Raphael Stevens

When economists talk about bottlenecks, they typically refer to points in a supply chain that slow down production. The global economy is at present providing a rather literal example of the metaphor. It is as if someone has put a cork in the Suez and Panama canals.In normal times, the canals carry about 10% and 5% of maritime global trade respectively. Now the Panama Canal Authority has capped the number of ships that may traverse its channel, owing to low water levels. Attacks by Houthi militants on ships in the strait of Bab al-Mandab, part of the passage from the Indian Ocean to the Suez Canal, have prompted some of those travelling between Europe and Asia to take the longer route round Africa instead.Given that the rich world at last appears to be defeating inflation, this is making policymakers nervous. Rising shipping prices from mid-2020 to early 2022 coincided with the surge of inflation in the first place. Their subsequent fall coincided with its decline. Since the Houthi attacks on ships began in November, prices have once again jumped. According to the Freightos Baltic Index (fbx) the cost of shipping a standard container rose by 93% in the week to January 9th. Drewry, a consultancy, notes that for the Shanghai to Rotterdam route, which would usually pass through the Suez Canal, the cost jumped by 114% to $3,577 over a similar period.image: The EconomistBut a repeat of pandemic-era inflation is unlikely. The shipping snarl-up is not yet on the same scale as last time (see chart). Although the fbx is rising, it is only at a quarter of the peak reached in 2022. In September 2021 respondents to a survey of purchasing managers conducted by s&p Global Ratings, a data provider, were 17 times more likely than the long-run average to say that shipping costs were contributing to higher prices. In the latest survey they were only three times more likely.Future surveys may well indicate more concern. Annual shipping contracts are typically agreed in March, notes Chris Rogers of S&P, meaning that current rates do not reflect the true cost of transport. If disruption lasts until contracts are renegotiated this could swiftly change, he adds.Ultimately, though, the inflationary impact of bottlenecks reflects the degree of mismatch between supply and demand. Economists at the annual meeting of the American Economic Association, held from January 5th to 7th in San Antonio, Texas, discussed a number of papers on this topic. According to one, presented by Oleg Itskhoki of the University of California, Los Angeles, price growth as a result of bottlenecks during covid-19 was more persistent in America than elsewhere.Other papers suggest why this was the case. One, outlined by Ana Maria Santacreu of the St Louis branch of the Federal Reserve, found that in countries where governments provided more fiscal stimulus, such as America, the post-pandemic reopening did less to alleviate supply-chain bottlenecks than elsewhere. “Supply constraints bind during periods of high demand,” she concluded. Another paper, presented by Callum Jones, an economist on the Federal Reserve’s board, agreed with the conclusion. Bottlenecks explained about half the rise in inflation from 2021 to 2022, his work found, but that was because they exacerbated loose monetary policy.Although difficulties in the Suez and Panama canals echo recent history, the context is very different. Rich-world policymakers are no longer attempting to use fiscal and monetary policy to juice demand. The global economy is also not trying to adjust to a shift from services to goods, which economists considered another culprit for snarled supply chains.In the most recent S&P survey respondents were 50% less likely to point to higher demand as a reason for extra costs than the long-run average; two years ago they were 75% more likely to do so. As a consequence, business leaders are more relaxed about the current crunch. The world’s great shipping canals may be bottlenecks. Fortunately, however, there is not much pressure in the rest of the bottle. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

