Aurelia Butler

SHANGHAI/BEIJING (Reuters) -China’s banking regulator is scrutinising property loan portfolios of some local and foreign lenders to assess systemic risks, sources with knowledge of the matter said, as a crisis in the real estate sector worsens and weighs heavily on the economy.As part of their assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is looking at banks’ loan book exposure to developers to find out if those credit decisions were made according to the rules, one of the sources said.The aim is to measure risks to the financial system from the ongoing property sector turmoil in the world’s second-largest economy, two of the sources said. It was not immediately clear what action the regulator might take after the investigation.The probe is different to the routine self-reporting the regulator requires from banks, the sources said.China’s economy narrowly avoided contracting in the second quarter as widespread COVID-19 lockdowns and the slumping property sector badly damaged consumer and business confidence. July data was much weaker than expected, with further signs of deterioration in the housing and construction markets.The CBIRC did not respond to Reuters requests for comment. All the sources declined to be identified due to the sensitivity of the matter. The latest probe comes as policymakers have been trying to stabilise the property sector, which accounts for a quarter of the economy, after a string of defaults among developers on their bond repayments and a slump in home sales.The investigation underscores the challenges for Beijing in its efforts to encourage banks to extend fresh loans to embattled developers, while managing lending risks.Property loans accounted for 25.7% of total banking sector credit in China as of end-June, central bank data showed. The banking sector’s total outstanding loans was 206 trillion yuan ($30.3 trillion) at the end of the first half.While Chinese banks have the biggest exposure to local developers and homebuyers, foreign lenders including HSBC Holdings (NYSE:HSBC) and Standard Chartered (OTC:SCBFF) lend to property firms.Reuters could not determine whether HSBC and StanChart, two of the biggest foreign banks in China, are part of the latest investigation. HSBC and StanChart declined to comment.The debt crisis in China’s property sector has worsened in recent weeks after a growing number of homebuyers threatened to stop making mortgage payments on stalled property projects, aggravating a crisis that could lead to social instability. The CBIRC is also asking some developers for details of their cash positions and the source of money for debt repayments, a third banking source said.Beijing’s launch of tough leverage rules for developers in recent years has led to cashflow issues for many, leaving some scrambling from one month to the next to pay upcoming debt and sometimes failing.”The regulator wants to know how to tailor policy and assess risk,” said one banker at a foreign lender, who has been asked for property sector-related lending documents over the last couple of weeks.The investigation is very detailed and loan officers are being approached multiple times, sometimes over many weeks for additional documents on lending to specific developers, two of the sources said.A potential rise in mortgage defaults raises risks for banks and developers. “The risk of new NPLs (non-performing loans) will remain a threat to banks’ asset quality,” said rating agency Moody’s (NYSE:MCO) in a June note.Commercial banks’ non-performing loan ratio stood at 1.67% at the end of June, down from 1.73% at the beginning of this year, according to CBIRC data, though many analysts believe the real number is much higher.New bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID-19 flare-ups, worries about jobs and the property crisis made companies and consumers wary of taking on more debt.The property sector’s credit troubles risk seeping into secondary industries such as asset management companies, privately-owned construction firms and small steelmakers, said Fitch Ratings in an August note. ($1 = 6.7890 Chinese yuan) More

The reduced tax rate will apply as long as the levy is charged, meaning through March 2024, added Scholz.Germany had been in talks with the European Commission this week to find another way to reduce the cost burden on consumers after the commission had said Germany’s bid for an exemption on value-added tax was not possible.The measure comes after levies were announced this week that will tack on hundreds of euros to an average family’s energy bill.The levies will be imposed from Oct. 1 in a bid to help Uniper – the country’s largest importer of Russian gas – and other importers cope with soaring prices. More

