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    El-Erian, Krugman and other economists have very different opinions on China’s struggling economy

    Beijing is facing a string of headwinds, including an ailing stock market, deflation, and a property crisis.
    Not everyone on Wall Street, however, is convinced that China is destined for doom.
    From Nobel laureate Paul Krugman to Hayman Capital’s Kyle Bass, here’s a look at a widening divide between China bulls and bears.

    Many Chinese developers have halted or delayed construction on presold homes due to cash flow problems. Pictured here is a property construction site in Jiangsu province, China, on Oct. 17, 2022.
    Future Publishing | Future Publishing | Getty Images

    China’s economy is sputtering.
    Its property market is crumbling, deflationary pressures are spreading across the nation, and its stock market has weathered a turbulent ride so far this year, with the country’s CSI 300 index erasing some 40% of its value from its 2021 peaks.

    Adding salt to the wound, January PMI numbers released by China’s National Bureau of Statistics showed manufacturing activity contracted for the fourth month in a row, driven by slumping demand. 
    The slew of downbeat data has consequently triggered a wave of skepticism toward the world’s second-largest economy. Allianz for one, reversed its buoyant view of China, now forecasting Beijing’s economy to grow by an average 3.9% between 2025 to 2029. That’s down from a 5% forecast before the Covid-19 pandemic broke out.
    Ex-International Monetary Fund official Eswar Prasad also told Nikkei Asia that “the likelihood of the prediction that China’s GDP will one day overtake that of the U.S. is declining.” 
    Meanwhile, top economist and Allianz advisor Mohamed El-Erian highlighted China’s dismal stock market performance against those in the U.S. and Europe in a chart on X, saying it shows the stark divergence between all three equity markets.

    China itself, however, isn’t willing to confess its economy is in tatters. Chinese leader Xi Jinping said on New Year’s Eve that the nation’s economy had grown “more resilient and dynamic this year.”

    Feeding on such optimism, it’s fair to say there’s been some signs of hope for the beleaguered economy, but perhaps not enough to sway the bears. For instance, factory activity in China expanded for a third-straight month in January, while the nation’s luxury sector appears to be snapping back. 
    Such data has prompted bullish chatter among investors, suggesting consensus on China clearly lacks uniform.

    Era of stagnation 

    Nobel laureate Paul Krugman has been among some of the most bearish voices toward China, saying the country is entering an era of stagnation and disappointment. 
    China was supposed to boom after it lifted its stringent “zero-Covid” measures, Krugman wrote in a recent New York Times op-ed. But it did the exact opposite. 

    From bad leadership to high youth unemployment, the country is facing headwinds from all corners, Krugman argued. And the country’s economic stumble isn’t isolated, Krugman warns, potentially becoming everyone’s problem.  

    Property crisis

    China’s well-known property troubles have been the crux of Wall Street bearishness toward the Asian nation. 
    The International Monetary Fund said it expects housing demand to drop by 50% in China over the next decade. 
    Speaking at the World Economic Forum in Davos last month, IMF chief Kristalina Georgieva said China’s real estate sector needs “fixing,” while Beijing needs structural reforms to avoid a decline in growth rates. 
    Meanwhile, famed hedge fund manager and founder of Dallas-based Hayman Capital Kyle Bass said the country’s heavily indebted property market has triggered a wave of defaults among public developers. That’s a problem, given China’s real estate market can account for as much as a fifth of the nation’s GDP.
    “This is just like the U.S. financial crisis on steroids,” Bass said, referring to China’s default-ridden property market. 
    “China is going to get much worse, no matter how much their regulators say, ‘we’re going to protect individuals from malicious short-selling,'” he added. 
    “The basic architecture of the Chinese economy is broken,” Bass continued. 

    Glimmers of hope

    A gloomy picture for China, however, isn’t shared by all. 
    The Institute of International Finance said Beijing has the policy capacity to push China’s economy toward its growth potential and stuck to its above consensus forecast for 2024 growth at 5%, in a recent blog post. That view, however, depends on sufficient demand-side stimulus. The latest GDP numbers out of China for the last three months of 2023 missed analysts’ estimates, with a figure of 5.2%.