A new Communist Party slogan was born on January 9th. The phrase, which appeared on the front page of the People’s Daily, a party mouthpiece, defies easy interpretation. A loose translation might read “nine issues that must be grasped”. As is typical of party-speak, it has been abbreviated into a three-syllable catchphrase: jiu ge yi. The issues it refers to include other slogans, such as “breaking free from the historical cycle of rising and falling” and “taking the lead of the great social revolution as the fundamental purpose”. Only by fathoming such principles can one engage in “self-revolution”—yet another slogan, focused on combating corruption.These buzzwords do not roll off the tongue. They are oblique and often resistant to decryption. Normal folk frequently ignore them. They represent, however, the language of party power—”the very currency on which [the party] to a large extent depends”, says David Bandurski of China Media Project, a research group. The jargon sets the tone for economic campaigns. It even defines entire epochs of growth. At a time when China’s leaders are attempting to drag the economy from the doldrums, there is even more reason than normal to pay attention to party-speak.Apparatchiks reserve the right to define their buzzwords. But Xi Jinping, China’s supreme leader, has elevated the importance of ideology in everyday life and business, meaning that economists and industry analysts have spent more time poring over the language, often making interpretations of their own. “Common prosperity”, for example, became the most-discussed phrase of 2021. It was interpreted by some investors as a backlash against the wealthy. Then it seemed to fizzle out. To date, no official definition has been given.“High-quality development” courted similar controversy in the first week of 2024. Its mention in Mr Xi’s New Year’s address, and the fact that he uttered the phrase twice as often in 2023 as in the previous year, according to Bloomberg, a news service, has both pleased and perplexed economists. Some believe that it signals greater investment in advanced technology, which could help stimulate growth. Others think it might de-emphasise China’s traditional growth engines, such as low-end manufacturing, and indicate increased tolerance for slower growth.Such confusion is not enough to stop party-speak spreading. Since Mr Xi first used the words “profound changes unseen in a century” during a policy address in 2018, they have become common in local policy documents. Officials in Hong Kong have started using them. Chinese brokers drop the phrase into notes for clients. Although the term is often thought of as a political buzzword, some experts are now trying to fit it into economic policy. Analysts at CICC, an investment bank, have offered up a succinct definition. According to them the “changes unseen” include “competition among major countries, the outbreak of a once-in-a-century pandemic, climate change and green transformation, the wealth gap and ageing population”. Who knows whether they are right?Many of the party’s phrases have become sweeping ideologies that cover swathes of society and the economy. An increasingly popular one—“national rejuvenation under the new-era system”—is focused on restoring China’s economic and cultural place in the world. Despite this fearsome designation, it can nevertheless be used to explain many positive trends that have taken place under the leadership of Mr Xi, not least China’s rapid economic growth. The “Chinese path to modernisation” is similarly expansive and vague. At a state-organised salon in Shanghai on January 10th, a panel of experts talked at length about how foreign investment, private enterprise and even youth travel all fit into this Chinese path.For the moment, it is unclear what the party has planned for jiu ge yi. It may become part of the war on corruption, says Manoj Kewalramani, who publishes a newsletter interpreting the People’s Daily. If so, it will start appearing on banners across the country. Its omnipresence will not make it any easier to understand. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Citigroup warned investors late Wednesday that charges tied to the decline of the Argentine peso as well as the bank’s reorganization came in far higher than recently disclosed.
The bank said its fourth-quarter results, scheduled to be released Friday morning, were impacted by $880 million in currency conversion losses from the peso and $780 million in restructuring charges tied to CEO Jane Fraser’s corporate simplification project.
Those charges are significantly larger than the “couple hundred million dollars” apiece that CFO Mark Mason told investors to expect at a Dec. 6 conference hosted by Goldman Sachs.

Jane Fraser CEO, Citi, speaks at the 2023 Milken Institute Global Conference in Beverly Hills, California, May 1, 2023.
Mike Blake | Reuters

Citigroup warned investors late Wednesday that charges tied to the decline of the Argentine peso as well as the bank’s reorganization came in far higher than disclosed by the company’s CFO just weeks ago.
The bank said its fourth-quarter results, scheduled to be released Friday morning, were impacted by $880 million in currency conversion losses from the peso and $780 million in restructuring charges tied to CEO Jane Fraser’s corporate simplification project.

Those charges are significantly higher than the “couple hundred million dollars” apiece that CFO Mark Mason told investors to expect at a Dec. 6 conference hosted by Goldman Sachs.
“They gave guidance just a month ago, and now its several hundred million dollars higher for two categories,” veteran banking analyst Mike Mayo of Wells Fargo said in a phone interview. “If your problem is credibility with investors, then you shouldn’t be doing this type of thing.”
Fraser faces a key moment this week as Citigroup reports fourth-quarter and full-year 2023 earnings in the middle of restructuring efforts aimed at making the bank into a leaner, more profitable company. Throughout the past two decades, Citigroup has been dogged by high expenses and eroding credibility after Fraser’s predecessors underdelivered on targets. That’s left Citigroup the lowest-valued among the six biggest U.S. banks.
Beyond the two charges, Citigroup disclosed Wednesday that it needed to build reserves by $1.3 billion because of its exposure to Argentina and Russia, and that it would post a $1.7 billion expense for a special FDIC assessment tied to the 2023 regional bank failures.
All told, the charges are likely to result in a $1 per share fourth-quarter loss, according to Mayo. Despite his own skepticism that the bank can achieve its targets, Mayo recommends Citigroup stock, saying it is so beaten down that it can double within three years.

Shares of the bank dipped about 1% in after hours trading Wednesday.
A Citigroup spokeswoman declined to comment on the bank’s shifting guidance, instead pointing to remarks from Mason published late Wednesday.
“While these items are meaningful for our 2023 results, we remain on track to meet the 2023 expense guidance (excluding FDIC and divestitures) and all of our medium-term targets,” Mason said. “The items we disclosed today do not change our strategy.” More

China’s Ministry of Commerce said Thursday the U.S. is weaponizing export controls and using them as a tool.
Spokesperson Shu Jueting was speaking at the ministry’s first press conference of 2024 in response to a question about ASML.
Chinese Commerce Minister Wang Wentao also raised concerns about U.S. chip export controls in a call Thursday with U.S. Commerce Secretary Gina Raimondo, according to the ministry.

