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    US investor interest in China cools as political tensions grow

    US investor interest in Chinese stocks has cooled significantly after hitting a record late last year, as political tensions between the two countries grow.News of China’s impending reopening from coronavirus pandemic restrictions late last year prompted a brief burst of enthusiasm for Chinese stock markets after years of underperformance on hopes of an uptick in economic growth. But trading activity has fallen back this year, according to fund managers and trading data.Trading in the most liquid US-listed options that track Chinese stocks — which give a way for US investors to gain exposure to China without having an overseas presence — has more than halved since hitting a record last November. The drop in options trading comes as doubts grow about whether China can sustain its economic rebound following outsize growth in the first quarter, and as tensions between Beijing and Washington continue to worsen.Direct purchases of Chinese stocks by foreign investors have also slowed dramatically after a record-breaking start to 2023. Foreign investors bought a net $20bn Shanghai- and Shenzhen-listed shares in the first month of 2023, but have added just $6bn in the three months since.China started dismantling its Covid restrictions in December, paving the way for a reopening after three years of isolation under an anti-pandemic regime that weighed heavily on its economy. In the first quarter of this year, gross domestic product grew by 4.5 per cent year on year, well above the 3 per cent recorded for 2022.“The easy money has been made,” said Abhay Deshpande, chief investment officer of New York-based Centerstone Investors. He said Centerstone bought shares in US-listed Chinese technology group Alibaba when the price tumbled during last year’s Communist party congress, but had kept a disproportionately small exposure to mainland China “to compensate for the macro risks”, for instance increased government oversight of companies or further sanctions.Tensions between the US and China have been growing for several years, but the relationship has become particularly strained in recent months. In late January, a top US air force general predicted the US and China would probably go to war in 2025, and the following month Chinese spy balloons were discovered over the US. China’s blue-chip CSI 300 index, which hit a three-and-a-half year low at the end of October when zero-Covid restrictions were posing increasingly severe challenges to the economy, rallied nearly 20 per cent to the end of January, but has since drifted lower.Tyler Gellasch, president of investor trade group Healthy Markets Association, which focuses on market structure and regulation, said the group had been trying to make sure investors were preparing themselves for the risk of more aggressive US government action, such as restrictions on US citizens investing in China.“Public opinion and the language coming from politicians and executive branch agencies is stark . . . that’s language that should concern anybody with significant investments that could be subject to restrictions,” he said.Christel Rendu de Lint, head of investments at fund firm Vontobel, said many investors had been responding to the escalating tensions by seeking funds that would invest in emerging markets but exclude China.She said many had become extra cautious after seeing the losses suffered by investors who were stuck holding Russian assets that were subject to western sanctions following the invasion of Ukraine. In many cases, foreign investors have written such assets down to zero.“The risk of sanctions together with the risk of regulation by the Chinese government, all pushed in the same direction to investors wanting exposure [to emerging markets] ex China,” she said.China has, meanwhile, continued to expand a series of programmes that connect its own closed-off financial system to international markets. On Friday, the People’s Bank of China unveiled rules for a swap connect programme, which will allow international investors to buy mainland interest rate swaps through Hong Kong and which is expected to begin trading soon. The move follows on from schemes that allow investment to flow in both directions between mainland stock and bond markets and Hong Kong, as well as a Wealth Connect programme that allows mainland savers to access investment products in the financial territory.Additional reporting by Thomas Hale in Shanghai More

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    France’s Le Maire wants to break food price inflation “spiral” by autumn

    Le Maire also told Franceinfo radio that economic growth remained solid in France despite recent strikes and protests against President Emmanuel Macron’s legislation to raise the retirement age by two years to 64.French food retailers and their suppliers agreed a 10% average increase in prices in annual negotiations in March, which both sides said was necessary to cover higher production costs.Le Maire has since repeatedly called on both sides to reopen negotiations to ensure that a recent fall in global wholesale food prices is passed on to consumers. Le Maire has even threatened to take action if they do not respond to his calls.France’s headline inflation rate rose to 5.9% in April from 5.7% in March. The French inflation level stood at 6.9%, as measured by a European Union-harmonised consumer price index.Bank of France governor and European Central Bank member Francois Villeroy de Galhau said last month he expected food price inflation to start easing in the second half of this year.Commenting on the impact on the French economy of recent strikes against pension reform, Le Maire also said: “There is no significant impact from the social protests…French growth remains solid.” Last month, data from statistics agency INSEE showed GDP edged up 0.2% in the first quarter after a flat fourth quarter, helped by household consumption, which was steady after falling one percent in the last three months of 2022. More

