because Britain had banned the export of precious nails to its colonies. The arguments about industrial policy and national security that now rage over silicon-chip-fabrication technology were relevant to the nail-making trade four centuries ago.That all seems strange today, when nails are so cheap that few people even think to wonder how they got that way. The economist Daniel Sichel asks that question in a research paper published a couple of years ago, drawing on data ranging from the 18th-century accounts of Greenwich Hospital to wholesale nail prices in 19th-century Philadelphia. His headline finding is that the real price of nails was broadly unchanged through the 18th century, fell by 90 per cent between the late 1700s and mid-1900s, and has been rising ever since, partly because of the cost of raw materials, and perhaps because modern nails are more complex and customised than they used to be. And as Sichel points out, the price of “installed nails” remains incredibly cheap, thanks to the invention of the nail gun.Why did prices fall so much after the late 1700s? One explanation comes from a foundational text of economics, Adam Smith’s The Wealth of Nations, which described the huge productivity of a then-modern pin factory, thanks to the specialisation of the manufacturing process. “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head”. This production process was hundreds of times more efficient than one person working alone.Whether Smith himself had really seen such a factory is now a controversial question, but the underlying point is not. The division of labour and the growing automation of the process delivered cheaper pins and, no doubt, cheaper nails too. Sichel agrees: although the falling price of nails was driven partly by cheaper iron and cheaper energy, most of the credit goes to nail manufacturers who simply found more efficient ways to turn steel into nails.Nails themselves have changed over the years, but Sichel studied them because they haven’t changed much. Roman lamps and Roman chariots are very different from LED strips and sports cars, but Roman nails are still clearly nails. It would be absurd to try to track the changing price of sports cars since 1695, but to ask the same question of nails makes perfect sense.As Agrawal’s book explains, there is an endless fascination in everyday objects such as springs, wheels and nails, from the physics behind them to simple practical tips. (I did not know, until I read the book, that nails often bend not because I whack them too hard but because I don’t whack them hard enough.)I make no apology for being obsessed by a particular feature of these objects: their price. I am an economist, after all. After writing two books about the history of inventions, one thing I’ve learnt is that while it is the enchantingly sophisticated technologies that get all the hype, it’s the cheap technologies that change the world. The Gutenberg printing press transformed civilisation not by changing the nature of writing but by changing its cost — and it would have achieved little without a parallel collapse in the price of surfaces to write on, thanks to an often-overlooked technology called paper. Solar panels had a few niche uses until they became cheap; now they are transforming the global energy system.A Roman nail and a modern nail have a similar form, but a radically different price. That alone is why one was a closely guarded treasure and the other is a disposable puncture hazard. Tim Harford’s children’s book, “The Truth Detective” (Wren & Rook), is now availableFollow @FTMag on Twitter to find out about our latest stories first More