Aurelia Butler

LONDON (Reuters) – HSBC is reviewing a possible exit from as many as 1 in 5 of the countries the lender operates in to sharpen its focus on Asian expansion, Chief Financial Officer Georges Elhedery told Reuters in his first interview since taking the role.These reviews, which could see the British bank deciding to sell or streamline businesses in 12 countries, follow pressure from Chinese shareholder Ping An Insurance, which wants HSBC to prioritise growth in its money-spinning Asian business which generates 78% of group profit.”Some of these will have slower progress than others, and none of them is material enough on its own to change the profile of the overall business, but as we progress through and execute on these assessments, we do expect them to contribute towards that shift to Asia,” Elhedery said, declining to disclose which markets were under review or the time frame for the processes.HSBC’s ongoing pivot to Asia has already triggered planned sales of all or parts of its businesses in France, Greece, Russia and Canada, announced in the last two years. While the markets under review may be relatively small, the move is significant in showing the pressure HSBC faces to shrink its once globe-spanning local banking businesses in order to lift returns and appease its investors.HSBC does not break out the results of every individual country in which it operates in its overall results, making identifying underperforming markets challenging.But its businesses in Europe and Latin America may be particularly under the microscope, with the former region making a net loss in 2022 thanks to restructuring and the costs booked to its headquarters in the region. Latin America contributed just under 5% of group profit.One country not currently under review is Mexico, Elhedery said, despite debate among analysts and investors on the bank’s future presence in the country. “Mexico is performing very well for us,” the veteran banker said, pointing to the U.S.-Mexico-Canada trade agreement and to the China Plus One strategy, which have supported economic growth in Mexico.”Some 70% of client acquisition in the retail business is through employees of the multinational companies that HSBC banks in Mexico, so there are strong synergies with the wholesale business and the package as a whole makes sense for us,” he added.BIGGER DEALS PRESENT WIDER CHALLENGESPing An was the only major HSBC investor backing proposals to force the bank to publish regular assessments on the merits of dividing its franchise along Asian and Western lines at HSBC’s annual shareholder meeting on May 5.A spokesperson for Ping An said the company had no further comment. The failure of Ping An to secure further backing for a split has afforded HSBC Chairman Mark Tucker, Chief Executive Noel Quinn and newly-promoted Elhedery some breathing space to pursue greater profit growth on their terms.”It’s overwhelmingly clear what the majority of our shareholders bar one expect from us, and therefore all our focus now is on delivering for the business and for our customers,” Elhedery said. Wider challenges include executing critical asset sales, managing a price war with rivals as interest rate hikes peak, and dealing with rising political tensions between East and West, analysts and investors said.The bank on April 14 said a nominal 1 euro ($1.10) deal to offload its French retail business could falter after interest rate hikes upped the amount of capital Cerberus-backed buyer, My Money, will need to secure regulatory approval. HSBC had said it expected to incur a loss of around $2.3 billion on the disposal should it go ahead. Elhedery said negotiations are ongoing but HSBC would walk away from the deal to protect shareholder value if necessary.HSBC’s larger $10 billion sale of its Canada unit has also been delayed until next year, as it battles to ensure a smooth transition of systems to the buyer, Royal Bank of Canada.Failure to complete either of those deals could have wider consequences for HSBC. “In the short term, the risk that the French and Canadian disposals don’t complete … could put a spanner in the works of its Asia pivot and spark a fresh wave of activism,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.Beyond dealmaking, Elhedery said the medium-term challenge is sustaining momentum in revenue growth, with the fillip from rising central bank interest rates worldwide already tapering off.The bank is trying to increase income through fee-based products and services, especially in China and Hong Kong where economies are beginning to normalise following the lifting of COVID-19 related restrictions.HSBC is on track to hire around 2,000 private wealth managers in China’s insurance sector over the next two years, adding to the 1,000 hired last year, Elhedery said.($1 = 0.9084 euros) More

Back in the financial crisis, Morgan Stanley’s analyst Andrew Sheets drew the above cartoon to show how tough things were for bond traders at the time. It came to mind looking at the market reaction to a third consecutive upside surprise in UK inflation, which has probably caused some gilt traders to evacuate their breakfasts this morning. Two-year gilt yield up a whopping 35 basis points over today and yesterday. 😲Discounting the minibudget daftness – and assuming it stays like this by market close – that’d be the biggest two-day increase in yield on @Tradeweb records dating back to 2008. pic.twitter.com/m31pz3i2Pe— Andy Bruce (@BruceReuters) May 24, 2023
Moves this severe have probably been exacerbated by -cough- technical factors. It wouldn’t be surprising if some macro shops have had a very bad day today. Ten-year gilts haven’t been quite as queasy, but yields have shot up 12 bps today to 4.28 per cent, the highest since last autumn’s omnishambles.