European shares and US stock futures were muted on Thursday after minutes from the latest Federal Reserve meeting indicated the central bank would prioritise fighting inflation for an extended period.In Asia, Hong Kong’s Hang Seng index and Japan’s Topix both fell 0.8 per cent, following European and US share moves in the previous session. Europe’s Stoxx 600 index traded up 0.1 per cent, while the FTSE lost 0.1 per cent.Fed officials signalled that restrictive rates would be in place “for some time” in minutes from its July meeting released on Wednesday, delivering a blow to more optimistic investors that it would quickly begin to unwind elevated interest rates as soon as there were signs that raging inflation was easing.The minutes showed that officials supported raising interest rates to the point where they acted as a drag on economic growth. In a further sign that central bankers are determined to stamp out inflation, Norway’s central bank increased interest rates by 0.5 percentage points for a consecutive meeting, raising borrowing rates to 1.75 per cent. The Norges Bank also signalled it would raise rates further in September.Despite some investors talking about “peak inflation” after the US consumer price index steadied in June, “the reality is things are often more complicated,” said Kasper Elmgreen, head of equities at Amundi. “We get very mixed data points but the reality is inflation continues to be way above levels that central banks are comfortable with.” Disappointing results for US retail bellwether Target and declines for other consumer sectors pulled the blue-chip S&P 500 down 0.7 per cent on Wednesday, while the Nasdaq Composite dropped 1.3 per cent on the back of the Fed minutes and a poor day for tech stocks. Futures contracts tracking the S&P and Nasdaq 100 were flat on Thursday morning.The Fed minutes and the darkening outlook on inflation in the UK brought an end to a strong few weeks for equity markets.Short-dated sovereign debt, which is sensitive to interest rate expectations, also continued to sell off in the wake of higher than expected UK consumer price inflation. Two-year gilt yields gained as much as 0.3 percentage points on Thursday, trading at their highest level since the 2008 financial crash. The large moves ricocheted across other bond markets, with German, Italian and American two-year bonds, which are sensitive to interest rate expectations, all selling off. In a sign of continued concerns about interest rate rises, yields continued to rise on Thursday. The two-year gilt yield gained 0.03 percentage points to 2.39 per cent. Two-year Bund yields rose by 0.04 percentage points to 0.76, while Italy’s two-year bonds added 0.07 percentage points to trade at 1.67 per cent. Bond yields rise as their prices fall.Further data, in the form of US weekly jobless claims and home sales data, will provide more information on the state of the world’s largest economy later on Thursday.The dollar, a haven asset for investors, made small gains against a basket of six other currencies, rising 0.3 per cent. More

Good morning. The US and Taiwan agreed yesterday to begin formal trade and investment talks amid flaring tensions between Washington and Beijing over the self-governing island that China claims as its own. The discussions stem from a joint initiative announced in June and are expected to begin in the early autumn. They are aimed at deepening economic engagement in areas including agriculture, digital trade and climate. The Biden administration said late on Wednesday that the sides had reached “consensus on the negotiating mandate”.The announcement came after weeks of acrimony between the US and China following a trip to Taiwan earlier this month by Nancy Pelosi, the speaker of America’s House of Representatives. The visit infuriated Beijing. After Pelosi left, China fired missiles over Taipei, scrambling fighter jets and simulating an assault on the island. China’s ambassador to the US accused Washington of escalating the current crisis over Taiwan. “Some Americans do not recognise and correct their mistakes,” said Qin Gang in a press briefing on Tuesday. “The basic fact is the US took the first step to provoke China on the Taiwan question. This has openly infringed on China’s sovereignty and territorial integrity.” Fresh efforts by China to further isolate the island nation were triggered this week by the visit of a second delegation of US lawmakers to Taiwan. The fallout has forced multinational firms to draw up contingency plans in the event of a US-China military conflict. Go deeper with today’s Rachman Review podcast: Would China go to war over Taiwan? In case you missed it, FT reporters are gathering thoughts on US student loan debt and its impact on Americans via a short survey. Take a look if you have a spare moment, and your experience may be featured in an upcoming story. Thank you and have a great day — GeorginaFive more stories in the news1. Liz Cheney’s fight against Trump continues Cheney is planning to launch a political movement — which will probably be called “The Great Task” — whose primary purpose will be to prevent Trump from being re-elected, as he remains the Republican party’s frontrunner to become president.2. Fed minutes signal restrictive rates to stay Federal Reserve officials discussed the need to keep interest rates at levels that restrict the US economy “for some time” to contain the highest inflation in about 40 years, according to minutes of their July meeting, when US central bankers implemented a second consecutive 0.75 percentage point rate rise.3. Quant funds ramp up bets on US stocks Quant funds, which attempt to ride the momentum of market trends, are increasing bets on US shares, fuelling a rally that has added $7tn in value since June even as data points to a slowdown in the world’s largest economy. 4. China’s largest property group warns of profit dive Earnings at Chinese property developer Country Garden fell as much as 70 per cent in the first half of the year, as the country’s largest real estate group by sales was drawn into a crisis that has raged through the heavily indebted sector.5. Japan’s alcohol advice: please drink more The unorthodox government-backed “Sake Viva!” contest calls on people aged 20 to 39 to help revitalise an industry hit by demographic changes, the pandemic and long-term diminishing consumption that has cut into tax revenue.The day aheadRocket arrives at launch pad Nasa’s Space Launch System arrives at Launch Pad 39B at the Kennedy Space Center ahead of the Artemis 1 moon mission. The 98-metre tall rocket is scheduled to embark on its first mission to space on August 29.Serbia and Kosovo meet Serbia’s president Aleksandar Vučić and Albin Kurti, Kosovo’s prime minister, will hold joint discussions in Brussels with Josep Borrell, the EU’s foreign policy chief, over a road map to resolve tensions under the threat of conflict. Opinion: The EU and Nato have crucial roles to play in stopping Russia from exploiting regional rivalries, writes Misha Glenny, rector of the Institute for Human Sciences in Vienna.Economic data The EU and Canada publish July inflation figures, while US initial jobless claims are forecast to have risen slightly last week. (FT, WSJ)US existing home sales are expected to fall for the sixth consecutive month to 4.89mn in July from 5.12mn the previous month, against the backdrop of high mortgage rates and record prices causing buyer demand to cool.Esther George, president of the Kansas City branch of the Federal Reserve, is expected to make comments about the economic outlook today. Neel Kashkari, president of the Minneapolis Fed, is set to take part in a Q&A session at a Young Presidents’ Organization Gold Twin Cities Chapter luncheon.Corporate earnings Investors will be watching for signs on the state of consumer spending when several retailers report earnings this morning. Among them are Estée Lauder and Tapestry, the luxury fashion company known for brands including Coach, Kate Spade New York and Stuart Weitzman. BJ’s Wholesale Club and Kohl’s also report before the bell.What else we’re readingBrazil’s other deforestation: has the savannah farming boom gone too far? Deep within the country’s interior, the conversion of huge swaths of a region known as the Cerrado into pasture and arable land over the past few decades has helped transform Brazil into an agrarian powerhouse. But intensive farming in the region threatens its wildlife and vital role as a carbon dioxide “sink”.The village wedding caught in the Taliban’s battle for Kabul In August 2021, people in Dost Kol — a hamlet in the hills an hour west of Kabul — prepared to celebrate the wedding of Mohammad Ullah to a bride from a neighbouring village. But the next 24 hours brought tragedy.Central bank independence is on the decline In the US, UK and Turkey, politics are gaining sway over central banks, writes economics editor Chris Giles. France’s magnificent rusting giant The coat of paint that the Eiffel Tower will receive for the 2024 Olympic Games can hardly hide that it is rusting. Paris bureau chief Victor Mallet assesses the wear and tear on the pre-eminent symbol of France — and explains why Parisians could be waiting a decade for proper repairs.Beware patronising the marginalised How would you feel if you were told, by someone who knew very little about you, that because of your immutable physical characteristics you must have been the victim of oppression? Treating people as victims deprives them of agency, writes Jemima Kelly.Food & drinkRavinder Bhogal presents a menu that is a taste of Sicily, from caponata to pasta with sardines and apricot ricotta cake, all borrowed from a christening she gatecrashed this summer.

