Aurelia Butler

China’s $1tn Belt and Road Initiative infrastructure finance programme has been hit by spiralling bad loans, with more than $78bn-worth of borrowing turning sour over the past three years. The scheme made China the world’s largest bilateral creditor, but the figures suggest it has become a financial millstone for Beijing and its biggest banks. About $78.5bn of loans from Chinese institutions to roads, railways, ports, airports and other infrastructure around the world were renegotiated or written off between 2020 and the end of March this year, according to figures compiled by New York-based research organisation the Rhodium Group.This is more than four times the $17bn in renegotiations and write-offs recorded by Rhodium in the three years from 2017 to the end of 2019. There are no official figures for the total scale of BRI lending over the past decade, but it is believed to total “somewhere in the ballpark of $1tn”, according to Brad Parks, executive director of AidData at William and Mary university in the US.In addition, Beijing has extended an unprecedented volume of “rescue loans” to prevent sovereign defaults by big borrowers among about 150 countries that have signed up to the BRI. The value of such sovereign bailouts amounted to $104bn between 2019 and the end of 2021, according to a study by researchers at AidData, the World Bank, Harvard Kennedy School and Kiel Institute for the World Economy. Over a longer timeframe between 2000 and the end of 2021, such bailouts to developing countries totalled $240bn, the study found.Increasing numbers of BRI borrower countries are being pushed to the brink of insolvency by a slowdown in global growth, rising interest rates and record high debt levels in the developing world. Those countries’ western creditors, meanwhile, have blamed China for blocking debt restructuring negotiations. “Frankly, I think this is only the beginning. Chinese banks have an interest in ensuring that their biggest overseas borrowers are sufficiently liquid to continue servicing their infrastructure project debts,” Parks said. “So, Beijing is probably going to be in the emergency lending business as long as its biggest borrowers are in financial distress.”The pace of BRI renegotiations and write-offs slowed somewhat in 2022, compared with the height of the pandemic in 2020 and 2021. But experts said this did not indicate that the underlying quality of China’s loan book had improved. “Far from it,” said Matthew Mingey, senior research analyst at Rhodium. “While some major recipients of China’s lending, like Pakistan, have managed to hold on with IMF and bilateral bailouts, the cracks in the BRI are widening.”

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Analysts said they did not expect Beijing to call time on the programme that was linked so closely to China’s reputation in the world and to the image of China’s leader Xi Jinping himself. Nearly a decade ago, Xi declared the BRI the “project of the century”. “Many countries still welcome investments from China under the framework of the BRI and I do not see that changing,” said Francesca Ghiretti, analyst at Merics, a Berlin-based think-tank.Xue Gong, a fellow at Carnegie China, predicted that China would use the Belt and Road Forum for International Cooperation, which Beijing is expected to hold later this year, to celebrate a decade of BRI achievements and map out future plans for co-operation.But she added that Beijing’s overarching focus on developing indigenous technologies, and a strain on public funding at home, may result in fewer resources earmarked for the initiative. “Large-scale cash handouts to state firms for the BRI are off the table,” Gong said.At the same time, China is broadening its political and diplomatic overtures to the developing world, potentially diluting the importance of BRI over time.Since 2021, Xi has launched three strategic initiatives aimed at remoulding the architecture of global governance and diluting the influence of the western-led institutions that have directed world affairs since the end of the second world war.As Beijing canvasses international support for two of them — the Global Development Initiative and the Global Security Initiative — those countries signing up to become “friends” of China’s vision are almost invariably also debtors to Chinese creditors under the BRI.Cambodia, Mongolia, Cuba, Uruguay, Nicaragua and Belarus have all demonstrated their support for the GSI during recent meetings, said Alice Ekman, senior analyst at the European Union Institute for Security Studies. All these countries are also prominent BRI members. Meanwhile, nearly 70 countries have joined the Group of Friends of the GDI, according to China’s ministry of foreign affairs. More