The UK seems to have a longstanding problem with structurally higher inflation than many other G10 countries, which is beyond our remit to diagnose right now. But in the near term, inflation readings like this obviously ramp up pressure on the Bank of England. JPMorgan’s Allan Monks points out that UK inflation looks like it is increasingly domestically generated, and raises the possibility that the Bank will have to restart rate increases in 50 bps increments. This is the third consecutive large upside surprise in the inflation data, and comes at a time when commodities have been falling. The scale of the April surprise is unlikely to be repeated next month. But it cannot be described as a one-off or simply as an indirect by-product of food and energy price gains, as the BoE and the doves have tended to suggest up until very recently.. . . We think there is a good case for the BoE to consider a 50bp in June. The BoE is concerned about the lagged impact of past tightening, and stepped down the pace in March. But there appears to be a concerning interaction between wages and prices — an upside risk in the BoE’s forecasts — and the Bank should try to get ahead of this with clearer signs in the data that this risk is now crystallising. It is important to move quickly given the muted speed of transmission from higher rates into the mortgage market, and then absence of another shock that will prevent this dynamic from persisting.. . . We assume the BoE won’t go 50bp in June, even though it probably ought to. But if this is to change we would expect some clearer signalling from Bailey. For now we expect the BoE to hike 25bps in June, and then as it makes another inflation forecast upgrade in August we expect this to prompt a further 25bp move up to 5%. More

The odd sight of Chinese youth unemployment climbing to record highs despite a post-Covid boomlet is baffling a lot of people. That’s understandable, because the employment divergence is pretty stark.The unemployment rate of Chinese people between the ages of 16 and 24 rose to 20.4 per cent in April, topping the previous peak from last summer, when the country was still in full lockdown. But the overall jobless rate fell to 5.2 per cent.

Youth unemployment rate continued to climb in the first four months of the year despite China’s post-reopening recovery. © Goldman Sachs

This chart is from a new Goldman Sachs new report examining the causes for the discrepancy, which you can read in full here. Here are the main takeaway points:— We think both cyclical and structural factors have contributed to the elevated youth unemployment rate in China. On the cyclical front, the correlation between unemployment rate and services sector output gap is much stronger for the 16-24 age group compared with the 25-59 year-olds. NBS’s labor survey shows that services industries such as hotel and catering, education, and information technology sectors tend to hire more young workers. Services sector slackening before reopening therefore contributed to the high youth unemployment rate. The improvement in service sector activity growth in Q1 should lower youth unemployment rate in Q2 by 3pp based on our estimate. While the improvement in service activity growth implies rising demand for young workers, this increase in demand could be more than offset by strong supply seasonality. As we enter the graduation season, youth unemployment rate could rise by 3-4pp and peak in summertime (usually in July or August) before starting to decline from end of Q3, if we look at the seasonal pattern in 2018 and 2019 (prior to Covid).— Structural imbalance is another reason behind the high youth unemployment rate. Despite the fact that a rising share of unemployed persons aged 16-24 years old have higher education, there appears to be misalignment of academic disciplines with business requirements. For example, the number of graduates from vocational schools who majored in education and sports rose by more than 20% in 2021 vs 2018, but hiring demand of education industry weakened meaningfully during the same period. Regulation changes over the past few years likely contributed to the weakening of labor demand in sectors such as Information Technology, Education and Property, which tend to hire more young workers. Skillset mismatches can only be dealt with gradually and might be a factor that contributes to high youth unemployment rate in the next few years.— We might see youth unemployment continuing its upward trend in the next few months on the back of strong supply seasonality despite government policies to create more jobs for graduates. Promoting further recovery of the services sector while exploring ways to reduce misalignment between discipline and business requirements seems key to reduce the youth unemployment rate over the medium term.Goldman also stresses that Chinese youth unemployment is not massively out of whack with what you see in European countries like Italy and Spain, or other countries at a similar stage of development. But it’s twice the US level. And obviously, that level of joblessness among younger people is more politically sensitive in countries like China, where there aren’t any viable electoral outlets for discontent. So it might be a phenomenon worth watching. More

