Aurelia Butler

BEIJING (Reuters) -China unveiled a 10 trillion yuan ($1.40 trillion) debt package on Friday to ease local government financing strains and stabilise flagging economic growth, as it faces fresh pressure from the re-election of Donald Trump as U.S. president.The measures confirm last week’s Reuters report, and mark a departure from the all-out stimulus strategies to revive growth China has deployed in the past. They aim to repair municipal balance sheets as a longer-term objective, rather than directly inject money into the economy.Finance Minister Lan Foan said more stimulus was coming, with some analysts saying Beijing may not want to fire all its weapons before Trump takes over officially in January.In an apparent reaction to the U.S. election and the intensifying risks to trade, state media CCTV reported that China’s cabinet on Friday approved expanding coverage of export credit insurance and will step up support for trade firms.But for now, those investors who speculated on a fiscal bazooka may be disappointed.”I don’t see anything that exceeds expectations,” said Huang Xuefeng, research director at Shanghai Anfang Private Fund Co, in Shanghai. “It’s not huge if you look at the fiscal shortfalls.””The money is used to replace hidden debts, which means it doesn’t create new work flows, so the support to growth is not that direct.”Local governments, facing high debt and falling revenues, have been cutting civil servants’ pay and amassing debts with private sector companies, choking money flows to the real economy and fanning deflationary pressures.Their strains, stemming from a severe property crisis since 2021 which decimated revenues from residential land auctions to developers – a key source of funds for cities and provinces – had put China’s 2024 growth target of roughly 5% at risk.China’s longer-term outlook is further clouded by Trump’s threat of tariffs in excess of 60% on all Chinese goods, which has rattled Chinese manufacturers and accelerated factory relocation to Southeast Asia and other regions.Exporters say the tariffs will further shrink profits, hurting jobs, investment and growth in the process. They would also exacerbate China’s industrial overcapacity and the deflationary pressures it fuels, analysts said.The package, unveiled at the end of a week-long parliament meeting, included raising the local governments’ debt quota by 6 trillion yuan over the next three years, with the new funds to be used to repay “hidden debts”. It also gave municipalities the greenlight to use for the same purpose another 4 trillion over five years in issuance that Beijing had already approved. Beijing uses “hidden debt” to describe the loans, bonds and shadow credits of local government financing vehicles, or LGFVs.Lan said those debts stood at 14.3 trillion yuan at the end of 2023, which authorities planned to trim to 2.3 trillion yuan by 2028. The International Monetary Fund, however, estimates debts of LGVFs amounted to 60 trillion yuan at the end of 2023, or 47.6% of GDP.Swapping hidden for official debt is expected to save 600 billion yuan in interest for local governments over five years. Carlos Casanova, Asia senior economist at UBP, estimated China needed a debt package of 23 trillion yuan to reduce the inventory of unsold homes and repay maturing LGFV debt.The measures announced on Friday “are going to disappoint the market because China needs more essentially,” he said. MORE SUPPORT Lan also reiterated officials will issue policies to support state sector purchases of unsold apartments and reclaim undeveloped residential land from property developers, as well as replenish the capital of big state banks.He did not give details on the size or timing of those measures, which would represent a much more direct way of injecting fiscal oomph into the economy.”The lack of direct fiscal stimulus suggests that policymakers would leave policy room for the impact of Trump 2.0 later,” said Xing Zhaopeng, senior China strategist at ANZ.Also without detailing, Lan said Beijing will “intensify efforts” to support manufacturing equipment upgrades and expand a consumer subsidy scheme that targets purchases of appliances and other goods.Many economists have long argued for stronger consumer stimulus, especially as Beijing faces increasingly higher tariffs on its exports from Washington and other capitals in Europe and elsewhere.Low wages, high youth unemployment and a feeble social safety net leave China’s household spending below 40% of GDP, or about 20 percentage points behind the global average. “I don’t think that we will see direct fiscal stimulus aimed at consumption anytime soon,” UBP’s Casanova said. “I think you will need a lot more pain for that to materialize,” he said. “China is probably going to hold back some of that fire power until they have a better idea of what President Trump is planning.” ($1=7.1533 Chinese yuan renminbi) More

The measures include expanding coverage of export credit insurance, improving cross-border e-commerce development and facilitating personnel exchanges, state media CCTV said. China will also improve its trade shipping security capability and step up support for trade firms to secure jobs, CCTV said. More