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters

BEIJING — China’s Ministry of Commerce said Thursday the U.S. is weaponizing export controls and using them as a tool.
”We are highly concerned about the United States’ direct intervention and interference in the issue of high-tech exports by Dutch companies to China,” spokesperson Shu Jueting said at the ministry’s first press conference in 2024, according to a CNBC translation of her Mandarin-language remarks.

“The United States has instrumentalized and weaponized export control issues,” she said, calling for the Dutch side to “respect the spirit of the contract and support businesses in conducting compliant trade.”
She was responding to a question about ASML, the Netherlands-based company that makes lithography machines that are key to manufacturing advanced semiconductors.
ASML said in a Jan. 1 statement the Dutch government restricted it from exporting some lithography products to China.

The Dutch government last year announced new restrictions on exporting certain equipment for manufacturing advanced chips. The move followed U.S. export controls aimed at limiting the Chinese military’s access to high-end semiconductor technology.
ASML said in the statement that after discussions with the U.S. government, it found the latest U.S. export rules in October cover certain lithography tools.

China “firmly opposes” such moves and will take “necessary measures” to protect Chinese business interests, Shu said.
The ministry last year announced export controls on some metals used in chipmaking.

U.S.-China commerce talks focus on chips

Chinese Commerce Minister Wang Wentao also raised concerns about U.S. chip export controls in a call Thursday with U.S. Commerce Secretary Gina Raimondo, according to the ministry.
Wang “focused on expressing serious concern about U.S. restrictions on third-party exports of lithography machines to China, investigations into the supply chain of legacy chips and sanctions that suppress Chinese companies,” the ministry said in a Chinese-language readout translated by CNBC.
The U.S. Department of Commerce did not immediately respond to a request for comment outside of U.S. business hours. More

The meeting comes as foreign investors have largely taken a wait-and-see approach to China amid uncertainty about the country’s economic trajectory and tensions with the U.S.
“China will continue to deepen the reform and two-way opening-up of its capital market, facilitate cross-border investment and financing,” state media reported that He said.
Separately, President Emeritus of Harvard University Lawrence Summers met with People’s Bank of China Governor Pan Gongsheng on Wednesday, according to a news release on the central bank’s website.

SAN FRANCISCO, CALIFORNIA – NOVEMBER 10: U.S. Secretary of the Treasury Janet Yellen (R) greets People’s Republic of China (PRC) Vice Premier He Lifeng at the start of a bilateral meeting at the Ritz Carlton Hotel on November 10, 2023 in San Francisco, California. Secretary Yellen and Vice Premier Lifeng will hold meetings ahead of the APEC summit being held in San Francisco. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan | Getty Images News | Getty Images

BEIJING — Chinese Vice Premier He Lifeng met with global financial executives Wednesday and pledged to make it easier for foreign institutions to invest in the country, state media said.
The executives are part of the Chinese securities regulator’s international advisory committee. Vice Premier He is also director of the office of the Central Commission for Financial and Economic Affairs.

The meeting comes as foreign investors have largely taken a wait-and-see approach to China amid uncertainty about the country’s economic trajectory and tensions with the U.S.
The MSCI China stock index fell by 11% in 2023. It marked a third-straight year of annual declines, the first such losing streak in the last 20 years, according to Goldman Sachs.
“China will continue to deepen the reform and two-way opening-up of its capital market, facilitate cross-border investment and financing, and attract more foreign financial institutions and long-term capital to China,” He reportedly said at the meeting, according to state news agency Xinhua.
China has gradually allowed foreign financial institutions to take majority control of their local operations. Last year, the securities regulator also implemented new rules to clarify the process for domestic companies to list overseas.

Separately, President Emeritus of Harvard University Lawrence Summers met with People’s Bank of China Governor Pan Gongsheng on Wednesday, according to a news release on the central bank’s website.

Summers, formerly a U.S. Treasury Secretary, hosted a lecture on the global economy and stagflation, the PBOC said. In an email response to CNBC, Summers said the PBOC lecture “used the term secular stagnation rather than stagflation.” 
Earlier this week on Monday, he met with Shanghai Party Secretary Chen Jining, according to a government announcement.
In-person meetings between Chinese officials and U.S. officials, executives and academics have picked up since China ended Covid-19 travel restrictions more than a year ago.
China’s Premier Li Qiang is set to speak Tuesday at the World Economic Forum’s annual summit in Davos, Switzerland. More