Good morning. We start with a warning for the European economy as German exports to China recorded a double-digit drop since the start of the year, with a stronger euro and high energy prices dashing hopes that the EU’s biggest economy would benefit from a rebound in Chinese demand.Today, our Brussels bureau chief assesses the fight over the future of EU trade rules and we have news on Hungary’s latest clash with Kyiv.Trade offThese are anxious times for the EU’s free traders. With the enthusiastic backing of France and its allies, Brussels is seeking to build up the union’s geopolitical power in the pursuit of “strategic autonomy,” hardening trade defences and intervening ever more deeply in key industrial sectors, writes Sam Fleming. Context: Next month the European Commission will propose an economic security strategy aimed at further protecting the EU’s interests, in response to US pressure for a tougher approach to China in particular. This sits uncomfortably with EU governments that like to proclaim their enthusiasm for an open, rules-based global trading system. They aren’t alone: In a new policy paper, lobby group BusinessEurope makes the corporate case for the EU to stay in touch with its liberal roots. There cannot be strategic autonomy without openness, according to the paper. Trade agreements with New Zealand, Chile, Mexico and Mercosur should therefore be brought into force during the lifespan of the current commission, it says, calling for accelerated talks with Australia, India and Indonesia.It strikes a notably sceptical note when assessing two key policy innovations likely to feature in the commission’s strategy paper: the possible creation of new powers to impose EU-wide export controls on key technologies, coupled with tighter scrutiny of outbound investment flows. BusinessEurope says that, on principle, it does not support limitations on outbound investments, arguing these should only be used in “exceptional cases” to address serious security concerns. Export controls, meanwhile, should only be imposed on a case-by-case basis in consultation with the private sector and in co-ordination with key international allies. Businesses are not the only questioning voices. With EU trade ministers due to meet tomorrow, more “liberal-minded” member states are worried the EU is creating too many trade barriers, said one EU diplomat. There is, accordingly, little chance of capitals reaching a quick consensus on the contentious topic of investment controls. When it comes to the commission’s wider economic security proposals, “the strongest proponents of a more liberal market economy are a bit concerned about what this will entail in terms of obstacles to trade,” the diplomat added. Chart du jour: New world orderThe G7 must accept that it cannot run the world, writes Martin Wolf, even if it is still the world’s most powerful and cohesive economic bloc and produces all leading reserve currencies.So HungaryIt is almost a month since the European Commission trumpeted a deal to end a blockade of Ukrainian foodstuffs by several EU members by offering Brussels-blessed curbs instead and some bushels of cash.But Hungary is delaying its implementation, according to the commission, holding up €100mn in EU cash to support farmers in Poland, Slovakia, Bulgaria, Romania and Hungary, write Andy Bounds and Marton Dunai.Context: Brussels lifted tariffs and quotas on Ukrainian produce last year and set up fast-track import procedures. But much got stuck in neighbouring countries because of a lack of onward transport, harming local farmers and prompting national import bans.Budapest now says it must maintain its ban on goods imported under contracts signed before May 2 as the commission’s proposal does not cover them. “We are currently waiting for the commission to resolve this issue in a satisfactory manner and to ensure the protection of Hungarian farmers,” the country’s agriculture ministry said.The other countries have lifted their bans and will put pressure on Hungary to bend at an EU agriculture ministers’ meeting on May 30, helped by a special guest: Ukrainian agriculture minister Mykola Solskyi.The stand-off reflects growing tensions between Budapest and Kyiv. At yesterday’s meeting of EU defence ministers, Hungary continued to block the allocation of another €500mn to Ukraine for weapons on the grounds that Kyiv has declared Hungary’s OTP Bank supportive of Russia.“If a country like Ukraine . . . needs our money, please respect us and don’t sanction our companies,” Hungarian leader Viktor Orbán told the Qatar Economic Forum yesterday.A special EU fund has spent €3.6bn on providing reimbursement against some €10bn worth of weapons supplied to Ukraine, but needs a fresh top-up to continue paying out. Separately, Orbán made painfully clear his divergence from the rest of his EU and Nato allies by saying at the same Qatar event that Ukraine has “no chance to win this war.”What to watch today German president Frank-Walter Steinmeier meets Romanian president Klaus Iohannis in BucharestNato secretary-general Jens Stoltenberg speaks at the Brussels Forum from 2:45pm.Now read theseOlympic shame: Paris 2024 organisers have hit back at criticism over ticket prices that run to hundreds of euros per seat.On rotation: Bulgaria’s two main parliamentary factions have agreed a power-sharing deal in an effort to end two years of political paralysis.Boiling over: Germany’s coalition is in crisis (again) after the Liberals postponed the Greens’ pet project: banning gas boilers in new homes. More