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(Reuters) -Singapore Airlines on Friday flagged its earnings would stay under pressure despite robust travel demand in the second half of the year, while it reported a profit fall reflecting stiff market competition coupled with rising costs. The city-state’s flag carrier said the aviation sector was struggling with macro-economic uncertainty, rising geo-political tensions, inflationary cost pressures and increased competition.”The Group will remain nimble and agile, adjusting its passenger network and capacity to match evolving demand patterns,” the airline said while signalling a healthy air freight demand heading into the year-end peak. Singapore Airlines (OTC:SINGY) Group includes the flag carrier and budget airline Scoot.Singapore’s leading airline operator posted a 48.5% plunge in net profit to S$742 million ($561.65 million) for the April-September period and declared an interim dividend of 10 Singapore cents per share. The group reported net profit of S$1.44 billion a year ago. SIA’s total expenses rose to S$8.70 billion for the half-year ended Sept. 30, a 14.4% rise, due to a jump in both fuel and non-fuel costs, while its passenger yield, a proxy for air fares, fell 5.6% in the first half.Revenue rose by 3.7% from a year ago to S$9.50 billion.Passenger load factor — a measure of how many seats are filled on planes — was 86.4% in the first half for the group as a whole, compared with 88.8% a year earlier. “Increased capacity and stronger competition in key markets led to yield moderation, resulting in lower operating profit,” Singapore Airlines said. Airlines globally have ramped up the number of flights and routes to cater to robust air travel demand, which has resulted in increased competition, putting pressure on ticket prices and squeezing profit margins. Analysts at Morningstar have flagged in a note that the rise in international capacity by global airlines had begun to be reflected in increasing competition. AIR INDIA-VISTARA MERGER PROGRESS Singapore Airlines said it will record a non-cash accounting gain of S$1.1 billion once the Air India-Vistara merger completes, which the firm expects by November. Singapore’s flagship carrier announced a plan to merge the decade-old Vistara and Tata-owned Air India in November 2022, in a bid to create a dominant full-service airline in the domestic and international markets.Singapore Airlines (SIA), which is set to get a 25.1% stake in Air India, will inject S$498 million into the new combined entity, through subscription of new Air India shares. ($1 = 1.3211 Singapore dollars) More

(Reuters) -U.S. stock index futures edged lower on Friday, taking a breather after a sharp rally powered by a sweeping Trump win and an expected interest-rate cut took the S&P 500 futures above the 6,000 mark for the first time. It surpassed the psychologically important milestone on Thursday on expectations of an easier regulatory regime under President-elect Donald Trump, with lower borrowing costs boosting the sentiment. The Fed cut the benchmark rate by 25 basis points as Chair Jerome Powell said the election outcome would not have a “near-term” impact on monetary policy.”Strong earnings and economic growth, coupled with the forceful ‘Fed put’, (are) set to continue to propel the market higher over the medium term,” said Michael Brown, senior research strategist at Pepperstone. “Cleaner positioning after participants hedged their books pre-election, and expectations of Trump’s anticipated tax cuts and fiscal stimulus, is helping to further juice the upside in risk.” However, Trump’s fiscally expansive spending plans and proposed tariff hikes could push up inflation, complicating the Fed’s policy path. The Fed chief said the central bank would begin estimating the impact on its twin goals of stable inflation and maximum employment when the new administration’s proposals take shape.Traders have already trimmed expectations for rate cuts next year, and bond yields have jumped to multi-month highs. Still, the immediate impact on Wall Street has been fairly muted as all three major indexes closed around record highs on Thursday. The Dow and S&P 500 are set for their best week in nearly a year, while the Nasdaq is on track for its best in two months. Dow E-minis were down 17 points, or 0.04%, S&P 500 E-minis were down 10.5 points, or 0.17% and Nasdaq 100 E-minis were down 83.75 points, or 0.39%. Shares of chipmaker Nvidia (NASDAQ:NVDA) eased 1% in premarket trading, after the AI pioneer became the first in history to surpass a $3.6 trillion in market value on Thursday. Airbnb dropped 5.3% after missing third-quarter profit estimates, while Pinterest (NYSE:PINS) slumped 12.2% after a disappointing revenue forecast. U.S.-listings of Chinese companies lost ground after investors were left unimpressed by the government’s latest fiscal support measures. JD (NASDAQ:JD).com dropped 4.2% and Alibaba (NYSE:BABA) fell 3.8%. Investors were also keeping an eye on a likely “Red Sweep”as Republicans were set to keep their narrow lead in the House of Representatives after winning control of the Senate. That would make it easier for Trump to enact his legislative plans. The University of Michigan’s preliminary consumer sentiment survey data for November is due later in the day, while Federal Reserve Board Governor Michelle Bowman is expected to speak. 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.Taiwan Semiconductor Manufacturing Company has notified Chinese chip design companies that it will suspend production of their most advanced artificial intelligence chips, as Washington continues to impede Beijing’s AI ambitions.TSMC, the world’s largest contract chipmaker, told Chinese customers it would no longer manufacture AI chips at advanced process nodes of 7 nanometres or smaller as of this coming Monday, three people familiar with the matter said. Two of the people said any future supplies of such semiconductors by TSMC to Chinese customers would be subject to an approval process likely to involve Washington. TSMC’s tighter rules could reset the ambitions of Chinese technology giants such as Alibaba and Baidu, which have invested heavily in designing semiconductors for their AI clouds, as well as a growing number of AI chip design start-ups that have turned to the Taiwanese group for manufacturing.The US has barred American companies like Nvidia from shipping cutting-edge processors to China and also created an extensive export control system to stop chipmakers worldwide that are using US technology from shipping advanced AI processors to China. There have been reports that a new US rule would ban foundries from making advanced AI chips designed by Chinese firms, according to analysts at investment bank Jefferies. TSMC is rolling out its new policy as the US Commerce Department investigates how cutting-edge chips the group made for a Chinese customer ended up in a Huawei AI device. The Chinese national tech champion is subject to multiple US sanctions and export controls.People familiar with TSMC’s move said its decision was driven by a “combination” of the need to improve internal controls in the wake of that ongoing probe and the next wave of US export controls on chip supplies to China, expected before US President Joe Biden leaves office.“We want to start mitigating before there are solid, structured regulations,” one of the people said.The company is understood to be particularly wary of being targeted as unreliable or uncooperative as Donald Trump is set to become the next US president.This year, Trump accused Taiwan of “stealing” the US chip industry, and suggested TSMC could move its production back home after pocketing billions of dollars in subsidies from Washington for building fabrication plants in the US.A person close to TSMC said its move was “not a show for Trump but definitely designed to underscore that we are the good guys and not acting against US interests”.Being cut off from TSMC could hurt Chinese tech giants that have bet on making their most advanced AI chips in Taiwan. Search giant Baidu, in particular, is aiming to build a full stack of software and hardware to underpin its AI business. Near the centre of those efforts is its Kunlun series of AI chips. Its Kunlun II processor is made by TSMC on its 7-nanometre level of miniaturisation, according to Bernstein Research. “Kunlun chips are now especially well-suited for large model inference and will eventually be suitable for training,” Baidu founder Robin Li told a conference last year. Li added that the group had been effective in cutting costs by designing its own chips. The people briefed on the situation said TSMC’s new rules were clear in targeting AI processors, but it was so far unclear how widely that would be applied to other chips. China has a number of leading start-ups designing AI chips for self-driving, including Hong Kong-listed Horizon Robotics and Black Sesame International Holding. Executives and company materials at both groups have indicated their newest generation of chips would be made by TSMC on the 7-nanometre node.The people close to TSMC said its new restrictions would not have a major impact on its revenue. TSMC’s October revenue increased 29.2 per cent to NT$314bn ($9.8bn), a slight deceleration of growth compared with preceding months.In a statement, TSMC said it was a “law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls”.The news was first reported by Chinese media site ijiwei.com.Nian Liu contributed reporting from Beijing. More