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    Column-Quadruple whammy whips June Fed rate hike off the table: McGeever

    ORLANDO, Florida (Reuters) – The Fed may well hike U.S. interest rates again on Wednesday but cracks appearing on multiple fronts – jobs, lending, the banking system and debt ceiling – strongly suggest it will be the last of the cycle.Elements of all four have come together this week ahead of the Fed’s Open Market Committee meeting, prompting rates futures markets to wipe out any prospect of a move next month and even cast some doubt over a last hurrah on Wednesday. Before the March ‘JOLTS’ employment data on Tuesday, rates futures were pricing in a 28% chance of the Fed raising its fed funds target range by a quarter point on June 14 to 5.25-5.50%. That assumed a nailed-on 25 basis point hike later on Wednesday to 5.00-5.25%.The June hike is now off the table completely, and traders now see a 15% chance of the Fed not raising at all this week or in June. From ‘one and done’ to ‘done’? Sudden, sizeable swings in market pricing are common and can reverse as quickly as they appear. But evidence is mounting that what the Fed calls a “long and variable” lag of almost 500 basis points of monetary tightening since January last year is finally biting.The banking system started bleeding in March, and the economy’s skin is now breaking too. This is significant for the June 14 policy decision because the Fed also releases its new Summary of Economic Projections that day.While inflation remains sticky and there are undoubtedly areas of economic resilience – purchasing managers indexes spring to mind – the fallout from the most aggressive tightening campaign in 40 years will only increase over the next six weeks.Consider what has happened with regard to banks, credit conditions and the debt ceiling since the FOMC met on March 21-22, a meeting where “several participants” considered keeping rates on hold due to the banking blow up earlier that month. First Republic Bank (NYSE:FRC) bank became the biggest U.S. bank failure since 2008; the Fed is still providing banks with more than $300 billion in emergency lending, small business credit conditions deteriorated sharply; and Treasury Secretary Janet Yellen said Treasury could run out of cash on June 1.”As banking sector developments continue to unfold, some FOMC policymakers may prefer a wait-and-see approach to the prospect of additional rate hikes in June and beyond,” wrote HSBC’s U.S. economist Ryan Wang on Tuesday.JOLT FROM THE BLUEThere is little indication that regional banks will get out of the firing line any time soon. The KBW regional banking index slumped 5.5% on Tuesday to a two-and-a-half year low and has lost a third of its value in two months. The deposit flight may have stopped but Fed officials will be acutely aware of the negative feedback loop on the economy, given the deep-rooted linkages between small banks and businesses.According to Goldman Sachs (NYSE:GS), 70% of small firms’ commercial and industrial loans are from banks with less than $250 billion in assets; in over half of U.S. counties, non-‘globally systemic important banks’ provide 90% of loans to small businesses; and 75% of loans to small businesses are made by banks based within 25 miles (40km) of the borrower.”This steady attack on regional banks is destructive to financial markets and ultimately the economy,” former Boston Fed president Eric Rosengren tweeted on Tuesday.Small businesses account for around 40% of national employment. Figures on Tuesday showed that ‘JOLTS’ job openings – Fed Chair Jerome Powell’s favorite labor market indicator – fell for a third month to the lowest in almost two years. The March survey of small businesses by the National Federation of Independent Business showed multiple signs of weakness, and even more attention than usual will fall on the next Senior Loan Officer Opinion Survey.The quarterly survey of banks about whether they are tightening or loosening loan standards will be released next week, but is already in the hands of FOMC rate-setters this week. That will matter little if failure to fix the $31.4 trillion U.S. debt limit standoff means Treasury runs out of cash and the country – and world – is suddenly staring down the barrel of U.S. default.Many analysts reckon the so-called ‘X-Date’ when the government coffers run dry will be around late July or early August, although some time in June cannot be ruled out. Yellen on Monday warned it could be June 1. Will the Fed be raising rates on June 14 if this is still a live issue? You can never say never, but the short answer is no.(The opinions expressed here are those of the author, a columnist for Reuters.)Related columns: – Small U.S. banks and businesses make for big problem- ‘Peak Fed’ aggravates U.S. debt ceiling strains- Fed’s ‘R-star’ becomes black hole (By Jamie McGeever; Editing by Lincoln Feast) More

