Aurelia Butler

GUILIN, China (Reuters) – For six months, home for Ms. Xu has been a room in a high-rise apartment in the southern Chinese city of Guilin that she bought three years ago, attracted by brochures touting its riverfront views and the city’s clean air. Her living conditions, however, are far from those promised: unpainted walls, holes where electric sockets should be and no gas or running water. Every day she climbs up and down several flights of stairs carrying heavy water bottles filled with a hose outside.”All the family’s savings were invested in this house,” Xu, 55, told Reuters from the Xiulan County Mansion complex, her room bare except for a mosquito net-covered bed, a few necessities and empty bottles on the floor. She declined to give her full name, citing the sensitivity of the matter.Xu and about 20 other buyers living in Xiulan County Mansion share a makeshift outdoor toilet and gather during the day at a table and benches in the central courtyard area.They are part of a movement of home buyers around China who have moved into what they call “rotting” apartments, either to pressure developers and authorities to complete them or out of financial necessity, as numerous cash-strapped builders halt construction amid the country’s deep real estate slump. Shanghai E-House Real Estate Research Institute estimated in July that stalled projects accounted for 3.85% of China’s housing market in the first half of 2022, equivalent to an area of 231 million square metres.While some local governments have taken steps to prop up the property market by setting up bailout funds, buyers like Xu, who paid deposits in advance and are on the hook for mortgages, remain in limbo.MORTGAGE STRIKESThe proliferation of unfinished apartments has sparked unprecedented collective disobedience, fuelled by social media: in late June, thousands of home buyers in at least 100 cities threatened to halt mortgage payments to protest stalled construction.The overall property market is highly sensitive to cases of unfinished apartments because 90% of new houses bought in China are purchased “off plans” while still under construction, said Yan Yuejin, research director at Shanghai E-House.”If this issue is not resolved, it will affect property transactions, the government’s credibility, and it could exacerbate the developers’ debt problems,” he said.China’s deep property slump, along with disruptions caused by strict anti-COVID measures, are dragging on the world’s second largest economy just as the ruling Communist Party gears up for its once-in-five-years Congress next month.’CRASHING FROM PARADISE’Xu bought her two-bedroom, 70 square metre flat in early 2019, about a year after its developer, Jiadengbao Real Estate, started construction and began marketing apartments for around 6,000 yuan ($851) per square metre, which they said would come with facilities such as floor heating and a shared swimming pool. Work progressed quickly at first, with blocks in the planned 34 tower complex going up one after another. But in June 2020, Jiadengbao Real Estate hit the headlines after a court accused its parent company of illegal fund-raising and seized 340 million yuan worth of its properties, including a number of flats in Xiulan County Mansion. Construction stopped in mid-2020, which Xu found out months later, describing her feelings at the time as “crashing from paradise”.Jiadengbao Real Estate did not respond to a request for comment from Reuters.Since the debt crisis erupted in 2021, thousands more home buyers have been caught in similar predicaments as cash-strapped developers went into bankruptcy or abandoned struggling projects.FENCING AND UNDERGROWTHOn a recent day, the main block of buildings at Xiulan County Mansion was surrounded by a tall blue fence while the clubhouse, touted in promotional materials, was covered in a dense undergrowth. Cement mixers, iron poles, and piles of debris lay strewn around.Xu, who is unemployed, said she bought the apartment for her only son, with the hope that he would be able to raise a family there. She said her son and her husband, who live far away in the northern province of Hebei, blame her for their financial predicament, and no longer speak to her. “We don’t know how long we will have to live here because the government has not said anything officially,” she said.She hopes the Guilin government will step in to help.The city government did not respond to a request for comment from Reuters.Housing authorities in Baoding, the northern city where Xu is from and where Jiadengbao Real Estate’s parent company is registered, said last November the city government and Communist Party committee had set up a group to resolve the issue.”If the government really wants to protect people’s livelihoods, and resume construction, we will go back home,” Xu said. ($1 = 7.0508 Chinese yuan renminbi)(This story corrects name of expert in paragraph 9 to Yuejin) More

