Aurelia Butler

Hong Kong has eased its rigid border controls after the restrictions put in place to control the Chinese territory’s worst coronavirus outbreak battered the economy and prompted residents to flee the city.Carrie Lam, the city’s leader, said she would lift a flight ban from nine countries, including the US and UK, for Hong Kong residents and allow those travellers to quarantine in a hotel for seven rather than 14 days. The changes will take effect on April 1.“Hong Kong’s isolation requirements for inbound travellers . . . could in turn adversely effect the local business environment, especially when the rest of the world has been moving towards relaxing [Covid policies],” Lam said on Monday. “There is a need for the economy to move forward.”The decision will cheer international business, which has argued Hong Kong’s stringent controls undermined the city’s status as a global financial hub. “The measures are the sign we have all been waiting for,” Frederik Gollob, chair of the European Chamber of Commerce in Hong Kong, said. “[But] the decision comes at an almost too late stage . . . We need to see the recovery plan to avoid further damage, as the damage has already happened big time.”Gollob said most companies in his chamber were struggling to hang on to staff and many were considering leaving Hong Kong.Property tycoons, bankers and academics had warned that the restrictions had caused a brain drain and damaged the city’s economy. The territory recorded a net loss of 65,295 residents last month and an additional 40,920 by mid-March.Paul Chan, the city’s financial secretary, said on Sunday that restrictions would drive the economy back into contraction.“Hong Kong’s economy will inevitably fall into negative growth in the first quarter of the year, with the unemployment rate further deteriorating rapidly,” he said.Lam had previously argued that the controls were needed to convince the mainland to reopen the border but last week signalled a change of direction.“I have a very strong feeling that people’s tolerance [is] fading,” she said. “I have a very good feel that some of our financial institutions are losing patience about this sort of isolated status of Hong Kong and Hong Kong is an international financial centre.”Allan Zeman, a hospitality magnate and government adviser, described Monday’s announcement, which lifted restaurant stocks, as vital. “We’re back in business . . . I’ve seen it before [during the 1997 handover of Hong Kong from the UK to China] people left, then after people came roaring back, Hong Kong’s strength will always be there,” he said.

Cases are falling after the city reported more than 1mn Covid infections since the fifth wave struck in late December, with at least 5,600 fatalities, surpassing the official toll in mainland China. Beijing has also been struggling to contain the country’s biggest outbreak since Wuhan and by Sunday had recorded about 132,000 Covid infections and 4,600 deaths after reporting few infections in the first two years of the pandemic.“[Health] experts also believe that the peak has passed and infections are on a decreasing trend,” Lam added. As the outbreak spiralled out of control, the government suggested a citywide lockdown and mass testing of the entire population, sparking a wave of panic buying. A policy where Covid-positive children could be separated from their parents in hospitals spooked residents further.The government said on Monday the unprecedented testing exercise would now be put on hold but “if the time is right” it could still be conducted.Face-to-face schooling will resume in stages from April 19 and most social distancing measures will be maintained until April 20. More

Good morning. Last week ended up being the strongest for stocks since late 2020. Feeling reassured? Today, one big pitfall of rising rates and the little-aired bear case for oil. Email us: [email protected] and [email protected] rates and housing marketsMarkets were pleased with the Federal Reserve’s interest rate hike last week. But how far can the Fed go? Here is a scary prediction from Bill Gross, the erstwhile bond king:The founder of investment house Pimco told the Financial Times this week he believes inflation is approaching troubling levels but the US central bank will not be able to implement higher policy rates to contain it.