Gastronomically speaking, Sicily is the meeting place of at least two major traditions, the Arab and the southern Italian © Aaron Graubar More

Britons struggling to keep up with the rising cost of living are unlikely to abstain from a glass of wine on the couch in the evening, according to the head of Australia’s largest listed wine producer.Tim Ford, chief executive of Treasury Wines Estates, which owns brands including Penfolds, Wolf Blass and Lindeman’s, said rising global inflation and higher household expenses were putting pressure on the lower end of the wine market.But in UK, where inflation has climbed to a 40-year high of 10.1 per cent, Ford said there was no sign that consumers were cutting back on wine spending. “We haven’t seen that shift in the UK. The £6-£8 a bottle price point continues to be pretty strong,” he said.Ford predicted that at-home consumption of lower-end wine would prove resilient. “That pandemic trend has really stuck,” he said, referring to how people started drinking more at home after pubs and bars were closed because of lockdowns. Phillip Kimber, a consumer analyst with E&P Financial Group, said that during the pandemic and the 2008 financial crisis, in many markets, including the UK, consumption of alcohol at home increased. “Supermarket sales went crazy,” he said.However, Kimber warned that the company was not recession-proof, as higher-margin wines sold in bars and restaurants were less in demand. “In an acute recession, the corporate credit card gets reined in and spending on premium wines gets hit,” he said.Ford said that Treasury Wine Estates would not raise the prices of cheaper brands as the market could not absorb the higher cost, though the winemaker has raised prices for some of its popular luxury and premium brands. “These are not just lazy price rises. We can only do it where demand exists,” he said. TWE suffered a devastating blow when China introduced punitive tariffs on the Australian wine industry in November 2020. China was its most lucrative market at the time, and the company was forced to restructure and cut costs to deal with the impact of the tariffs.

TWE’s full-year results for the year ending June 2022 showed pre-tax profit increasing just over 4 per cent to A$372.9mn ($259mn). The business grew in the second half as its plan to target the US, UK and non-Chinese Asian markets including Thailand, Malaysia and Singapore took hold. “It has been an exciting year, geopolitics aside,” said Ford. TWE has maintained a presence in China and will introduce a Chinese version of Penfolds next month. Shares in TWE rose 4 per cent following the results. More