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    Global rate hike push slows to a trickle in April ahead of busy May

    https://www.reuters.com/graphics/GLOBAL-MARKETS/znvnbqxjrvl/G10CEN230502.gif

    LONDON (Reuters) – Interest rate hikes from central banks around the globe slowed to a trickle in April thanks to a combination of easing inflation and slowing growth prospects amid a dearth of meetings on monetary policy decisions.April saw two interest rate hikes across five meetings by central banks overseeing the 10 most heavily traded currencies. Policy makers in New Zealand and Sweden delivered a total of 100 basis points (bps) in rate hikes, while Japan, Australia and Canada held fire at theirs. That compares to six interest rate hikes across eight meetings by G10 central banks in March. “We are approaching the end of the global hiking cycle, we are at an inflection point,” said Omar Slim, co-head of Asia ex-Japan fixed income at PineBridge Investments. However, whilst the developed market tightening cycle was in its final throes, policy makers had still some lose ends to tie up in May with Australia’s central bank surprising markets with an interest rate on Tuesday and policy makers at the U.S. Federal Reserve and European Central Bank – neither of which met last month – expected to deliver more hikes in coming days. “The Fed is widely anticipated to hike but likely to maintain a tightening bias to provide optionality for another hike if inflation doesn’t comply,” said Mark McCormick (NYSE:MKC) at TD Securities. GRAPHIC – Developed markets central banks In emerging markets, further signs of a slowdown in the rate hike push became evident. Eleven out of 18 central banks in the Reuters sample of developing economies met to decide on rate moves, but only policy makers in Israel and Colombia hiked by a cumulative 50 bps. China, Indonesia, India, Korea, Russia, Turkey, Hungary, Poland and Chile all decided to stay put. That compares to fourteen central banks in developing economies meeting in March with five hiking by a total of 150 bps. In a sign that a pivot to rate cuts was on the cards for emerging markets, Uruguay’s central bank – which is not part of the Reuters sample – cut its benchmark interest rate by 25 basis points last Wednesday, becoming the first to reduce interest rates in the region.Analysts said policy makers in developing economies elsewhere were not far behind. Central banks across Central and Eastern Europe provided firmer signs in recent days that with inflation now declining monetary loosening may soon be on the cards, said Nicholas Farr, Emerging Europe Economist at Capital Economics. “But there are still clearly big concerns that inflation will be slow to fall back to central banks’ targets, and we think that interest rates will be cut by less than most analysts expect over the next couple of years,” Farr added. GRAPHIC – Emerging markets central bankshttps://www.reuters.com/graphics/GLOBAL-MARKETS/jnpwykalqpw/EM18CEN230502.gif More

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    Federal Reserve poised to implement another quarter-point rate rise

    The Federal Reserve is set to deliver a quarter-point rate rise on Wednesday in what will be its 10th consecutive increase in just over a year, as pressure builds on the US central bank to call time on its aggressive monetary tightening campaign.At the end of its two-day gathering, the Federal Open Market Committee is expected to raise its benchmark policy rate to a new target range of 5-5.25 per cent, the highest level since mid-2007.The meeting comes at a fraught moment for the US economy and financial system as midsized lenders continue to be clobbered after a series of bank failures.First Republic on Monday became the third bank to be seized by US regulators in the past two months, with the Federal Deposit Insurance Corporation brokering a hasty takeover by JPMorgan. That followed emergency measures that government authorities took in March, just days before the last Fed meeting, to stem contagion after the implosion of Silicon Valley Bank and Signature Bank. Officials on Wednesday must confront the challenge of balancing a potential credit contraction stemming from the banking turmoil against the fact that inflation remains stubbornly high and price pressures are moderating only gradually.Meanwhile, the Fed is under mounting political pressure. In a letter on Tuesday, 10 Democratic lawmakers called on Jay Powell, the Fed chair, to refrain from further rate rises, warning that more increases could “trigger a recession, throw millions out of work and crush small businesses”.