LONDON (Reuters) – The pound plunged to a record low against the dollar early on Monday and British bond prices collapsed as fears mounted over the new government’s fiscal plan, unleashing calls for an emergency Bank of England rate hike to restore confidence.New finance minister Kwasi Kwarteng sent sterling and government bonds into freefall on Friday with a so-called mini-budget that was designed to grow the economy by funding tax cuts with huge increases in government borrowing. As trading resumed in Asian markets on Monday the pound plunged by as much as 5% against the dollar to touch $1.0327, its weakest since at least the introduction of decimalisation in the early 1970s, before it pared losses in European trading. But there was even more pressure in the gilt market, sending borrowing costs surging. Having risen on Friday by the most in a single day in decades, bond yields on two-year gilts jumped again on Monday by as much as 53 basis points to a high of 4.55%. The yield has risen by around an entire percentage point in the last two trading days alone, reflecting investors’ lack of confidence in the government’s ability to fund its tax cuts. Mohamed El-Erian, chief economic adviser at Allianz (ETR:ALVG), said the central bank would have no choice but to raise rates if the government of Prime Minister Liz Truss did not back down. “And not by a little, by 100 basis points, by one full percentage point to try and stabilise the situation,” he told BBC Radio.TREASURY ORTHODOXYTruss was elected as prime minister earlier this month by a vote of the Conservative Party’s 170,000 members – not the broader electorate – vowing to reignite economic growth through tax cuts and deregulation, even if it favours the wealthy over the poorest households. Her pledge to end so-called “Treasury Orthodoxy” and go for growth marks a step change in British financial policy, harking back to the Thatcherite and Reaganomics doctrines of the 1980s.Kwarteng has so far declined to comment on the market turmoil, and a person close to the finance minister said he was unmoved by the reaction. “Markets go up and down,” one veteran Conservative party source said, declining to be named. “We did something structural, short term, that will have seismic and positive long term benefits.”However, the scale of the market turbulence has started to rattle some in the party, with one lawmaker saying mainstream Conservatives were getting “very worried”, as constituents emailed their local politicians to express alarm. The lawmaker asked not to be named. Rachel Reeves, a former economist at the Bank of England (BoE) who is now the financial policy chief for the opposition Labour Party, said she was “incredibly worried” by the reaction of markets and Nicola Sturgeon, the first minister in Scotland, called for the UK parliament to be recalled. Investors and analysts were more direct. “The British have decided that going back to the 1980s on steroids is the best way to go, and clearly the market is just saying: ‘That’s not going to work’,” Michael Every, Rabobank strategist, said. “The market is now treating the UK as if it’s an emerging market. And they’re not wrong in terms of the policy response and the naivety of thinking that boosting demand rather than supply is how you deal with a supply-side shock.”The pound had rebounded to $1.08 as of 1144 GMT, but there was no sign of recovery in gilts.DOOMSDAY CULTPaul Donovan at UBS said investors seemed “inclined to regard the UK Conservative Party as a doomsday cult”.Markets currently show investors are placing an 88% chance on the BoE raising rates by a percentage point to 3.25% at its next meeting in November, according to Refinitiv data.The debate between some economists was whether an emergency rate hike would sow yet more panic, or calm markets. Andrew Sentance, a former BoE policymaker, told Sky News he did not advocate an emergency meeting. “I think that would add to the sense of nervousness and panic rather than calming it down,” he said. Further highlighting the extent to which investors have punished UK assets, the difference in the 10-year borrowing costs for the British and German governments exploded to its widest since 1992, when the UK crashed out of the European Exchange Rate Mechanism.British government bond prices are now on track for their biggest slump of any calendar month since at least 1957, according to a Reuters analysis of Refinitiv and BoE data.In response to that statistic, Paul Johnson, the head of the Institute for Fiscal Studies, attacked the government’s decision to ignore the usual rules. “This will cost billions,” he said on Twitter (NYSE:TWTR). “Economic and fiscal constraints are real. It’s not just ‘Treasury orthodoxy'”. More