Ron DeSantis will take to Twitter this evening to fire the starting gun on his presidential campaign by appearing with Elon Musk at a live event on Twitter, thrusting the billionaire owner of the social media platform into the centre of the 2024 race for the White House.After months of speculation the Florida governor will make the announcement at 6pm eastern time during an appearance on Twitter Spaces with Musk, according to people familiar with the plan.Musk yesterday confirmed he would appear alongside DeSantis on the platform, which he bought for $44bn.“We’ll be interviewing Ron DeSantis, and he has quite an announcement to make,” Musk said at a conference organised by the Wall Street Journal.DeSantis is also expected to post a video to social media launching his campaign later today.The event is a coup for Musk, a self-declared free-speech absolutist, who has often said he wants Twitter to be the world’s digital “town square”.DeSantis faces the formidable challenge of beating former president Donald Trump in the race to secure the Republican nomination for next year’s presidential election. Trump maintains a sizeable lead, with the support of more than half of Republican primary voters, according to the latest average of opinion polls compiled by RealClearPolitics. DeSantis trails a distant second, at just shy of 20 per cent.Other candidates and potential candidates for the Republican nomination include Nikki Haley, former South Carolina governor and Trump’s ambassador to the UN; and former vice-president Mike Pence, who has yet to declare. Tim Scott, the Republican senator from South Carolina, launched his presidential campaign on Monday.Go deeper: After DeSantis’s success in the US midterm elections in November, the FT Weekend magazine published a profile of the Florida governor. It is worth your time.Here’s what else I’m keeping tabs on today:Fed minutes: The Federal Open Market Committee will release minutes from its March meeting.Fed speakers: Governor Christopher Waller appears at an economics conference in Santa Barbara, California. Results: Apparel retailers Kohl’s, American Eagle Outfitters and Abercrombie & Fitch are all reporting today.Five more top stories1. Exclusive: The chief executive of Nvidia, the world’s most valuable semiconductor company, has warned that the US tech industry is at risk of “enormous damage” from the escalating battle over chips between Washington and Beijing. Jensen Huang was speaking to the Financial Times ahead of Nvidia’s first-quarter results. Read the full interview here.2. The White House and Republicans in Congress yesterday failed to make meaningful progress on talks to raise the US borrowing limit and avoid the country’s first-ever default. Anxiety is rising on financial markets as the so-called X-date looms. More markets news: Large asset management groups are piling back into fixed income to lock in higher yields. Yields on Treasury notes are now higher than they have been for most of the past decade. 3. UK inflation dropped to 8.7 per cent in April, a smaller decline than the Bank of England had forecast — bolstering expectations of further interest rate increases and leading to a bond market sell-off. Read more on today’s inflation announcement.Bank of England: Governor Andrew Bailey has admitted there are “very big lessons to learn” after the central bank failed to forecast the recent rise and persistence of inflation.4. The boss of one of Europe’s largest companies has vowed to expand its market share in China. Roland Busch, chief executive of the German conglomerate Siemens, told the Financial Times it was “not an option” to pull out of China as Berlin seeks to reduce its reliance on the world’s second-largest economy. “I will defend my market share, and if I can, I will expand it,” Busch said. 5. Apple and Broadcom have struck a “multibillion-dollar” agreement for the chip company to provide 5G components made in Colorado and other parts of the US to the iPhone maker. The partnership, which centres on 5G radio frequency components, expands an existing agreement between the two companies and is part of Apple’s push to source more parts from American facilities. Read more on the deal.The Big Read