“I suspect you can’t get above 2.5 to 3 per cent before you crack the economy again,” [Gross] said. “We’ve just gotten used to lower and lower rates and anything much higher will break the housing market.”Singling out housing makes sense. As we’ve discussed, house prices and rents are very high. Roaring demand, driven partly by demographics, is paired with meagre supply. The inventory of existing homes for sale hit an all-time low in January and has hardly recovered. Homebuilders are rushing to get fresh inventory on the market, but are constrained by shortages of labour and building materials. The best fix would be building more homes. Until then, higher rates are bound to cause problems. Chunkier mortgage payments will limit demand, but also encourage homeowners to cling on to their current, cheap mortgages. That will further limit the supply of existing homes, notes Aneta Markowska of Jefferies.Though the Fed has only started tightening, mortgage rates weren’t inclined to wait for the starter pistol, kicking off a fierce climb in late December:The impact on the market is already evident. February data from the National Association of Realtors found existing-home sales falling 7 per cent month-on-month. Here’s NAR’s head economist, Lawrence Yun, on Friday:Housing affordability continues to be a major challenge, as buyers are getting a double whammy: rising mortgage rates and sustained price increases. Some who had previously qualified at a 3 per cent mortgage rate are no longer able to buy at the 4 per cent rate.Monthly payments have risen by 28 per cent from one year ago — which interestingly is not a part of the consumer price index — and the market remains swift with multiple offers still being recorded on most properties.Strategas’s Don Rissmiller and Brandon Fontaine point out that policy rates around 1-2 per cent were enough to clip housing demand in 2018-19. The median Fed projection is right in that range, around 1.9 per cent by the end of the year. This time around, though, consumer debt is higher. Mortgage debt as a share of real GDP has risen 6 percentage points to 55 per cent, since the last rate-hiking cycle peaked in late 2018. If history repeats, stumbling house demand could show up as weaker output growth. Ian Shepherdson of Pantheon Macro explains the mechanics well:A sustained drop in home sales — new home sales will fall too — would be a direct drag on GDP growth, at the margin, via downward pressure on residential investment, and all the services — legal, removals, and others — directly tied to sales volumes. It would also depress retail spending on building materials, appliances, and household electronics.The nightmare scenario is that the Fed ends up with an inverse Goldilocks situation: rates high enough to hurt growth through the housing market, but too low to get inflation under control. This is far from guaranteed. US fundamentals could prove sturdy enough to support housing demand. But Gross’s warning is important. As rates rise, watch housing. (Ethan Wu)A lonely oil bearMost people think, with reason, that oil is going to be expensive for a while. Russia is at war and faces tightening sanctions. Global demand is strong. And both the big US producers and the Opec countries are demonstrating some production discipline, despite prices rising from $75 to over $100 this year.Ed Morse, head of the commodities team at Citi, stands well outside this consensus. How far outside? Here are his price projections compared to the prices implied by the futures market:If Morse turns out to be right, it will matter far beyond oil markets. Oil near $60 later this year might be enough to slow the expected upward march of interest rates, with significant effects on prices all across markets. And Morse has made correct contrarian calls in the past, proving prescient about the 2008 and 2014 price collapses. Morse’s laid out his bearish view for me on Friday. It rests on 4 main planks:Current high demand is evidence of a recovery, not secular strength in the economy. “We think the demand surge is a return to normal after a deep recession rather than a precursor of sustained demand,” Morse says. “Gas and oil demand did not move very much between 2015 in 2019, despite some increases in emerging markets, because of developed markets and China.” Morse points out that the Chinese do not tend to use cars for long-haul travel, and like electric vehicles, explaining the low oil intensity of China’s growth. He expects this to continue. Overall, Morse thinks that the hydrocarbon-intensity of the global economy is declining in a straight line, in developed and emerging markets alike. Nothing can stop that trend for long. The only oil markets where he sees rising demand in the long term are jet fuel and petrochemical feedstock.My brilliant colleague Derek Brower (nb: he made me write that) of FT’s Energy Source newsletter (it actually is pretty good, sign up here) thinks that Morse may be on to something here with his China point. “Barrel counters say Chinese demand is already looking a bit toppy, especially at $100-plus oil . . . that said, hunting for the peak in Chinese oil demand has been something of a Moby-Dick endeavour in recent