Finance Minister Sri Mulyani Indrawati said the government was still, however, expecting to pay large energy subsidies in the third and fourth quarters of this year.”We will use all of our excellent state revenue,” she told a news conference, referring to the financing of the subsidies. Indonesia 2022 energy subsidies are projected to go up as much as 649 trillion rupiah ($42.91 billion), more than triple its original budget, despite the recent fuel prices hike.Government revenues were up 49.8% on a yearly basis in the January-August period to 1,764.4 trillion rupiah ($116.65 billion), which the minister attributed to high commodity prices and continuous economic recovery from the pandemic. Spending rose 6.2% on a yearly basis to 1,657 trillion rupiah.The finance ministry has sold 95.42 trillion rupiah worth of local currency bonds with low returns to the central bank this year, part of the two agencies’ bond sale agreement signed in 2021, Sri Mulyani said. Under the deal, Bank Indonesia will purchase government bonds worth up to 439 trillion rupiah in 2021 and 2022.($1 = 15,125.0000 rupiah) More

The writer is chair and chief investment officer of Marshall Wace, an alternative asset manager. He writes in a personal capacity.The UK’s new policy mix unveiled at last week’s “mini-Budget” is not only radical in a British context — it is also a rebuke to prevailing western economic orthodoxy.Since 2010, the G7 policy framework has been one of tight fiscal and loose monetary policy. Call it Osbornomics or Draghonomics. This combination of fiscal austerity and monetary largesse has not been a success. Austerity has not prevented government debt ratios steadily climbing to historic highs. Some may think the UK’s ratio of debt to gross domestic product is out of control, but it is still the second lowest in the G7 at 97 per cent. Meanwhile quantitative easing has fuelled asset inflation for the super-rich and has more or less abolished risk pricing in financial markets. And over the past two years, when combined with Covid-19 fiscal boosterism, it has produced inflation which is still out of control. But now the global policy consensus is in the process of pivoting — from the tight fiscal/loose monetary combination to its opposite. The UK is leading this shift, but the US is doing the same thing, with President Joe Biden’s new Inflation Reduction Act introducing a spending boost of $467bn, matched by a much more hawkish Federal Reserve. A distinctive feature of the UK’s fiscal pivot is the emphasis on reducing the burden of tax on work and business. This is sensible. The lion’s share of the UK tax burden falls on work in some form or another, largely because it is the easiest kind of tax to collect. It may be easier to collect, but it is probably what we should tax least. I would like to see even more support (through the fiscal system) for the growth industries of the future. Biden’s IRA gives huge support to the renewables industry and to the domestic electric vehicles industry, assuring American leadership in the only growth industry in which the US was not already dominating Europe. But the more libertarian new British government is too influenced by Ayn Rand for that. However, the bigger problem for Liz Truss’s government is the Bank of England. It seems that the governor, Andrew Bailey, did not get the memo. Our central bank has been behind the curve since inflation first started to rise sharply in 2021. Initially the BoE was in good company. But now it is starting to lag behind its counterparts around the developed world. The Bank of England effectively lost control of the UK bond market last Thursday when it raised interest rates by 50 basis points, instead of the 75bp that the US Federal Reserve and the European Central Bank raised by. Its timidity is now having an impact on both the gilt market and sterling. That is the essential context for the market reaction to the mini-Budget. Once you lose market confidence, it is doubly hard to win it back. This cannot be what Truss, and her chancellor Kwasi Kwarteng, wanted at all. They had been hoping for and hinting at a more muscular stance from the BoE to underpin financial market confidence in the UK, even at the expense of some short-term pain. It cannot be long before the BoE’s mandate comes under review — perhaps starting with the appointment of a new commission to look at the merits of the present single mandate, as opposed either to a dual mandate, such as inflation plus employment (such as the Fed has) or nominal GDP targeting. Central bank independence is one thing, but immunity from accountability quite another. If Bailey and his colleagues on the Monetary Policy Committee are not careful, they are going to find the growing scrutiny from Westminster very uncomfortable indeed. More