Raphael Stevens

China’s policymakers need to focus on boosting domestic demand, Yi Gang, former head of the People’s Bank of China, said Friday at the Bund Summit in Shanghai.
Yi said he expected the consumer price index to “converge above zero by the end of the year.”
“Central banks should avoid prolonged deflation even if it is mild, that could affect wage determination,” Haruhiko Kuroda, former head of the Bank of Japan, said.

Yi Gang was governor of the People’s Bank of China from 2018 to 2023. He is pictured here speaking at the Peterson Institute for International Economics in Washington, DC, US, on Saturday, April 15, 2023.
Bloomberg | Bloomberg | Getty Images

SHANGHAI — China’s policymakers need to focus on boosting domestic demand, Yi Gang, former head of the People’s Bank of China, said Friday at the Bund Summit in Shanghai.
“I think right now they should focus on fighting the deflationary pressure,” Yi said, adding that “the key word is: how to improve domestic demand, how they can successfully deal with the situation of the real estate market as well as the local government debt problem, and influence the confidence of society.”

“At this point, proactive fiscal policy and accommodative monetary policy are important,” he said.
In contrast to high inflation in the U.S. and Europe, China’s consumer prices fell in 2023 and have only picked up marginally so far this year as domestic demand remains lackluster.
The latest CPI read, due out on Monday, is expected to tick up from 0.5% year-on-year growth in July to 0.70% in August, according economists polled by Reuters. That would still be only the fastest since February’s 0.7% CPI increase.

Yi said he expected the consumer price index to “converge above zero by the end of the year,” while the producer price index would likely reach zero, after negative prints in recent months.
The core CPI, which strips out food and energy prices, rose by 0.4% in July from a year ago, down from 0.6% in June and May.

Yi was PBoC governor from March 2018 to July 2023. Pan Gongsheng is the current head of China’s central bank.
Zou Lan, director of the PBoC’s monetary policy department, told reporters Thursday the central bank still had room to lower the reserve requirement ratio, which determines the amount of cash banks need to have on hand. It is just one of the PBoC’s several monetary policy tools.
In July, Chinese policymakers announced major support for a trade-in policy to boost consumption. While central and local authorities have also taken steps to bolster the massive real estate market, sales and investment in new properties have still fallen.
“The challenge for Chinese policymakers is to manage the housing crisis, and to ensure that there is enough domestic demand to maintain the high level of economic growth,” Jeffrey J. Schott, senior fellow at the Peterson Institute for International Economics, told reporters Thursday.
“That is so important for the Chinese economy and for moving more and more people up to higher standards of living,” he said.

Contrast with Japan

Chinese consumption has remained lackluster since the pandemic. In the major cities of Beijing and Shanghai, retail sales fell by 3.8 % and by 6.1%, respectively, in July from a year ago, official data showed.
Major factors behind low consumer sentiment include uncertainty about future income and the wealth impact from the real estate market slump.
“Central banks should avoid prolonged deflation even if it is mild, that could affect wage determination,” Haruhiko Kuroda, former head of the Bank of Japan, said during the same panel session as Yi.
Kuroda pointed out that China’s current deflationary situation has been far shorter than what Japan faced. But he said that 15 years of deflation in Japan prevented wages from going up significantly, until the last year or two.
— CNBC’s Sonia Heng contributed to this report. More

China’s wealthy want to pursue business opportunities abroad, rather than just investment returns, according to asset managers and consultants.
This year, there’s been a “very significant” trend of requests from Chinese family offices that want to acquire smaller businesses in Japan, said Ryota Kadogaki, co-founder and global CEO of Monolith, a Japan-based consulting firm for family offices.
“Most of our clients are China-rooted entrepreneurs who are looking to further globalize,” Grant Pan, CFO of China-based wealth management firm Noah Holdings, told CNBC.