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the world“The US economy is strong.”“Joe Biden is not getting credit for falling inflation and low unemployment, therefore, partisanship and media bias must be against him.”“The US is outperforming Europe, so America’s incumbent party will do better at the polls.”FT Alphaville spent much of this year trying to dispel these misguided and incomplete narratives: — It’s (still) the economy (and politics) — stupid — Why isn’t Joe Biden getting credit for America’s sturdy jobs market?— How the ‘strong’ US economy feels for poorer Americans, in five charts — America: a healthy or healthcare economy?If you missed those, here’s a quick summary:— America is continental. US GDP, unemployment and inflation data are particularly poor reflections on the economic experiences of households and businesses in different states and counties. For that, one must dig down for local and income-level statistics.— A high-growth, high-spending economy is not necessarily a sign of a healthy economy. Many Americans are spending a high proportion of their money on rent, healthcare, and food, not discretionary items — and fuelled by debt.— “Inflation falling, unemployment low=good” is too simplistic when people feel price-levels (cumulative inflation) and job security (opportunities and real wage growth) more palpably.Frankly, none of this is new. Political fealty, culture wars, and disinformation may all play a part. But, for all those still unconvinced that people’s lived experience of the economy mattered as much as the exit polls and voxpops suggest, here are ten charts we’ve been monitoring all year. 1) A 17-22 per cent rise in the price level across swing states since January 2021 has not gone unnoticed:2) The cheapest US products have seen the fastest increase in price level; implying lower-income households have faced even higher inflation (aka cheapflation):3) The change in price level exceeds the change in wage level across most swing states too:4) Debt delinquencies are also rising faster than the US average in key states:5) A reminder of how Americans spend their money on services. The bulk of household spending is going towards non-discretionary items such as rent and healthcare:6) Some workers have had more luck in the post-pandemic labour market than others. The visible relative performance can impact how individuals feel about whether the economy is working for them:7) Unemployment may still be low, but those on the lowest incomes have grown most worried about losing their job since the start of the year:8) Americans of all income levels seem to be hearing downbeat news concerning government economic policies. Outsiders may see US exceptionalism on their screens, but the realities on the ground are different, and the wealthier can shoulder it better:9) All income groups feel worse off than they did when Biden started his term, although it is more stark for the bottom and middle thirds of earners:10) And finally. The stock market is not the real economy. America’s asset-poor see minimal upside to soaring equity and house prices:Still don’t trust those exit polls? Some content could not load. Check your internet connection or browser settings. More