    At the same time, Clocktower Group partner and chief strategist Marko Papic took an optimistic short-term view toward Chinese equities. In a Feb. 7 CNBC interview, Papic said he forecasts China stocks to jump at least 10% in the coming days as officials signal support efforts to bolster its flailing stock market.
    A “10% to 15% rally in Chinese equities is likely in coming trading days,” Papic said.
    JPMorgan Private Bank also outlined bull case scenarios for China in a recent post. “Despite the stock market’s slipping sentiment and persistent problems with the property market, certain segments of the Chinese economy have also proved their resilience,” it said.
    The bank said China’s crucial role as a global manufacturer is unlikely to abate, adding that cyclical demand for its exports could remain intact.
    Looking ahead, China has hurdles to overcome. Whether it has the firepower to do so, however, remains to be seen. More

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    American Firms Invested $1 Billion in Chinese Chips, Lawmakers Find

    A congressional investigation determined that U.S. funding helped fuel the growth of a sector now viewed by Washington as a security threat.A congressional investigation has determined that five American venture capital firms invested more than $1 billion in China’s semiconductor industry since 2001, fueling the growth of a sector that the United States government now regards as a national security threat.Funds supplied by the five firms — GGV Capital, GSR Ventures, Qualcomm Ventures, Sequoia Capital and Walden International — went to more than 150 Chinese companies, according to the report, which was released Thursday by both Republicans and Democrats on the House Select Committee on the Chinese Communist Party.The investments included roughly $180 million that went to Chinese firms that the committee said directly or indirectly supported Beijing’s military. That includes companies that the U.S. government has said provide chips for China’s military research, equipment and weapons, such as Semiconductor Manufacturing International Corporation, or SMIC, China’s largest chipmaker.The report by the House committee focuses on investments made before the Biden administration imposed sweeping restrictions aimed at cutting off China’s access to American financing. It does not allege any illegality.In August, the Biden administration barred U.S. venture capital and private equity firms from investing in Chinese quantum computing, artificial intelligence and advanced semiconductors. It has also imposed worldwide limits on sales of advanced chips and chip-making machines to China, arguing that these technologies could help advance the capabilities of the Chinese military and spy agencies.Since it was established a year ago, the committee has called for raising tariffs on China, targeted Ford Motor and others for doing business with Chinese companies, and spotlighted forced labor concerns involving Chinese shopping sites.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    ‘Zombie Offices’ Spell Trouble for Some Banks

    Bank tremors serve as a reminder: Just because a crisis hasn’t hit immediately doesn’t mean commercial real estate pain isn’t coming.Graceful Art Deco buildings towering above Chicago’s key business district report occupancy rates as low as 17 percent.A set of gleaming office towers in Denver that were full of tenants and worth $176 million in 2013 now sit largely empty and were last appraised at just $82 million, according to data provided by Trepp, a research firm that tracks real estate loans. Even famous Los Angeles buildings are fetching roughly half their prepandemic prices.From San Francisco to Washington, D.C., the story is the same. Office buildings remain stuck in a slow-burning crisis. Employees sent to work from home at the start of the pandemic have not fully returned, a situation that, combined with high interest rates, is wiping out value in a major class of commercial real estate. Prices on even higher-quality office properties have tumbled 35 percent from their early-2022 peak, based on data from Green Street, a real estate analytics firm.Those forces have put the banks that hold a big chunk of America’s commercial real estate debt in the hot seat — and analysts and even regulators have said the reckoning has yet to fully take hold. The question is not whether big losses are coming. It is whether they will prove to be a slow bleed or a panic-inducing wave.The past week brought a taste of the brewing problems when New York Community Bank’s stock plunged after the lender disclosed unexpected losses on real estate loans tied to both office and apartment buildings.So far “the headlines have moved faster than the actual stress,” said Lonnie Hendry, chief product officer at Trepp. “Banks are sitting on a bunch of unrealized losses. If that slow leak gets exposed, it could get released very quickly.”We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    For First Time in Two Decades, U.S. Buys More From Mexico Than China