Instead of high-net-worth individuals, C-suite executives in China are increasingly using business jets, said Paul Desgrosseilliers, general manager at ExecuJet Haite General Aviation Services. The company opened a new service center at Beijing Daxing International Airport on Aug. 27, 2024.
ExecuJet Haite

BEIJING — China’s wealthy are increasingly looking for ways to move capital outside the mainland to pursue business opportunities, rather than just chasing investment returns, according to asset managers and consultants.
This year, there’s been a “very significant” trend of requests from Chinese family offices that want to acquire smaller businesses in Japan, said Ryota Kadogaki, co-founder and global CEO of Monolith, a Japan-based consulting firm for family offices.

“I’m studying Chinese as well, and I’m thinking to hire Chinese speakers in my company right now,” he said, noting that slower growth in China and a weaker Japanese yen are supporting the increased interest. Even with recent strengthening to around 20 yen versus the Chinese yuan, that’s still weaker than the 15 level seen in 2020.
Investors based in mainland China increased their non-financial direct investments overseas by 16.2% to the equivalent of $83.55 billion during the January to July period, according to the Ministry of Commerce. It said the investments covered more than 6,100 businesses in 152 countries and regions.
“Most of our clients are China-rooted entrepreneurs who are looking to further globalize,” Grant Pan, CFO of China-based wealth management firm Noah Holdings, told CNBC. “Obviously they are at least keeping their eyes open for opportunities for their businesses all over the world. Obviously there’s slowdown pressure in terms of domestic markets for many industries.”

“Many of our clients appear to be busier than before,” he said. “As they are exploring new markets, they travel more frequently, which more or less gives them a better perspective of global allocation.”
Noah Holdings said the number of its overseas registered clients rose by 23% from a year ago to nearly 16,800 as of the end of June. The company’s active overseas clients rose by nearly 63% year on year to 3,244.

Overseas assets under management rose nearly 15% to $5.4 billion from a year earlier, while mainland China assets under management fell over 6% to $15.8 billion, according to Noah’s quarterly earnings report.
Mainland China keeps a tight control on capital with an official limit of $50,000 in overseas foreign exchange a year. That’s meant affluent Chinese have long looked for alternative ways to grow wealth outside the country.
Kadogaki noted that buying foreign companies is a way for Chinese investors to move assets abroad. He also shared examples of how a fund investing in a tech company in China might now look to acquire a retail store in Japan to expand potential revenue.
In June 2023, Kadogaki said his company started working with Canopy, a Singapore-based wealth management software company working with many China-related funds, to help them localize in Japan. “We can be a gateway for their clients to invest in Japan,” he said.
Right now, Canopy says its system supports English, simplified and traditional Chinese and German. The company claims it works with more than 300 custodians with more than $160 billion in assets under reporting.

A ‘rational’ shift after the post-Covid rush

“Typically we deal with the professionals that help manage the money for the wealth owners,” said Mu Chen, executive director at Canopy. “What we are hearing from them is that the fastest growth in terms of interest from Chinese clients [occurred] in the post-Covid [period to] early last year.”
“In 2022, 2023, maybe it was more a reactionary behavior to think about going overseas,” he said. “I think now it becomes more rational and it’s more about these families, and these families planning not just their assets globally, but planning their assets, their business, their family globally using Hong Kong or Singapore as a base to look more outward.”
This interest in moving their wealth abroad to tap business opportunities comes as many Chinese companies have accelerated their global expansion in the last few years. That’s largely due to slower domestic growth, following years of rapid expansion.
That contrasts with how an earlier generation of Chinese entrepreneurs primarily tapped global markets by simply exporting China-made goods, or acquiring overseas real estate.
Noah Holdings’ Pan pointed out that many of the company’s affluent clients have set up offices and alternative residences in Hong Kong, Singapore or Japan as a way to explore global business opportunities while keeping proximity to China operations.
“Many entrepreneurs don’t have a very clear distinction between enterprise and family,” Pan said. “They get their wealth from operating such business and sometimes they inject capital back [to the family.]”
Affluent Chinese residents’ attempts to increasingly venture into global markets can also be witnessed in the demand for private, international travel.
“Whether it’s Southeast Asia, the Middle East, Africa, there’s been a lot of growth in these areas for Chinese conglomerates, so I think that the executives from China have a need to utilize [private] long-range aircraft … We see a lot of flights going there,” said Paul Desgrosseilliers, general manager at ExecuJet Haite General Aviation Services, which operates maintenance centers for private planes.
As part of a multi-year plan, ExecuJet Haite opened on Aug. 27 a maintenance, repair and operations center for private jets at Beijing Daxing International Airport. The center, which claims to be the largest for business aviation in Asia Pacific, can access a designated channel at the airport for international immigration processing and customs.