years, and we’ve seen false signs of it before.”The war in Russia is unlikely to disrupt supply as much as the markets expect. “What we are seeing is self-imposed restrictions [on buying Russian oil]. Some people, even in government, think that because of these restrictions exports are about to tumble. And it is true that auctions are shutting down. But if you look at ship loadings, there are buyers. We know there is enough lifting [tanker-filling] capacity there.” Morse believes, in short, that the market is not cynical enough about Russian oil, which is selling at a $30 discount, finding its way to market one way or another. Russian production is indeed rising, for now. Much will depend on how hard the US and other western nations are willing to squeeze. If sanctions persist, the departure of global capital and expertise will start to degrade Russian capacity, too; but that is a long-term issue. US shale fields are going to produce more than the market expects. “In US shale we have an accelerating rate of rig utilisation — we have private sector companies going all out for drill baby drill,” he says, waving away the common refrain that the big publicly traded US producers, such as Pioneer and Devon, prefer higher returns to higher production. Sixty per cent of new drilling is at private companies funded by private equity, he says. PE sponsors, having suffered through some hard times, are eager to get out of the business, and the best way to do that is to quickly push their projects to the high cash flow stage, and then sell them to larger producers. Nor does Morse buy the argument the labour and equipment supplies limit production growth in the US. “There is a good 100 high-quality rigs available. There are good fracking crews available. If they need manpower, they’ve just got to pay more”. At the same time, the productivity of each well is increasing.Producers around the world are responding to higher prices with production. Canada, Guyana, Brazil, Argentina and even Venezuela are signalling increased output. And then there is the possibility that Iran returns to the market later in the year.Morse is a voice in the wilderness for now. But as we have learned repeatedly recently, at this weird moment, it is crucial to listen to dissenters. One good readIn his first official FT column, Stephen Bush asks how the UK can create an immigration policy that isn’t actively terrible. More

Chipmakers’ multibillion-dollar expansion plans will be constrained by a shortage of critical equipment over the next two years as the supply chain struggles to step up production, according to one of the industry’s most important suppliers.The warning comes from Peter Wennink, chief executive of ASML, which dominates the global market for the lithography machines used to make advanced semiconductors.“Next year and the year after there will be shortages,” Wennink said. “We’re going to ship more machines this year than last year and . . . more machines next year than this year. But it will not be enough if we look at the demand curve. We really need to step up our capacity significantly more than 50 per cent. That will take time.”ASML’s machines are used to etch circuits into silicon wafers. “It is the single most critical company in the semiconductor supply chain,” said Richard Windsor, tech analyst at Radio Free Mobile. “It is the printing press of silicon chips.” Wennink said ASML was assessing with its suppliers how to increase capacity. It was not yet clear the scale of investment required, he said. ASML has 700 product related suppliers, of which 200 are critical.His comments come as the semiconductor industry accelerates investment in new production to meet a global shortage of chips and surging demand. Analysts expect the market to double to $1tn by 2030. Intel last week said it would invest roughly €33bn in manufacturing and research in Europe, rising to €80bn by the end of the decade, depending on demand. It has also announced plans to invest $40bn to expand chip manufacturing in the US.The US chipmaker is racing to catch up with the industry leader, Taiwan’s TSMC, which is investing more than $100bn over the next three years. Samsung has said it will invest $150bn by the end of the decade to expand production, part of an estimated Won510tn ($421bn) to be invested by more than 150 South Korean companies, according to the government.The US and Europe are also planning tens of billions in support for chip manufacturing, in an attempt to reduce their reliance on Asian manufacturers.Pat Gelsinger, chief executive of Intel, acknowledged that the equipment shortage posed a challenge for the company’s expansion plans. He said he was in direct contact with Wennink on the shortages, and Intel had sent its own manufacturing experts