    The United States bought more goods from Mexico than China in 2023 for the first time in 20 years, evidence of how much global trade patterns have shifted.In the depths of the pandemic, as global supply chains buckled and the cost of shipping a container from China soared nearly twentyfold, Marco Villarreal spied an opportunity.In 2021, Mr. Villarreal resigned as Caterpillar’s director general in Mexico and began nurturing ties with companies looking to shift manufacturing from China to Mexico. He found a client in Hisun, a Chinese producer of all-terrain vehicles, which hired Mr. Villarreal to establish a $152 million manufacturing site in Saltillo, an industrial hub in northern Mexico.Mr. Villarreal said foreign companies, particularly those seeking to sell within North America, saw Mexico as a viable alternative to China for several reasons, including the simmering trade tensions between the United States and China.“The stars are aligning for Mexico,” he said.New data released on Wednesday showed that Mexico outpaced China for the first time in 20 years to become America’s top source of official imports — a significant shift that highlights how increased tensions between Washington and Beijing are altering trade flows.The United States’ trade deficit with China narrowed significantly last year, with goods imports from the country dropping 20 percent to $427.2 billion, the data shows. American consumers and businesses turned to Mexico, Europe, South Korea, India, Canada and Vietnam for auto parts, shoes, toys and raw materials.Imports from China fell last yearU.S. imports of goods by origin

    Sources: U.S. Census Bureau; U.S. Bureau of Economic AnalysisBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Maui Economy, 6 Months After Wildfire, Is Still Reeling

    Twisted and charred aluminum mixed with shards of glass still lines the floor of the industrial warehouse where Victoria Martocci once operated her scuba diving business. After a wildfire tore through West Maui, all that remained of her 36-foot boat, the Extended Horizons II, were a pair of engines.That was six months ago, but Ms. Martocci and her husband, Erik Stein, who are weighing whether to rebuild the business, which he started in 1983, said the same questions filled their thoughts. “What will this island look like?” Ms. Martocci asked. “Will things ever be close to being the same?”In early August, what began as a brush fire burst into the town of Lahaina, a popular tourist destination, all but leveling it, destroying large swaths of West Maui and killing at least 100 people in the nation’s deadliest wildfire in more than a century.The local economy remains in crisis.Rebuilding the town, according to some estimates, will cost more than $5 billion and take several years. And tense divisions still remain over whether Lahaina, whose economy long relied almost entirely on tourism, should consider a new way forward.Debates about the ethics of traveling to decimated tourist destinations played out on social media after an earthquake in Morocco and wildfires in Greece last year. But the situation is particularly dire for Maui.State and federal officials scrambled last summer to find shelter for thousands of residents who had lost their homes, relocating people to local hotels and short-term rentals where many still live, often sharing a wall with vacationing families whose realities feel far from their own. Other displaced residents live in tents on the beach, and some restaurant owners pivoted to working out of food trucks.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    ‘A slow fiscal death’ awaits some countries in this ‘decade of debt,’ says economist Art Laffer

    The world is looking at a debt crisis that will span the next 10 years, said economist Arthur Laffer.
    Global debt hit a record of $307.4 trillion in the third quarter of 2023, with a substantial increase in both high-income countries and emerging markets.

    A mosaic collection of world currencies.
    FrankvandenBergh | E+ | Getty Images

    The world is looking at a debt crisis that will span the next 10 years and it’s not going to end well, economist Arthur Laffer has warned, with global borrowings hitting a record of $307.4 trillion last September. 
    Both high-income countries as well as emerging markets have seen a substantial rise in their debt piles, which has grown by a $100 trillion from a decade ago, fueled in part by a high interest rate environment. 

    “I predict that the next 10 years will be the Decade of Debt. Debt globally is coming to a head. It will not end well,” Laffer, who is President at investment and wealth advisory Laffer Tengler Investments, told CNBC.
    As a share of the global gross domestic product, debt has risen to 336%. This compares to an average debt-to-GDP ratio of 110% in 2012 for advanced economies, and 35% for emerging economies. It was 334% in the fourth quarter of 2022, according to the most recent global debt monitor report by the Institute of International Finance.