WASHINGTON (Reuters) – The standoff over raising the U.S. federal government’s $31.4 trillion debt ceiling illustrates the stakes of U.S. Senator Dianne Feinstein’s lengthy absence from Washington, fellow Democratic Senator Amy Klobuchar said on Sunday.Feinstein, 89, faced calls from some fellow Democrats last week to resign her seat after being sidelined since early March by a bout of shingles. On Wednesday she said she would temporarily step down from her spot on the Judiciary Committee while she recovers. “We are going to need her vote on the Senate floor eventually. We have things like the debt ceiling coming up,” Klobuchar said in an interview on ABC’s “This Week” program. Congress has been locked in a standoff over the debt ceiling since January, with the Republicans who control the House of Representatives saying they will vote to raise it only in exchange for federal spending cuts. President Joe Biden’s Democrats insist on a “clean” debt ceiling bill unaccompanied by cuts.Democrats control the Senate by a narrow 51-49 margin, making every vote critical.Feinstein said on Wednesday that she will continue to work from her San Francisco home, which will prevent her from voting in the Senate, where she has not cast a vote since mid-February.”I intend to return as soon as possible once my medical team advises that it’s safe for me to travel,” Feinstein said. Senate Majority Leader Schumer will ask the Senate this week to allow another Democratic senator to temporarily serve on the Judiciary Committee.Klobuchar, a Senate Judiciary Committee member, said the trail-blazing California lawmaker had “made the right decision” to step aside until she is able to resume work, but the closely divided Senate could not cope with her absence indefinitely.”If this goes on month after month after month, then she’s going to have to make a decision with her family and her friends about what her future holds, because this isn’t just about California. It’s also about the nation,” Klobuchar said. Feinstein on Wednesday faced the first public calls for her resignation from fellow Democrats.Representative Ro Khanna of California, who last week urged Feinstein to step down, said she was no longer able to do the job in an appearance on “Fox News Sunday.””I have a lot of respect for Senator Feinstein, but she’s missed 75% of votes this year. She hasn’t been showing up,” Khanna said. “She has no return date.”Also appearing on “Fox News Sunday,” U.S. Senator Kirsten Gillibrand defended Feinstein, saying she should be allowed to make up her own mind when or whether she will retire before her term ends after the 2024 elections.”It’s her right. She’s been voted by her state to be senator for six years. She has the right in my opinion to decide when she steps down,” Gillibrand said. “Dianne will get better. She will come back to work.” A representative for Feinstein could not be immediately reached for comment. Feinstein is one of three senators who recently have been out for medical reasons. Mitch McConnell, 81, the Senate’s top Republican, was treated for a concussion after falling at a dinner in Washington. Democratic Senator John Fetterman was hospitalized for depression earlier this year while recuperating from a stroke. McConnell and Fetterman are expected to return to work on Monday. More