to the company to help accelerate production. “Today this is a constraint,” he told the Financial Times. But he stressed that there was still time to resolve the issue. It would take two years to build the shell of the chip factory. “Then you start to fill it with equipment in year three or four,” he said.Wennink agreed there was still some time to expand capacity in the supply chain, as many of the new manufacturing facilities would not come on line before 2024. But this would not be simple. For example, the most complex component of ASML’s equipment was the lens, made by German manufacturer Carl Zeiss. “They need to make significantly more lenses,” Wennink said. But first the company would have to “build clean rooms; they need to start asking for permits; they need to start organising the building of a new factory. Once a factory is ready, they need to order the manufacturing equipment; they need to hire people. And then . . . it takes more than 12 months to make the lens.”Additional reporting by Joe Miller More

The war in Ukraine has already upended countless lives. Now, it’s upending business models as well. With the exodus of western multinationals from Russia and Ukrainian supply chain disruptions coupled with Covid-related disruptions in China, companies are having to rethink everything. The challenges range from how they pay local Ukrainian staff (in some cases with cash delivered to Poland) to how to get hold of parts they sourced from the region before the war (the answer so far: slowly and spottily). Among those hard hit have been German carmakers that depend on components from Ukraine. Their plants are idle as they struggle to figure out a new system.But even companies that don’t have suppliers or operations in the thick of the conflict recognise they need to move from assumptions of unfettered globalisation to more regional — or even local — hubs of production and consumption. They also see the benefits of more decentralisation and system redundancy (namely having extra resources to provide back-up support) to avoid future shocks. “The ongoing supply chain disruptions have now lasted longer than the 1973-4 and 1979 oil embargoes — combined!” says Richard Bernstein, CEO of RBA, the investment firm. This isn’t a blip, but rather the new normal.Large companies that can afford to own more of their entire supply chain have been moving towards vertical integration as a way to smooth disruptions and the inflationary pressures that result. Companies of all sizes are looking for ways to localise more production wherever their consumers are, no matter which country or region they are in. Many smaller “maker” firms in New York have benefited during the pandemic since they source locally, but the technique is also being picked up by big name brands that simply want more buffers against shocks of any kind — be they geopolitical or climate-related.“Supply chains are under-pressure and have been for some time,” says Arama Kukutai, chief executive of a vertical farming start-up called Plenty, which is working with Walmart to grow vertically-stacked fresh produce on location in California, and also with companies such as Driscoll, the world’s largest berry producer. The two have launched a new vertical strawberry farm on the east coast, with an eye to avoiding transport costs and delays. “Companies like this want to lessen their reliance on long, complex supply chains and imports,” Kukutai adds. “Basically, you want to build where customers are.”This has been a trend in manufacturing for some time — particularly for private companies that are more often family-owned, more rooted in local communities and have less pressure on quarterly results. One of those is New Balance, a footwear company that last week announced a factory in Massachusetts to service growing demand for “made in America” products, with more local suppliers to bypass shocks where possible. “Being private makes it easier to do more locally,” says CEO Joe Preston, “but I think that coming ESG requirements are going to push more companies in this direction, because labour issues are a big part of that.”Certainly, it is becoming clear that the world isn’t resetting to globalisation as it did in the 1990s. Some industries, such as technology, will feel the pressure to change existing business models more than others. Witness Intel creating a major new chip foundry in Ohio as part of America’s larger tech decoupling from China, and now Russia, via chip export sanctions. The company is also investing in European regional foundry capacity.I wouldn’t be surprised if the war in Ukraine quickens restrictions on “dual-use” technologies that can be deployed for either commercial or military purposes. A recent report by TS Lombard cited industries ranging