Tackling slower growth

Desgrosseilliers said international business jet flights across ExecuJet Haite’s other facilities at Beijing Capital Airport and in Tianjin have recovered, but not yet to pre-pandemic levels.
Major U.S. and Chinese corporations have also noted a slowdown in Chinese consumer demand in their second-quarter earnings.
The trend of affluent Chinese looking to expand their businesses globally is still in relatively early stages, and not every family will choose to go abroad, Canopy’s Chen said. He cited how a family of a seasoning products business in China, whose founder is getting older, didn’t feel the need to globalize their business or wealth planning.
“As the newer generations’ founders, entrepreneurs think more globally, they also think [about] their business more globally.” More

JPMorgan’s top economist Michael Feroli believes the Federal Reserve should cut interest rates by a half point this month.
Traders are pricing in a 39% chance that the Fed’s target range for the federal funds rate will be lowered by a half percentage point, per the CME FedWatch Tool.
Feroli’s remarks come as August saw the weakest private payrolls growth in more than three-and-a-half years.

Michael Feroli, chief U.S. economist of JPMorgan Securities, listens during a Bloomberg Television interview in New York on March 6, 2018.
Christopher Goodney | Bloomberg | Getty Images

The Federal Reserve should cut interest rates by 50 basis points at its September meeting, according to JPMorgan’s Michael Feroli.
“We think there’s a good case that they should get back to neutral as soon as possible,” the firm’s chief U.S. economist told CNBC’s “Squawk on the Street” on Thursday, adding that the high point of the central bank’s neutral policy setting is around 4%, or 150 basis points below where it is currently. “We think there’s a good case for hurrying up in their pace of rate cuts.”

According to the CME FedWatch Tool, traders are pricing in a 39% chance that the Fed’s target range for the federal funds rate will be lowered by a half percentage point to 4.75% to 5% from the current 5.25% to 5.50%. A quarter-percentage-point reduction to a range of 5% to 5.25% shows odds of about 61%.
“If you wait until inflation is already back to 2%, you’ve probably waited too long,” Feroli also said. “While inflation is still a little above target, unemployment is probably getting a little above what they think is consistent with full employment. Right now, you have risks to both employment and inflation, and you can always reverse course if it turns out that one of those risks is developing.”
His comments come as August marked the weakest month for private payrolls growth since January 2021. This follows the unemployment rate inching higher to 4.3% in July, triggering a recession indicator known as the Sahm Rule.
Even still, Feroli said he does not believe the economy is “unraveling.”
“If the economy were collapsing, I think you’d have an argument for going more than 50 at the next FOMC meeting,” the economist continued.
The Fed will make its decision about where rates are headed from here on Sept. 17-18.

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Investors with high incomes may not be able to contribute to a Roth or make deductible contributions to a traditional individual retirement account.
However, a strategy called the “backdoor Roth IRA” lets high earners access Roth accounts.
Investors would make a nondeductible contribution to a traditional IRA, and then convert those funds to a Roth account.

Thomas Barwick

IRA access, tax breaks can phase out for high earners

IRAs have a $7,000 annual contribution limit for 2024. Investors age 50 or older can save an extra $1,000, or $8,000 total this year.
Investors who save in a pretax IRA typically get a tax deduction on their contributions. However, they generally pay income tax later on earnings and withdrawals. Roth contributions don’t get the same upfront tax break: Investors fund Roth IRAs with after-tax money, but generally don’t pay income taxes on earnings or withdrawals in retirement.