    Fed policymakers are not expected to box themselves in by ruling out further rate rises. However, most economists think the increase on Wednesday will be the last of this cycle, especially after the Fed’s own staffers soured on the outlook and started forecasting a recession this year.In March, the FOMC signalled that “some additional policy firming may be appropriate”, a softening of the guidance that had been in place since March 2022, when the central bank said there was a need for “ongoing increases”. Most Fed watchers expect the Fed to stick to its most recent language or to make modest changes. Others think the Fed might reprise phrasing last used at the tail-end of its 2006 tightening campaign, when it said “the extent and timing of any additional firming . . . will depend on the evolution of the outlook for both inflation and economic growth”. More

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    Risk of Fed fissures grows as inflation fight tests resolve

    The writer is chief economist at KPMG USUntil now, Federal Reserve chair Jay Powell has effectively corralled his colleagues to show a united front at key turning points for monetary policy. However, his job has just got a lot more complicated.The Fed is poised to raise short-term interest rates by a quarter of a point on Wednesday in what was hoped to be the final rate hike of this cycle. That will push the benchmark Fed funds target to a 5 to 5.25 per cent range.The economy slowed but inflation accelerated in the first quarter. The Fed’s preferred measure of inflation — the core personal consumption expenditures price index — jumped to a 4.9 per cent annualised pace in the quarter, the hottest in a year. That is the wrong direction and will no doubt spur debate about whether the Fed can signal a definitive end to rate rises at the conclusion of the May meeting.The US central bank sees fighting inflation as a marathon, not a sprint. History is littered with central banks that gave up before they crossed the finish line. The result was a more corrosive bout of inflation or worse: stagflation.The Fed hoped to keep credit conditions tightening even after it paused on hikes. Inflation-adjusted rates were expected to rise as inflation cooled. The inflation data for the first-quarter suggests that inflation has become sticky, which could challenge that strategy.Further complicating matters is the tightening of credit due to recent financial market turmoil. No one knows exactly how much more credit conditions will tighten. Estimates range from what would equate to 0.5 to 1.5 percentage points in short-term rate rises. That is before increasing problems in the office market, which could add insult to injury. Office leases are resetting, and vacancies are rising. That will keep banks, which account for a disproportionate amount of commercial real estate loans, on the defensive.The Fed’s Senior Loan Officer Survey for the first quarter is due out on May 8, after the central bank meets. The leadership will have a sense of the direction of those results but not the full report; we are still flying blind on the tightening in the pipeline. The same survey revealed in January that 45 per cent of banks were already tightening lending standards for commercial and industrial loans; 69 per cent of loans for construction and land development were constrained.Companies with fewer than 250 employees, which are the backbone of the labour market, are especially vulnerable to those shifts. Those firms accounted for a record-breaking 70.9 per cent of job openings at the end of January, but have since lost steam. Job openings among the smallest businesses – less than 10 employees – plummeted in March, while layoffs and separations surged to their highest pace since the onset of the pandemic.Those concerns have begun to divide the Fed. The staff adopted a “mild recession” as their baseline scenario in March, while the leadership laid out a rise in unemployment that is consistent with a recession.Some have even voiced views that a pause instead of a rise in May would be prudent, given the need to assess the impact of tightening already under way. Such tightening could do much of the heavy lifting for the Fed when it comes to cooling the economy.Chicago Fed president Austan Goolsbee has led the pack in raising concerns and will be one to watch to see if he dissents on those grounds at this week’s meeting. Dissents are rarely made in a vacuum; one usually represents two or more.This is before the Fed hits its hardest mile, when unemployment rises and the backlash to crossing the finish line on inflation intensifies. The fact that we are on the eve of an election year will only intensify those emotions; politicians will be eager to find a scapegoat.Most forget that even former Fed chair Paul Volcker, who was practically canonised for his steely resolve against inflation, blinked when the going got tough. He reversed course and cut rates in mid-1980, an election year. The cuts didn’t last long; within less than six months rates skyrocketed from a low of 9 to 19 per cent. That pushed the economy into its second recession in less than a year.Powell has been attempting to avert such an outcome by trading some pain today to avoid higher inflation and a deeper recession down the road. That is great in theory, but hard to execute. Even “mild recessions”, such as the ones we saw in 1990-91 and 2001, proved difficult to escape.I have heard people use the term “garden variety recession” when discussing what may occur, as if job losses are like a stroll in the park. They are not.Divisions within the Fed are likely to deepen as the economy slows. I would like to believe that a soft landing is still possible. The only time the Fed actually achieved that outcome was in 1994, when officials were pre-empting what turned out to be nascent inflation. This time inflation is real.  More