from chips, telecommunications and IT equipment, to aerospace, avionics, computers, electronics, sensors, lasers and their components, that may need to shift their supply chains and customer base to account for decoupling. “Think of cloud-connected smart vehicles uploading real-time data to satellites (eg Tesla/SpaceX) as surveillance devices that can be repurposed for warfare,” notes the report.This shift could certainly have a big financial market impact, since much of the growth of the largest tech firms has been predicated on their ability to cross borders seamlessly. But that impact won’t go just one way. Witness the rise of 3D-printing stocks, for example, which have soared amid the pandemic. The industry was able to plug the gap in supply chains by locally manufacturing everything from PPE to medical and testing devices, to personal accessories, visualisation aids and even emergency dwellings.The entire 3D-printing market grew 21 per cent from 2019 to 2020, and is predicted to double by 2026. There are now a number of companies, such as Austin-based Icon, that are moving from printing disaster shelters to luxury homes. Given the complexity and carbon intensity of home building, with its multiple supply chains, it’s a shift that could help curb inflation. As a 2020 article in Nature put it, “3D printing of buildings requires shorter building times and lower labour costs, and can use more environmentally friendly raw materials.” The resulting homes can be “easily transported and deployed to areas where they are most needed”.Even in times of war, decoupling and geopolitical fear, it’s worth remembering that there is opportunity in [email protected] More

At the start of 2022, bond investors were already facing the highest inflation rates in decades across most large western economies. Now, following Russia’s invasion of Ukraine last month, which drove commodity prices to their highest level since 2008, inflation well in excess of central bank targets is expected to stick around for even longer.For central bankers, this economic fallout from the Ukraine war has sharpened a dilemma: how to tackle rising prices without choking off economic recovery from the coronavirus pandemic?“There’s been a stagflation concern around for a while and, with everything that’s happening in Ukraine, that’s really starting to accelerate,” says Gregory Peters, co-chief investment officer at PGIM Fixed Income, the asset manager.The US Federal Reserve and the European Central Bank have, so far, appeared to stick to their guns, emphasising the fight against inflation rather than the threat to growth posed by the “oil shock” of the Ukraine invasion.The Fed last week delivered its first post-Covid interest rate rise by a quarter of a percentage point, to a target range of 0.25 per cent to 0.5 per cent, and signalled it expects a further six increases this year. The Bank of England raised its base rate to 0.75 per cent at its third meeting in succession on Thursday. And even the typically more dovish ECB accelerated the winding down of its asset purchase programme this month, leaving markets braced for higher rates in the eurozone later in the year.To some investors, that is a sign that central bankers will not come riding to the rescue at the first sign of economic trouble or a setback in stock markets — as they often did in the period after the 2008-9 global financial crisis.

The Marriner S. Eccles Federal Reserve Board building in Washington, DC © Saul Loeb/AFP/Getty

“People have been preconditioned by central banks to ‘buy the dips’ over the past decade,” says Peters. “But with inflation that is still high and has become politicised, I’m not sure you can blithely use the same playbook.”US short-term bond yields, which are highly sensitive to interest rate expectations, have charged higher in recent months, with the outbreak of conflict in Ukraine only briefly arresting their rise. The two-year Treasury yield has risen to 1.92 per cent from less than 0.8 per cent at the start of the year.In Europe, with its greater reliance on Russian energy imports, short-term borrowing costs sank at the start of the conflict but have since rebounded to levels seen in mid-February. Many fund managers believe that the economic fallout from the war will prompt the likes of the ECB and the BoE to move more slowly on rates later in the year.“The nature of inflation has changed,” says Christian Kopf, head of fixed income at Union Investment, the German asset manager.“Before this oil shock, we had a mixture of supply- and demand-driven inflation. Now, it’s clearly mainly supply-driven, and that warrants a different central bank reaction,” he argues.“We have a big shock to activity in the euro area and it doesn’t make sense to hike at the moment.”