Hello and welcome to the working week. With the first quarter of 2023 out of the way, now for the data chronicling how the companies and countries have fared so far. On Tuesday the one to watch will be China’s first-quarter GDP report.Beijing rounded off 2022 with a run of disappointing growth figures, ending the year with slightly more than 3 per cent annual growth. But now that China has lifted Covid-19 restrictions many are hoping the economy can make up lost ground and post some more impressive numbers. In March President Xi Jinping set a target for annual growth of 5 per cent, a conservative estimate compared with the breakneck speed seen in previous years. This week’s GDP figures will be an early indication of whether the country’s economy can be expected to live up to that aim. A promising first glimpse was export figures, which expanded by nearly 15 per cent in March, hinting that a key part of the country’s economy is coming back to life. Investors will also be keeping an eye on how trade tensions between Washington and Beijing have played in China’s economy. The US has been trying to strangle the flow of computer chips into the country to stop China from gaining more footholds in what it sees as a strategically important sector. In Delaware, the Fox defamation trial is due to start on Monday. Voting machine maker Dominion claims that Fox News amplified false claims that the company’s machines were used to steal votes from former president Donald Trump during the last election. Dominion is seeking $1.6bn in damages. On Dominion’s witness list are some of the network’s biggest names, including owner Rupert Murdoch, his son Lachlan, and presenters Tucker Carson and Sean Hannity. Finally, Earth Day on Saturday aims to raise awareness of environmental issues. To mark the annual event, protest group Extinction Rebellion is hoping to flood London with 100,000 protesters over the weekend. Jonathan is back next week, but I hope you have enjoyed my stint in preparing you for the upcoming week. Before I go, I would urge you to check out FT Edit, our new app for getting eight bits of the best journalism every week day. If you have any thoughts or feedback about the Week Ahead, please email me at [email protected] or if you’re reading this as a newsletter, just hit reply. Economic dataChinese GDP data is likely to dominate this week, but there will also be plenty of insights into how the UK economy is faring, including PMI and unemployment figures for March, plus the outlook for inflation. In the US the Federal Reserve is publishing its third Beige Book of the year, while at the end of the week the Bureau of Labor Statistics issues the state unemployment data for March. CompaniesAnother batch of US banks report first-quarter results, including Bank of America, Goldman Sachs and Morgan Stanley. Last week ended with some of their rivals, such as JPMorgan, Citigroup and Wells Fargo, beating expectations, indicating that the turmoil in the US banking sector last month had little immediate effect on the profitability of the biggest lenders.Also keep an eye on Tesla reporting its Q1 results on Wednesday. Elon Musk dropped the price of the company’s cars by as much as 9 per cent in March following an earlier cut to prices in January and investors will be keen to see if lower prices have translated into strong sales. The electric-car maker has already reported that it has shipped a record number of new vehicles in 2023. Key economic and company reportsHere is a more complete list of what to expect in terms of company reports and economic data this week.MondayDeloitte publishes its annual survey of chief financial officersUK, regional PMI data published by S&P GlobalUS, former Amazon executive David Risher is appointed the new boss of ride-hailing app Lyft, replacing the founders of the app Logan Green and John Zimmer. Risher takes over at a low point for the company as it loses market share to it main competitor UberResults: State Street Q1, PageGroup Q1 trading update TuesdayChina, quarterly GDP dataUK, Monthly unemployment figuresResults: EasyJet trading update, Netflix Q1, Bank of America Q1, Goldman Sachs Q1, Lockheed Martin Q1, Silvergate Capital Q1, Johnson & Johnson Q1, Ericsson Q1WednesdayEurozone, harmonised CPI data for MarchUS, Federal Reserve releases its Beige Book UK Consumer Price Index (CPI) data for MarchUK, house price index update for March Results: Tesla Q1, IBM Q1, Morgan Stanley Q1, Equifax Q1, Heineken NV Q1, Just Eat Q1, Las Vegas Sands Corp Q1, L’Oréal Q1 sales, United Airlines Q1, Rio Tinto Q1 operations review just before midnight in London ThursdayThe CBI and PwC publish their quarterly survey of financial services. It tracks optimism, profits and employment for the first quarter of 2023 and looks ahead to the year’s halfway point The European Central Bank publishes its monetary policy discussions about its outlook for the eurozone’s financial marketResults: WHSmith interim results, Snap Q1, Renault Q1 sales, AT&T Q1, B&M European Value Retail Q4, American Express Q1, China Mobile Q1, Philip Morris International Q1, Ipsos Q1 salesFridayUK, the Office for National Statistics publishes monthly retail sales figures. Data from Barclays last week suggested consumers were spending more, but spending was still being outpaced by the rate of inflationUS, Bureau of Labor Statistics publishes jobs data for MarchResults: China XD Electric Q1, ZTE Corp Q1, SAP SE Q1, BB Biotech Q1 World eventsFinally, here is a rundown of other events and milestones this week. MondaySweden, Spring mini budget, which will include a rise in defence spending as it prepares to join Nato UK, House of Commons returns from its Easter break US, Dominion against Fox News defamation trial begins in Delaware. A judge ruled that Rupert Murdoch and other executives could be called as witnessesUS, the Boston Marathon startsTuesdayEstonia, exercise Locked Shields, a cyber war game led by Nato, starts. More than 38 nations will take part in a host of cyber attacks to improve their response to assaults on critical infrastructure India, Apple opens its first retail store in MumbaiIsrael, Holocaust remembrance dayRussia, Wall Street Journal reporter Evan Gershkovich is set to appeal against his detention in Russia on charges of espionage. The trial will be held away from the public UK, Shortlist for the Booker Prize announcedSwitzerland, Trinity, a 67mn-year-old skeleton of a Tyrannosaurus rex goes up for auction in Zurich. It is only the third full T-Rex skeleton to be sold and the first in EuropeWednesdayFor FT subscribers, the Inside Politics newsletter is holding an event charting the road to the UK’s expected 2024 general election and asks if a victory for the Labour party is no longer assured. Sign up hereUK, Chatham House exhibition “In conversation with the future” is aimed at fostering ideas for sustainabilityUS, 30th anniversary of the Waco siege, a stand-off between federal agents and members of the Branch Davidian cult that lasted for 51 days and ended with the deaths of four federal agents and 82 group membersThursdaySolar eclipse in the southern hemisphere Unicef publishes its yearly The State of the World’s Children reportBelgium, Nato secretary-general Jens Stoltenberg will meet Czech president Petr Pavel at the alliance’s headquarters in Brussels FridayThe Muslim festival of Eid marks the end of Ramadan. Financial markets are closed in several countries in the Middle East including Saudi Arabia, Egypt and JordanUK, Extinction Rebellion along with several other climate groups plans to hold a rally that it hopes will bring 100,000 attendees to central London to push for action on climate changeUkraine, fourth anniversary of Volodymyr Zelenskyy winning the country’s presidential election SaturdayEvents to make the 53rd Earth Day are held around the world. This year’s theme is “invest in our planet” and is geared towards pushing governments and businesses to take action on climate changeUK, 30th anniversary of the murder of 18-year-old Stephen Lawrence in a racially motivated attack. The Metropolitan Police’s handling of the case led to accusations of racism in the forceSundayUK, the London Marathon. About 40,000 people are set to line up UK, all UK phones are scheduled to receive a test emergency alert. The system is planned to be used to issue warnings about life-threatening event such as floods and wildfires More