The price of gold has been hovering near its all-time high © FT montage; Dreamstime

Periods of inflation have often boosted the price of gold, and this time it is not just being bought by elites — central banks worried about geopolitical risk purchased a record-high 1,079 tonnes of bullion last year. As a result, the precious metal has been hovering close to its nominal all-time high of $2,072 per troy ounce since late March. How long will the new gold boom last?We’re also reading . . . War in Ukraine: Far-right militias who stormed a Russian region bordering Ukraine this week used US-made tactical vehicles in the attack, a group leader has told the Financial Times. Martin Wolf: At 19,000 words, the communiqué from the recent G20 summit reads like a manifesto for world government, writes the FT’s chief economics commentator. But American hegemony and the group’s dominance are now history, he says. Business in China: The increasingly hostile environment for consultancies in the country has made western businesses uneasy, writes Joe Leahy.Chart of the dayUS regional banks are rushing to use reciprocal deposits — which funnel a portion of customer cash to other lenders — to offer security far exceeding government-backed insurance in an attempt to soothe clients unnerved by the recent banking turmoil.Take a break from the newsThe Bulgarian writer Georgi Gospodinov has won this year’s International Booker Prize for his novel Time Shelter, a hard-hitting comedy set in present-day Europe that explores political populism and the way nostalgia can be exploited to create a confected past.

The £50,000 prize will be shared equally between Gospodinov, right, and the book’s translator Angela Rodel. © David Parry/Shutterstock

Additional contributions by Tee Zhuo and Emily Goldberg More

The chief executive of Nvidia, the world’s most valuable semiconductor company, has warned that the US tech industry is at risk of “enormous damage” from the escalating battle over chips between Washington and Beijing.Speaking to the Financial Times, Jensen Huang said US export controls introduced by the Biden administration to slow Chinese semiconductor manufacturing had left the Silicon Valley group with “our hands tied behind our back” and unable to sell advanced chips in one of the company’s biggest markets.At the same time, he added, Chinese companies were starting to build their own chips to rival Nvidia’s market-leading processors for gaming, graphics and artificial intelligence.“If [China] can’t buy from . . . the United States, they’ll just build it themselves,” he said. “So the US has to be careful. China is a very important market for the technology industry.”The US’s efforts to prevent China buying or developing advanced chips has become the most aggressive front in a new cold war between the two powers.Huang’s comments came just days before Chinese authorities announced a ban on US memory chipmaker Micron’s products from critical infrastructure, a move seen as the first significant retaliation against Washington’s export controls.The Taiwanese-American executive warned US lawmakers to be “thoughtful” about imposing further rules restricting trade with China.“If we are deprived of the Chinese market, we don’t have a contingency for that. There is no other China, there is only one China,” Huang said, adding that there would be “​​enormous damage to American companies” if they were unable to trade with Beijing.Huang added that blocking the US tech industry’s access to China would “cut the Chips Act off at the knee”, referring to the Biden administration’s $52bn funding package to encourage construction of more semiconductor manufacturing facilities — known as “fabs” — in the US.“If the American tech industry requires one-third less capacity [due to the loss of the Chinese market], no one is going to need American fabs, we will be swimming in fabs,” he said. “If they’re not thoughtful on regulations, they will hurt the tech industry.”Nvidia has embedded itself at the centre of a global race to develop a new generation of AI tools, becoming the primary source of chips that are used to train the “large language models” that power chatbots such as OpenAI’s ChatGPT.As excitement has grown around AI, Nvidia’s market capitalisation has more than doubled so far this year to about $770bn, ahead of its latest earnings report on Wednesday. Its valuation now dwarfs US rivals such as Intel and Qualcomm, each worth close to $120bn. Despite a rally among some chip stocks, Nvidia is still far larger than its next nearest rival, Taiwanese chipmaker TSMC, which is worth about $450bn.However, the California-based company has been blocked from selling its most advanced chips — the H100 and A100 series — to Chinese customers since August when the US imposed export controls on technology used for AI. Nvidia has been forced to reconfigure some of its chips to comply with US rules limiting the performance of products sold in China.Huang said China made up roughly one-third of the US tech industry’s market, and would be impossible to replace as both a source of components and an end market for its products.Most of the world’s advanced chips — including Nvidia’s — are made in Taiwan, which Beijing claims as part of its territory. President Joe Biden has said the US would intervene if China took unprovoked military action against Taiwan. Analysts fear such a conflict would lead to severe global disruption in production of everything from cars to computers.