In fact, further rises in oil prices, despite their short-term inflationary impact, could actually help to dampen longer-term inflation expectations by sapping the strength of the economy, according to Simon Lue-Fong, head of fixed income at Vontobel Asset Management.The price of a barrel of Brent crude has surged close to $130 from less than $80 at the start of the year. Last Thursday, it traded at just under $105. “The longer the oil price stays high, the more damage it will do to growth or inflation expectations,” Lue-Fong says.Even before the outbreak of the Ukraine conflict, bond investors were questioning how far central bankers would be able to tighten policy without snuffing out the recovery. Longer-term bond yields have also risen in recent months, but their ascent has been much more modest than that seen in, for example, two-year debt. The US 10-year yield trades at 2.15 per cent, up from a little over 1.5 per cent at the end of 2021.This so-called flattening of the yield curve — where the gap between short-term and long-term yields shrinks — is even more pronounced in the UK and is often seen as a market signal that growth is set to slow.Many investors think an inversion of the yield curve — where long-dated bond yields fall below short-term interest rates — is possible later in the year if central banks go ahead with a series of rate rises. An inverted curve can indicate that investors expect the central bank will be forced to cut rates due to an impending downturn and has, for decades, been a reliable predictor of recession.“What the market has been telling you quite clearly over the past six months is that we are careering towards a policy mistake, and that looks even more likely now,” says Peters. “I’m not trying to say central bankers are stupid — it’s just incredibly difficult to get this right.” More

The writer is co-founder and chief investment officer of Guggenheim PartnersThe recent surge of inflation has led the media and market pundits to look to economic history for relevant comparisons. America has suffered through bouts of inflation before, but many “experts” only consider the precedent from their lifetime — that is the inflation of the late 1970s and early 1980s that was conquered by the draconian interest rate policy measures of the Paul Volcker-led Federal Reserve. While that period’s inflationary rise may invite comparisons to today, its root causes — funding the Vietnam war and the Great Society social policy initiatives of Lyndon B Johnson, delinking the dollar from gold, and an energy crisis — were a different set of circumstances. A more appropriate corollary from history is 1946-48, the post-second world war inflationary episode resulting from supply shortages during peacetime refits of manufacturing plants, rebounding demand for consumer goods, high levels of savings and soaring money growth.This sounds a lot like today. As for how the 1940s inflation ended, supply and demand ultimately came back into balance, and a more primitive version of the Federal Reserve — which did not have the targeting of a benchmark fed funds rate in its toolkit — slowed the economy by curbing money and credit growth and shrinking its balance sheet.Price increases slowed in 1948 and actually declined in 1949, and a brief, mild recession ensued. Equity prices generally remained stable. This would be a welcome outcome today, but the execution of monetary policy over the coming months will determine whether inflation ends gently or with a serious recession and more market turbulence.The pent-up demand of postwar America was extraordinary: Between 1945 and 1949 — a period when the US population was approximately 140m — Americans purchased 20m refrigerators, 21.4m cars, and 5.5m stoves. This was quite a rebound from the shortages of wartime America.At the same time, excess savings generated during the war and the increased postwar credit demands of borrowers in 1946 and 1947 — by farms, homeowners, real estate investors, and industry — further stoked inflationary pressures.CPI inflation, which was 3.1 per cent in June 1946, peaked nine months later at 20.1 per cent in March 1947. The spike in inflation followed a period of explosive growth in the monetary base and in securities held on the balance sheet of the Federal Reserve, which grew 300 per cent to $24.5bn in 1945 from $6.2bn in 1942. This wartime rise was not unlike what we have seen recently in the central bank balance sheet in response to the pandemic.How did the inflationary period end after the March 1947 peak? First, pent-up demand subsided and supply came on board as prices rose and manufacturing transitioned from wartime to peacetime activity. In other words, the market’s “invisible hand” worked.Second, monetary policy tightened, but using a few different elements than what we see today. As explained in the 1948 Fed Annual Report: “Federal Reserve policies during most of 1948 . . . were directed toward exerting restraint on inflationary credit expansion while at the same time maintaining stability in the market for government securities.” Notably missing is any talk of interest rate management.With the Fed likely to embark on a path of reducing its balance sheet while simultaneously raising rates, the risk is much greater that the result will not be a quick, mild recession like we saw in 1949, but a much more serious downturn, greater market volatility and a potential financial crisis. No one can control both the supply and price of any commodity, including credit. Given the record corporate debt levels, the rich valuation of financial assets and surging prices for speculative investments, the prospects for policy error are high.Policymakers would be wise to look to the past. Attempts to contain inflation in the 1970s were focused on targeting short-term rates instead of limiting credit creation by controlling the Fed balance sheet and the money supply. This policy was an obvious failure. After the financial crisis, policymakers seem to have lost faith in the power of markets to set prices and balance supply and demand, and have gained too much faith in their own ability to do the same. Perhaps a rational and disciplined approach adhering to monetary orthodoxy as demonstrated in the 1940s would greatly reduce the risk of policy error, avoid the inflation spiral of the 1970s, and reduce the risk of yet another financial panic.  More