The wave of strikes that has swept the UK is hitting the economy harder than initially expected — and the disruption is set to continue, as health and teaching unions lay plans for industrial action that could stretch until Christmas.Chancellor Jeremy Hunt argues that while the impact of NHS strikes on patients is “incredibly regrettable”, the short-term hit to growth is a price worth paying if it helps curb inflation. Economists agree the short-term hit to GDP is not big enough to change the outlook for the UK economy this year — although most also think a more generous public sector pay deal would make little difference to the inflation outlook. Far more important, however, is the long-term impact on the UK workforce of a slow-burn staffing crisis that is straining health services to near-breaking point and damaging the quality of education.“There is a legacy that is hard to see,” said Paul Dales, at the consultancy Capital Economics, who believes that lengthening NHS waiting lists are a factor in the post-pandemic contraction in the UK labour force.Since last June, when rail workers began walkouts — followed in swift succession by postal workers, nurses, ambulance drivers, teachers, and staff at a swath of government agencies — the number of working days lost to industrial action has reached the highest sustained level in decades.

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Office for National Statistics surveys show how this has affected different sectors. In the run-up to Christmas, rail strikes led to cancelled bookings in the hospitality sector at the height of party season, while postal delays hit retailers and many other businesses.But the ONS noted that some economic activity was diverted, rather than destroyed — with taxis and car hire companies receiving a boost from stranded travellers, and some pubs in residential areas winning custom from revellers unable to reach city-centre office parties.Since the turn of the year, however, the disruption has been centred on hospitals, schools and public bodies ranging from the border force and passport office to the British Museum. This looks set to continue, even as disputes with rail and postal unions are inching towards a resolution.

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In February, these walkouts checked growth in an otherwise resilient economy. Service sector output was dragged down by a contraction of 1.7 per cent in education and 1.1 per cent in public administration. Over a three-month period, human health activity was 3.1 per cent lower than in the previous three months.Harder to count is the cost of patients and parents unable to work with classes and treatment cancelled. The ONS found only a small minority of people were unable to work during rail strikes, but a majority of parents would need to cut their hours or miss work if school strikes continue.“It matters because of how long it’s going on for . . . we will be talking about six months or so where the cumulative impact is going to be quite large,” said Andrew Goodwin, at the consultancy Oxford Economics. Goodwin noted that while output in the sectors affected returned to its previous level in months when no strikes took place, it did not bounce back far enough to repair the damage done by walkouts. Other economists say the short-term disruption from strikes will not change the trajectory of an economy that is currently faring better than expected on the back of lower wholesale energy prices.Even with strikes, it looks as if the winter recession story has evaporated,” said James Smith, economist at ING.But this does not mean the government can allow pay disputes to drag on without consequences for the economy.While most economists do not buy the chancellor’s argument that higher public sector pay would stoke inflation, they say the bigger worry is an unresolved recruitment and retention crisis that is eroding the capacity of the NHS and schools system. This could have serious long-term effects on the economy, since the worsening health of the population is keeping increasing numbers out of employment.