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    The ‘slow coup’ taking Tunisia back to autocracy

    On a recent Ramadan day in April, just before sundown when Muslims break their fast, dozens of Tunisian policemen swooped on the home of Rachid Ghannouchi, leader of the country’s biggest political party and took the 81-year-old man to jail.Ghannouchi, the former speaker of parliament and head of the moderately Islamist Nahda party, was charged a few days later with plotting against state security and ordered to remain in custody pending trial. The security services took over Nahda’s Tunis headquarters and banned meetings in its other offices. Several of the party’s other senior officials have also been detained.The Islamist leader is the most high-profile politician to have been arrested since Kais Saied, Tunisia’s president, staged a power grab in 2021 and began dismantling the country’s young democracy. In recent weeks, more than a dozen politicians, activists, judges, trade unionists and a leading independent editor have also been arrested in what Amnesty International has called “a politically motivated witch hunt”. Many fear it is the end of democracy in the country.“We have been living through a slow coup as Saied has sliced away at democracy over the past two years,” says Hamza Meddeb, fellow at Carnegie Middle East Centre. “The arrest of Ghannouchi is a big signal that we have reached the end of pluralism.”Tunisia’s revolt against dictatorship in 2011 was the spark that set off a series of popular uprisings across the Arab world. For much of the following decade, it was regarded as a rare example of an Arab democracy — buffeted by problems, defective but still pluralist. Now it is returning to autocracy under Saied, a former constitutional law professor who won power in 2019 promising to clean up corruption.Rachid Ghannouchi, head of the Islamist Nahda party, arrives at a police station in Tunis in February. He has been charged with plotting against state security © Fethi Belaid/AFP/Getty ImagesOften described as stubborn and “non-transactional”, he has cast himself as Tunisia’s saviour, on a mission to end graft and protect the country from “conspiracies” by enemies at home and abroad. A populist who makes clear he believes only he knows what is right for the country, Saied never hid his contempt for parliamentary democracy. His “toxic rhetoric”, as one diplomat described it, has served as mood music as the president has tightened his grip on all levers of power in the past two years. Meanwhile, the economy has worsened under his leadership and European officials and analysts warn of an impending meltdown. Economists predict that Tunisia will default on its debt. Saied offers fiery diatribes against corruption but no strategies to deal with the deepening crisis, critics say. In April, he appeared to reject the terms of a much-awaited $1.9bn bailout from the IMF, saying that “diktats from abroad” that would increase poverty were “unacceptable” and that Tunisians had to rely on themselves.