    To meet debt payments, it is estimated that around 100 countries will have to cut spending on critical social infrastructure including health, education and social protection.
    Countries that manage to improve their fiscal situation could benefit by attracting labor, capital and investment from abroad, while those that do not could lose talent, revenue — and more, Laffer said.
    “I would expect that some of the bigger countries that don’t address their debt issues will die a slow fiscal death,” Laffer said, adding that some emerging economies “could quite conceivably go bankrupt.”

    Mature markets such as the U.S., U.K., Japan and France were responsible for over 80% of the debt build-up in the first half of last year. While in the case of emerging markets, China, India and Brazil saw the most pronounced increases. 
    The economist warned that repaying the debt will become more of an issue as population in the developed countries continues to age and workers become more scarce.
    “There are two main ways to cover this issue:  raise taxes or grow your economy faster than debt is piling up,” he said.
    Laffer’s comments come on the heels of the U.S. Federal Reserve’s decision to leave rates unchanged in January, and shooting down hopes of a rate cut in March.  More

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    Ford Reports Quarterly Loss but Says Sales Grew

    Ford Motor attributed the loss in the fourth quarter to charges related to pension plans and a restructuring of overseas operations.Ford Motor said it lost $526 million in the final three months of 2023, mainly as a result of special charges related to its employee pension programs and the reorganization of some of its overseas operations.The automaker said its fourth-quarter revenue rose to $46 billion, from $44 billion a year earlier, thanks to strong sales of internal-combustion vehicles and light commercial trucks.The division of the company that makes gasoline and hybrid vehicles earned $813 million before interest and taxes in the fourth quarter, and its commercial vehicle division made $1.8 billion. The unit that makes electric vehicles lost $1.6 billion.John Lawler, Ford’s chief financial officer, said the company’s profit in the fourth quarter was also hurt by an extended strike by the United Automobile Workers union, and higher labor costs stemming from the new contract it signed with the U.A.W.“You adjust for those two factors, and you see a pretty strong quarter,” Mr. Lawler said in a conference call.Ford had previously said the strike reduced its pretax profit by $1.7 billion in 2023.Looking ahead, Ford said it expected to make between $10 billion and $12 billion in adjusted earnings before taxes and interest this year.Ford reported a profit of $4.3 billion in 2023, compared with a $2 billion loss in 2022. Revenue in 2023 rose to $176 billion, up from $158 billion in 2022. The company said its 58,000 U.A.W. workers would be paid profit-sharing bonuses of up to $10,400 based on its performance in 2023.The automaker said it wanted to improve its financial performance by investing less in some areas, like electric vehicles, while setting higher profit goals for the projects it was still putting money in. “Simply ‘good’ isn’t good enough and investments are going to projects that have credible plans to deliver their targeted returns,” Mr. Lawler said in a statement.Ford shares were up about 6 percent in extended trading after it reported earnings. More

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    President of Powerful Service Workers Union Will Step Down

    Mary Kay Henry of the nearly two-million-member Service Employees International Union will not seek re-election when her term ends in May.Mary Kay Henry, the president of the Service Employees International Union, one of the nation’s largest and most politically powerful labor unions, announced Tuesday that she would step down after 14 years in her position.Ms. Henry was the first woman elected to lead the union, which represents nearly two million workers like janitors and home health aides in both the public and private sectors.Under her leadership, it launched a major initiative known as the Fight for $15, which sought to organize fast-food workers and push for a $15 minimum wage. Winning over skeptics in the ranks, Ms. Henry argued that the union could make gains through a broad-based campaign that targeted the industry as a whole rather than individual employers.Labor experts and industry officials cite the campaign as a major force behind significant minimum-wage increases in states including California and New York and cities like Seattle and Chicago. It also pushed a recent California law creating a council to set a minimum wage in the fast-food industry, which will become $20 an hour in April, and to propose new health and safety standards.But the Fight for $15 campaign has not unionized workers on a large scale and enabled them to negotiate collective bargaining agreements with their employers.Ms. Henry’s tenure has coincided with a series of legislative and legal challenges to organized labor, including state laws rolling back collective bargaining rights and allowing workers to opt out of once-mandatory union fees, as well as a landmark Supreme Court ruling allowing government employees to do the same.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More