The town of Glasgow, Montana, which promotes itself on T-shirts with the words “Middle of Nowhere”, might seem a strange place to highlight in a book about the global expansion of Chinese tech. But it was here that Jonathan Hillman grasped how Chinese communications technology companies were sweeping the world.Struggling to afford western telecoms kit, Glasgow made do with inadequate links until Huawei came to its aid in 2010. Undercutting competitors by up to 30 per cent, the Chinese communications equipment group won a contract from Nemont, the local telecoms operator, for a modern 3G system. Nemont was aware of the political complications of installing gear from communist China. But when it wrote to the US government raising its concerns, it received no reply. So it went ahead, and had Huawei install its system, to the satisfaction of local residents.As Hillman writes, Huawei won the business because it was cheap and effective, and because the US authorities — and US industry — had paid too little attention to security issues and neglected the digital needs of the country’s vast rural districts.Everything changed with the dramatic shift in policy triggered by President Donald Trump. After years of betting that economic collaboration would lure Beijing on to the path of democracy and co-operation, Washington decided that this approach had failed in the face of an increasingly authoritarian China under Xi Jinping. Longstanding concerns about the security risks involved in opening US markets to Chinese tech companies have become paramount. Instead of promoting deals and joint ventures, American policy now focuses on reducing China’s presence. Huawei and others have been banned. Nemont faces the costly job of replacing its existing equipment.In The Digital Silk Road, Hillman, who won the FT’s Bracken Bower Prize in 2019, sets out how China has come from nowhere in digital technology in the past 30 years to pose a strategic threat to the US and its allies. A security specialist at the Washington-based Center for Strategic and International Studies, he catalogues America’s failure to take the risks seriously or to curtail the flow of knowhow that Chinese companies sucked out of the US, via everything from flawed technology transfers to theft.

Hillman looks at digital networks, electronic surveillance, data storage, international links and satellite communications. He charts how key Chinese companies compete with each other and simultaneously benefit from state support, including from the military. Drawing on Chinese sources as well as western, he shows how Chinese leaders from the 1990s backed digital technology, recognising its core military and security applications as well as its commercial role. From the outset, they grasped how it could control a population. Where Ronald Reagan once saw the communications revolution as “the greatest force for the advancement of human freedom the world has ever seen”, Beijing took a different view.As Jiang Zemin, one of Xi’s predecessors, told Communist party officials as early as 2000: “The basic policy concerning information networks is to actively develop them, strengthen our supervision over them, seek their advantages, avoiding their disadvantages, use them for our own purposes, and strive for a position where we always hold the initiative in the global development of information networks.” Hillman rails at the lost opportunities. But he is also, rightly, admiring of the determination of Chinese companies and of their staff. And he bemoans the divides in the US, where in 2019 a quarter of the rural population still lacked basic broadband. Perhaps the sharpest chapter is on surveillance, where Chinese companies provide the state with the technology of repression — notably for use in Xinjiang — while selling it abroad to maximise revenues. Hillman says: “If the market for surveillance equipment were a gun show, Chinese firms would be the dealers who do not ask for background checks.”It is a shame that Hillman’s fine prose and telling case studies are not supported by charts, maps or pictures. While everything costs money, his publishers could have done better, perhaps using some of that ubiquitous Chinese digital technology.Hillman falters somewhat when he sets out his remedies. Faced with authoritarianism “on the march”, he calls for a US-led alliance of democracies to counter China and take non-Chinese digital technology to the world. This was important before Vladimir Putin’s invasion of Ukraine. And it is even more important now. But there is little on the economic policies that could support such a geopolitical tech drive. Curiously so, as earlier chapters have plenty on the commercial elements of Chinese tech’s rise and the west’s naive response.This book might not satisfy those who read first and last chapters and skim the bits in between. Instead, take the time to dive deep into this well-written account of the biggest technological transformation of the 21st century.The Digital Silk Road, China’s Quest to Wire the World and Win the Future, Jonathan Hillman, Profile Books, £20, pp351 More