    Josep Borrell, the EU diplomacy chief, warned in March the North African country was heading towards economic collapse, an assessment echoed by Antony Blinken, the US secretary of state, who said the Tunisian economy risks “falling off the deep end” without IMF help. Diplomats say there is a rising threat to social stability.The country’s woes are causing increasing concern in Europe, especially Italy, whose outlying island of Lampedusa is just 113km from Tunisia. The continent’s leaders fear an outpouring of migrants if the Tunisian economy sinks deeper into crisis.“If they don’t go for the IMF plan, I don’t know what is the alternative,” says a western diplomat in the country. “They have already exhausted other sources of borrowing. There is no plan B. You can feel there is something febrile. We are expecting something to spark and it will be economically driven.” Promising beginningsAs Libya fragmented, Egypt fell back under the control of its army and Syria descended into brutal civil war, Tunisia stood out as the only successful democratic transformation to have emerged from the uprisings of 2011.Tunisia’s Islamists under Ghannouchi, along with its secular groups, including elites from the regime ousted in 2011, managed to agree a compromise that kept the democratic process on track after political assassinations and widespread unrest threatened to derail it in 2013. The civil society groups which mediated the agreement received the Nobel Peace Prize in 2015 for what was seen as “a historic bargain.”But the progress towards democracy was not accompanied by economic recovery. Political upheaval was followed by increasingly deadly terrorist attacks that had a severe impact on the country’s tourism industry. Coronavirus and Russia’s invasion of Ukraine further undermined the economy. Squabbling politicians and a series of weak, ineffectual coalition governments were unable to address the problems. As the biggest group in parliament for most of the years since 2011, Nahda received the largest share of the blame for the failing economy.It was against this backdrop that Saied, standing as an independent candidate, won a landslide victory in the 2019 presidential election. But two years into his term, amid growing political paralysis and a rise in coronavirus deaths, he shuttered parliament and suspended the constitution. He has since redrafted it to remove checks and balances on presidential powers and dissolved the democratically elected parliament, replacing it with a rubber-stamp assembly elected under rules designed to marginalise political parties and concentrate power in his hands. Over the past two years, Saied’s rhetoric has fuelled an increasingly sinister political atmosphere, human rights groups and diplomats charge. Monologues broadcast on his Facebook page decry all critics as “criminals” and “traitors”. He has accused detained politicians and activists of terrorism, plotting to assassinate him, and even of hoarding goods to drive up prices and “harm the Tunisian people”. In chilling remarks, he said they have been proven guilty by “history before the courts”.Dalila Ben Mbarek, a lawyer representing nine of the detainees and a sister of one of them, Jaouhar ben Mbarek, a founder of opposition movement Citizens against the Coup, says investigators have provided no evidence to support charges against the defendants, and that there was only the testimonies of two anonymous witnesses in case files.“This is all politically motivated,” she says. “Saied wants no opposition. He considers himself a prophet charged with saving Tunisia from the grip of parties, civil society and businessmen. Like God who has a direct relationship with Muslims, Saied doesn’t want any intermediaries between him and the people.”Several of those arrested had been trying to organise an opposition alliance to restore the democratic order. “There was an attempt [by the jailed politicians] to build a broad platform gathering parties from Nahda to groups on the left, which is important vis-à-vis the international community,” says Meddeb.A day after Ghannouchi’s arrest, Saied told the security services their duty was to protect the state from those “who have tried . . . to explode [it] from within and turn it into a collection of provinces . . . This is their custom and there is no room for those in a law-based state.” His comments have led to speculation that the party could be banned. Migrants gather outside the offices of the International Organisation for Migration after police dismantled a makeshift camp for refugees from sub-Saharan African countries in front of the UNHCR headquarters in Tunis last month © Fethi Belaid/AFP/Getty ImagesThe US has described Ghannouchi’s arrest as “a troubling escalation” and a contravention of guarantees of freedom of speech in Tunisia’s constitution. The EU expressed its “great concern.” Saied dismisses all international criticism as “blatant external interference.”In recent weeks, Saied has also triggered a crisis in relations with the African Union, a regional body of which Tunisia is a member, by alleging there was a plot to settle sub-Saharan migrants in the country to “change its demographic make-up” and cut it off from the Islamic and Arab parts of its identity. His remarks triggered street attacks against migrants, many of whom were forced out of their homes and jobs. They also brought hundreds of Tunisians on to the streets in protest. “You had teenagers attacking migrants and saying the president said they had come to occupy us,” says Chaima Bouhlel, a political commentator and activist. “Saied’s words provided an outlet for violence in a very tense situation. There is also now an absence of any structure that could balance this out. In a democratic situation, parliament would have objected.”As dangerous rhetoric fills the air and the political space shrinks, the civil society organisations that thrived after the revolution say they expect to become the next targets of the president’s ire.Romdhane Ben Amor, spokesman for the Tunisian Forum for Economic and Social Rights, a research and advocacy organisation, says social media accounts which claim they are pro-Saied have accused them