“We can theoretically build chips outside of Taiwan, it’s possible [but] the China market cannot be replaced. That’s impossible,” Huang said. “So you’ve got to ask yourself which way do you want to push it.”China, including Hong Kong, accounted for more than a fifth of Nvidia’s sales in its latest financial year ending January 2023, according to its annual report, while Taiwan represented more than a quarter.The figures reflect the “billing location” of its customers, which could include contract manufacturers who then sell on to “end customers” in other markets. Based on last year’s figures, more than $12bn in Nvidia’s annual revenues — almost half its total — might be exposed to any potential conflict in the region.Huang also reflected on his failed takeover of UK-based chip business Arm due to regulatory hurdles, saying he’d been “deeply hurt” and it was no longer “easy for us to invest” in the UK. “I built the first implementation of the AI supercomputer in England, the Cambridge-1. I’m not going to build another,” he said. “I’m done.”Join FT journalists and a Nikkei Asia colleague for a subscriber-exclusive webinar on the US-China tech war on May 25 at 12.30 BST and put your questions to the panel. Sign up for your free subscriber pass. More

A double-digit drop in German exports to China has rattled Europe’s biggest economy, triggering debate over why its vast manufacturing sector has fallen behind rivals benefiting from a rebound in Chinese demand.The 11.3 per cent drop in German exports to China in the first four months of the year, compared with the same period a year ago, highlights a unique set of challenges for Europe’s industrial powerhouse, economists say. Carmakers are losing market share in China, chemical producers and other energy-intensive companies are reeling from high power prices, and the euro’s appreciation against the dollar has made German goods less competitive.Carsten Brzeski, global head of macro research at Dutch bank ING, said German exporters also felt they were victims of mounting security and trade tensions between Beijing and Washington. “Germany is now considered to be allies with the US, which has led to more — explicit or implicit — discouraging of purchases of German products,” he said.Several big German companies with considerable businesses in China reported significant declines in first-quarter sales in the country, including chemicals group BASF, the country’s leading carmaker Volkswagen and auto parts producer Bosch.Falling exports to China are among a number of indicators that Germany’s manufacturing sector is suffering from a sharp decline at the start of this year, including lower factory output, plummeting demand and a shrinking backlog of orders, which could slow growth in the EU’s largest economy. Germany seems to be an outlier among European countries, most of which have had higher shipments to China this year, suggesting German exporters are losing market share in their second-biggest market outside Europe. Exports from the 27 members of the EU to China rose 2.9 per cent year on year in the first quarter, according to Eurostat. The decline means China accounted for only 6 per cent of Germany’s total exports in the first three months of this year — the lowest share since 2016, and down from more than 7 per cent in the same period of each of the past four years, according to data from the federal statistical agency.This runs counter to earlier expectations that Germany’s vast manufacturing sector would benefit from a boost in Chinese demand after the lifting of Beijing’s zero-Covid policy late last year and the easing of supply chain bottlenecks.“It is mainly services that rebounded but not yet manufacturing,” said Brzeski, adding that carmakers have been hit by a lack of smaller electric vehicles and the Chinese trend of buying models from domestic carmakers. Motor vehicles and parts made up more 15 per cent of total German exports last year, he said.Although European gas prices have fallen sharply from last year’s peak, they remain higher than in earlier years, putting energy-intensive companies at a sustained disadvantage. “Chemicals output is down sharply due to the energy crisis,” said Oliver Rakau, chief German economist at research group Oxford Economics. “There has been a permanent hit to competitiveness.”The German government has drawn up plans to subsidise 80 per cent of electricity costs for energy-intensive companies.German exporters, which account for more than a quarter of all EU exports outside the bloc, have also been hampered by the recent appreciation of the euro from below parity with the dollar late last year to trade between $1.07 and $1.10 in recent weeks.Manufacturing activity fell to a six-month low in Germany this month, according to S&P Global’s latest survey of purchasing managers released on Tuesday. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the survey found foreign demand for German manufactured goods had “virtually collapsed”.The BDI, Germany’s main business confederation, declined to comment. It is watching the decline in exports to China closely and is hoping it is a blip that will ease once Chinese construction activity rebounds rather than a long-term trend. BASF, which has been downsizing in Germany while building a €10bn plant in China, reported sales of €2.3bn in China in the first quarter of this year — a 29 per cent drop on the same quarter the previous year. The Ludwigshafen-based group blamed decreased demand, which had also contributed to lower prices for its chemicals.Volkswagen, which sells more cars in China than any other carmaker, said deliveries in the country dropped 15 per cent in the first quarter. The company said the figure reflected a surge of sales at the end of 2022, when Chinese consumers took advantage of EV subsidies as well as a combustion vehicle tax exemption that both ended in December. VW makes the majority of its cars that it sells in China in the country.