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Andrew Bailey, the Bank of England governor, has repeatedly highlighted this increase in economic inactivity due to ill health, as a development that is likely to stoke inflation and result in higher interest rates than would otherwise be needed. Smith said anything that exacerbated the UK’s problems with labour shortages could have a longer-term impact. “Clearly issues in the NHS are part of that story,” he said.More important than the size of any public sector pay rise is how it is funded.If the Treasury seeks to squeeze spending in other areas to allow for higher wage settlements, the overall effect could be inflationary, Goodwin argued, because public sector output would be lower.“The austerity debate of the last 15 years has shown that squeezing departmental budgets to do more with less ultimately just makes them do less.” More

NEW YORK (Reuters) – Investors are awaiting earnings reports from consumer discretionary companies in coming weeks for a read on how the U.S. economy is faring amid persistently high inflation and the Federal Reserve’s most aggressive rate hiking cycle since the 1980s.Consumers have largely held strong over the last year even as interest rates raised costs for mortgage loans to credit card financing. Yet widespread layoffs in the first quarter have hit affluent technology workers while the recent regional banking crisis has pulled back available credit for households, potentially squeezing the outlook for spending on entertainment, restaurants, autos and hotels.”We’re in this narrative tug of war between a hard landing and a soft landing for the economy, but if we see some strength in the consumer it could bolster the story that some of these worst-case scenarios won’t play out,” said Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions. He is bullish on homebuilders and appliance makers in anticipation of a rebound in the housing market.Corporate results and outlooks are taking on added importance this earnings season, as investors gauge whether monetary tightening and last month’s banking sector mess are denting overall growth.Big banks’ kicked off the earnings season on Friday, with JPMorgan Chase & Co (NYSE:JPM), Citigroup Inc (NYSE:C) and Wells Fargo (NYSE:WFC) & Co beating Wall Street expectations. Companies in the consumer discretionary spending sector reporting next week include Tesla (NASDAQ:TSLA) Inc, Netflix Inc (NASDAQ:NFLX) and AutoNation Inc (NYSE:AN). Amazon.com Inc (NASDAQ:AMZN), a major component, is expected to release earnings on April 27. Estimated Earnings Growth Rates for Q1 2023 https://www.reuters.com/graphics/MARKETS-EARNINGS/CONSUMER/dwpkdjqwqvm/chart.png Growing recession fears over the last year have already prompted many consumer discretionary companies to cut costs to boost margins, which may lead to positive earnings surprises this quarter, Melson said.Overall, analysts expect companies in the S&P 500 consumer discretionary sector to grow earnings by 36.5% in the first quarter of 2023 compared with a year earlier, the greatest increase of any sector, according to Refinitiv data. That compares with an expected 5.2% decline in earnings growth for the S&P 500 overall.Part of that expected growth comes from a job market that has remained robust, helping buoy consumer spending, said Jamie Cox, managing partner for Harris Financial Group.”Consumers are still traveling and spending money on high-end merchandise and people are still living it up,” he said. The sector, with nearly 40% of its weighting in Tesla and Amazon, is up around 14% for the year to date, nearly double the almost 8% gain in the broad S&P 500. Shares of Tesla are up nearly 50% for the year to date, while Amazon is up nearly 22%.At the same time, the Consumer Discretionary Select SPDR ETF has posted positive inflows in five of the last six weeks as investors sent a net $229.1 million to the fund, its largest six-week net inflow since August, according to Lipper data.Some investors, however, believe estimates may be too rosy, especially after last month’s crisis in regional banks fueled worries over a sharp cutback in lending.”I think there’s a lot of optimism embedded in this sector because of this notion that consumers will stay strong forever, but that’s ignoring what’s happened in the last month and a half,” said Kevin Gordon, senior investment strategist at Charles Schwab (NYSE:SCHW).Data on Friday showed U.S. retail sales fell more than expected in March as consumers cut back on purchases of motor vehicles and other big-ticket items, suggesting the economy was losing steam at the end of the first quarter. Meanwhile, U.S. consumer sentiment inched up in April, but households expected inflation to rise over the next 12 months.Sandy Villere, a portfolio manager at Villere & Co, has winnowed his holdings of consumer discretionary stocks in anticipation of a recession later this year. While still bullish on shares of companies such as Caesars (NASDAQ:CZR) Entertainment Inc and Swiss-based shoe company On Holding AG, Villere has trimming allocations to the sector overall. Once it is clear a recession has taken hold, he hopes to buy shares of retailers hit by the slowdown.”We’re expecting the market to look rougher in July and August, and if you did see discretionary retailers get hit and oversold that’s usually an opportunity where we would switch and play offense,” he said. More