of being agents and traitors. “We also receive threatening messages privately which accuse us of serving foreign agendas,” he adds. “Pressures on us have increased since we opposed the president’s February speech against migrants.”Tunisians demonstrate during March 2023 in support of President Saied and his tough stance on corruption © Heba Saleh/FTBen Amor argues that Saied was shaken by the low turnout of 11 per cent in the parliamentary elections that were held over two rounds in December and January, and by the poor performance of the economy. “So it has been in his interest to shore up his popularity by appearing as a saviour from a new enemy [the migrants] that he himself has created, and by speaking of a conspiracy that targets the very existence of Tunisians.”Inflation, shortages, unemploymentAs Tunisia’s economic problems deepened following the outbreak of the Ukraine war last year, its government struggled to find foreign currency to pay for crucial imports, leading to frequent shortages of staples such as sugar, oil and flour. Inflation has been hovering at around 11 per cent. The official unemployment rate is 15.2 per cent but joblessness among the young is far higher, at around 40 per cent. Without IMF assistance, Tunisia could expect even more severe economic woes, analysts say. Capital Economics, the London-based consultancy, has warned that as foreign exchange reserves dwindle, the value of the Tunisian dinar could fall by as much as 30 per cent against the euro. “This will not only cause inflation to skyrocket and push the economy towards a painful recession, but it would also cement our long-held view that Tunisia is heading towards a sovereign default,” it said in a note.A deal struck with the IMF last October, which remains stalled because of Saied’s reservations over required reforms, would unlock loans from other donors. The Tunisian government has agreed to a programme including subsidy cuts and limiting the civil service wage bill, but the president has refused to endorse it. On two previous occasions in the past decade, Tunisia has turned to the IMF but failed to adhere to agreed reforms. Analysts suggest Saied fears implementing such measures because they could destabilise his rule and make him unpopular. The IMF says it remains “engaged” with Tunisia and that once “programme requisites were in place a date would be set for the lender’s board to approve the loan”. Italy, whose rightwing government has been alarmed by a tenfold increase in the number of migrants arriving on its shores on boats from Tunisia in the first three months of this year, has also been lobbying to secure financial support for the North African country. Antonio Tajani, the Italian foreign minister said last month that he would work on behalf of Tunisia in negotiations with the IMF. He repeated an earlier Italian proposal that the loan should be delivered in two tranches and not be fully dependent on all reforms being in place. “For us, the fundamental point is to guarantee the stability of Tunisia,” Tajani said. But the EU insists its support for Tunisia is conditional on agreement with the IMF.Popular, for nowThe president’s constant talk of corruption as Tunisia drifts towards economic disaster has alarmed business leaders, even those who supported his intervention to end the democratic experiment in 2021. “Tunisia needs economic vision and I don’t see one,” says one senior businessman, who did not want to be identified. “We are not against accountability, which should be the work of the courts,” he adds. “There are many in the country who work hard and within the law. We don’t need these daily accusations of corruption. We should improve the atmosphere and give confidence to people.”But Saied remains popular among many Tunisians, who trust his professorial aura and approve of his moves against a political class they continue to distrust. Naziha Tarhouni, a retired dressmaker in Tadamon, a poor area of Tunis, complains about the prohibitive prices of eggs, meat and chickens — but says she still admires the president. “He is a heavyweight,” she says. “He is open-minded, educated, a teacher, calm and wise in all he does. It is enough he disbanded parliament. As for those he arrested, they deserve prison and more.”Empty shelves in a Tunis supermarket in September last year. As the economic crisis becomes more stifling, some say popular support could begin to turn against the president and force a change © Jihed Abidellaoui/ReutersIn a supermarket in the same district, staff report shortages of coffee, sugar, subsidised oil, semolina, milk and rice. But the president’s talk of conspiracies appeared to have seeped down to his supporters. Mohamed Alalou, who works in a grocery store, says the disappearances of certain goods was deliberate. “European countries are behind it and also some Tunisian political parties because they are traitors,” he asserts.But as the economic crisis becomes more stifling, some say popular support could begin to turn against the president and force a change. There has been speculation for more than a year that Saied, who is not a traditional strongman from the military, might be pushed aside if economic conditions deteriorate to the point that people rise up against him.“Tunisia is approaching a moment of truth,” says Meddeb. “The coalition in power [allied with Saied] is not clear, but he is backed by the army and the interior ministry. I think they supported him because they saw no alternative. It is a marriage of convenience but, if the country is on the brink of collapse, their position may change.”Whether Saied goes or stays, many young Tunisians have already made up their minds; they intend to join the rising flow of those seeking new lives in Europe. Mohamed Ali, a 22-year-old who has one year left studying for a degree in information technology, plans to board a smuggler’s boat to Europe once he has graduated. “I want to go anywhere except Tunisia. Whether it is difficult or easy, I will go,” he says. “Saied did a good thing. But it might take 50 years for the economy here to improve. For me, I just want to eat. Look at the price of bananas.”Data visualisation by Keith Fray More