Bosch also reported a decrease in Chinese demand, pushing first-quarter Asia Pacific sales down by 9.3 per cent.“Particularly during the first two months of 2023, we have continued to feel the economic effects of the restrictions imposed in response to the coronavirus pandemic,” Bosch said.After German industrial production suffered its biggest drop for 12 months in March, falling 3.4 per cent from February, some economists expect the federal statistical agency on Thursday to revise down its initial estimate of first-quarter gross domestic product from zero growth to a contraction.A second consecutive quarterly decline in GDP — after a 0.4 per cent contraction in the final quarter of last year — would meet the definition of a technical recession. Germany is expected to be the weakest performer among the world’s big economies this year, according to the IMF, which predicted the country’s output would shrink 0.1 per cent. More

The chief executive of Siemens has vowed to expand its market share in China, arguing the market is crucial for innovation and growth at the industrial conglomerate.The comments by Roland Busch come as German companies are under increasing pressure to diversify away from China, as Berlin seeks to reduce its dependence on what it perceives as a geopolitically risky market after being stung by its reliance on Russian gas.Busch, however, told the Financial Times that it was “not an option” to pull out of the market, which accounts for 13 per cent of company revenues.“I will defend my market share, and if I can, I will expand it,” said Busch, who took over at the helm of Siemens, one of Germany’s largest companies, in late 2021. “Where can I find the customers which pull me into the next level of innovation, which are demanding, and which are looking for the next technology?” he asked. “It’s China in very many cases.”Siemens has in the past few years transformed from a sprawling engineering group that made products such as washing machines to a tech company focused on developing digital tools for industrial use.It sold its 50 per cent stake in its home appliances joint venture to Bosch in 2015 and the group still holds stakes in several of its former companies that were spun out to form standalone entities. Those include medical technology unit Siemens Healthineers and Siemens Energy, which in turn owns renewable energy business Gamesa.The German group, which employs more than 311,000 people, last week raised its guidance for a second time this year thanks to margin increases in its smart infrastructure and digital industries units. The results were helped by the easing of global supply chains, which allowed the company to chip into bloated order books. Siemens’ share price has jumped by a third in the past year to about €150.China, where wages and labour costs have been gradually rising in recent years, has become particularly important to Siemens’ digital industries arm, which focuses on automation and makes roughly a fifth of revenues in the country.Many companies, including Siemens, have been looking to move manufacturing away from China to other countries in south-east Asia where wages are lower. Others are worried that rising geopolitical tensions with the west over Taiwan, and US curbs on China’s access to advanced technology, are hitting the country’s viability as a manufacturing base for exports.Busch noted that the decline in China’s attractiveness as an investment destination for overseas manufacturers was one reason why “high-tech manufacturing” has been high on Beijing’s agenda.“I’m not saying that China is deindustrialising,” Busch said. With increasingly technologically advanced factories, the country’s industry would be able to “defend their value but in a different way”.“China will do their own work in terms of high tech manufacturing — this is clearly on the agenda.” More