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    ‘We have survived!’: Huawei goes local in response to US sanctions

    In Huawei’s head office last month, staff gathered to celebrate the in-house development of software to replace a US system that, thanks to Washington’s export controls, the Chinese technology company was no longer able to purchase.“Three years ago, we were cut off from the old ERP [enterprise resource planning] system,” said Tao Jingwen, a Huawei board member and president of its quality, business process and IT management department. “Today we are proud to announce that we have broken through that blockade. We have survived!”Tao was speaking at the Huawei campus in the southern city of Dongguan, on a stage decorated with banners proclaiming the “heroes fighting to cross the Dadu River”, a reference to a gruelling march by the ultimately victorious Communist army in China’s civil war.This latest declaration of progress offers a glimpse into how Huawei, helped by government grants and funding from Beijing, has tried to lead the way for Chinese companies eager to reduce their reliance on western technology as geopolitical tensions rise.Since 2019, Washington — which claims Huawei is a security risk and fears it might facilitate Chinese spying — has barred American suppliers from selling to Huawei without export licences and prevented the company from using any US technology for chip design and manufacturing.

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    Huawei’s sales, profit and market share plunged after the controls were introduced. Its mobile phone business, once the world’s biggest by unit sales, has been decimated. Lack of access to chips meant it was forced to stop making 5G phones, a situation a company official described as a “joke”. In 2021 its revenue plunged by a third, though its profit was buoyed by the sale of Honor, a smartphone brand. Last year, the company said it was back to “business as usual”, forecasting a return to annual revenue growth this year.Central to the Huawei strategy has been the desire to supplant established western technologies with local products, a long-term aim of Beijing that has proven costly and difficult.With this in mind, China awarded Huawei government grants worth Rmb6.55bn ($948mn) in 2022, double the amount from the previous year. The company also received conditional funding tied to specific research projects of Rmb5.58bn, triple that of 2021, according to its annual report. In a statement, Huawei said: “Government support for high-tech research programs is par for the course in most countries. Huawei is no different from other companies in the industry that apply for this kind of support. For Huawei, this type of support accounts for an extremely minute portion of our total R&D spend.” It added that it spent a quarter of its revenue last year on research and development.

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    The company has claimed some success. In March, Huawei’s rotating chair Eric Xu said the group and its industrial partners had made breakthroughs in electronic design automation tools for chips at and above the 14-nanometre node, an area dominated by US companies though a few generations behind leading-edge technology.In February Ren Zhengfei, Huawei’s founder, said the company had located domestic alternatives for more than 13,000 components and redesigned more than 4,000 circuit boards following the imposition of US sanctions.More challenging is the attempt to replicate sophisticated chipmaking tools such as lithography, a market dominated globally by Dutch company ASML.Huawei is working with Shanghai Micro Electronics Equipment, according to two people with direct knowledge of the matter. SMEE, on which the US imposed sanctions last year, has for more than a decade tried to produce homegrown lithography but with limited success. In December, Huawei filed a patent in one of the most advanced facets of lithography technology, according to China’s patent office. SMEE did not respond to requests for comment.“In China, maybe only Huawei has the experience and capability to help SMEE to build lithography machines that are free from US interference,” said one person briefed on the situation, estimating it would take Huawei and SMEE more than three years to produce equipment capable of replacing products from ASML.“The biggest problem is that some core components used to be imported from the US and are not available any more due to the updated export controls. Huawei, SMEE and other Chinese companies involved in the lithography research must also work on replacing those components as soon as possible,” the person said.

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    A China-based analyst who requested anonymity due to the sensitivity of chip supply issues said: “Hardware components that used to be sourced from foreign companies, such as chips-related technology, still remain a core element in almost all companies’ businesses, so Huawei must invest in developing hardware alternatives on all fronts.”Overall, Huawei’s development of replacements for western technology means it offers a wider range of products, which should help it access what research group IDC says is a $2.38tn market in China for digital transformation products and services from 2022 to 2026.Over the past two years, local governments in more than 20 cities in China have built artificial-intelligence computing centres and mostly chosen to deploy chips from domestic companies, with 79 per cent of them using Huawei’s AI chips, according to a report by Citic Securities in February.

    Aside from chips, the company has increased research and development spending in areas such as software. “The disruption in developing chip-related technology forced Huawei to increase its R&D efforts in the software further, aiming to achieve product upgrades despite restricted hardware,” said Charlie Dai, research director at consultancy Forrester.The company, whose 2022 profit of Rmb35.6bn is still substantially lower than its Rmb62.7bn profit in 2019, “will keep investing in domains like connectivity, computing, storage and cloud”, said Meng Wanzhou, the company’s rotating chair and daughter of founder Ren Zhengfei, at the Huawei Global Analyst Summit last month.Meng also appeared at the ceremony in Dongguan, in front of a campus built to echo the dreaming spires of the UK’s Oxford university. “Innovation is only possible with an open mind,” she said, “and thriving is only possible when we work together.” More