Many high earners can’t make the most of these tax-advantaged accounts, though.  
For example, married couples who file a joint tax return can’t contribute to a Roth IRA in 2024 if their modified adjusted gross income is $240,000 or more. The income threshold for single filers is $161,000. (Eligibility starts to phase out even before these dollar thresholds, reducing how much investors can contribute.)
Likewise, there are income limits on deductibility for pretax (also known as “traditional”) IRAs, for those who also have access to a workplace retirement plan like a 401(k).
For example, single filers with income of $87,000 or more in 2024 don’t get a tax deduction for contributions to a traditional IRA, if they are covered by a retirement plan at work.
The same holds true for married couples filing jointly. For example, if your spouse participates in a 401(k) plan at work, you don’t get a deduction on IRA contributions if your joint income is $240,000 or more. If you are the one who participates in workplace 401(k), the limit is $143,000. (Again, you may only get a partial deduction below these dollar thresholds due to income phaseouts.)

The ‘only reason’ to save in a nondeductible IRA

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High earners can contribute to a so-called nondeductible IRA, however.
This is a traditional IRA, but investors don’t get a tax deduction for their contributions; they fund the accounts with after-tax money. Investors owe income taxes on growth later, upon withdrawal.
The ability to use the backdoor Roth IRA is a major benefit of these accounts, tax experts said.
It only applies to investors who make too much money to contribute directly to a Roth IRA or make a tax-deductible contribution to a traditional IRA, Slott said.
Here’s the basic strategy: A high-income investor would make a nondeductible contribution to their traditional IRA and then quickly convert the funds to their Roth IRA.

“The only reason you’d do [a nondeductible IRA] is if the intention was to do a backdoor Roth,” Slott said.
After making the nondeductible contribution, Slott recommends waiting about a month before converting the funds to a Roth IRA. This ensures your IRA statement reflects the nondeductible contribution, in case the IRS should ever require proof, he said.
Some investors may also be able to take advantage of a similar strategy in their 401(k) plan, the so-called mega backdoor Roth conversion. This entails shifting after-tax 401(k) contributions to a Roth account. However, the strategy isn’t available to everyone.
“All high wage earners should consider looking at both a backdoor Roth IRA and a mega backdoor Roth IRA if they can’t set up a Roth IRA,” said Ted Jenkin, a certified financial planner and founder of oXYGen Financial, based in Atlanta. He’s also a member of the CNBC Financial Advisor Council.

When a nondeductible IRA doesn’t make sense

A nondeductible IRA likely doesn’t make sense for investors who don’t intend to utilize the backdoor Roth strategy, according to financial advisors. In such cases, the investor would just let contributions stay in the nondeductible IRA.
For one, nondeductible IRA contributions carry potentially burdensome administrative and recordkeeping requirements, Slott said.
“It’s a life sentence,” he said.
Taxpayers have to file a Form 8606 to the IRS every year to keep track of their after-tax contributions to a nondeductible IRA, according to Arnold & Mote Wealth Management, based in Hiawatha, Iowa. Withdrawals “add more complexity” to that administrative lift, it added.

Why taxable brokerage accounts ‘are probably better’

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Without a backdoor Roth in play, most investors would be better suited by saving in a taxable brokerage account rather than a nondeductible IRA, advisors said. That’s because investors using the former will likely end up paying less in tax on their profits over the long term.
Taxable brokerage accounts “are probably better in most aspects,” Slott said.
Investors who hold assets like stocks in a taxable brokerage account for more than a year generally pay a favorable rate on their profits relative to other income taxes.
These “long term” capital gains tax rates — which only apply in the year investors sell their asset — are as high as 20% at the federal level. (High earners may also owe a 3.8% “Medicare surtax” on profits.)
By comparison, the top marginal income tax rate is 37%. Investors in nondeductible IRAs are subject to these generally higher rates on earnings upon withdrawal.

While taxable brokerage account investors pay taxes each year on dividend income, such taxes are generally not enough to negate the relative tax benefits of such accounts, advisors said.
“The tax deferral of non-deductible IRAs can be an advantage for some,” according to Arnold & Mote Wealth Management. “However, we find that this is quite rare.”
Additionally, investors in taxable brokerage accounts can generally access their funds anytime without penalty, whereas IRAs generally carry tax penalties when earnings are tapped before age 59½. (There are some IRA exceptions, however.)
Taxable accounts have no required minimum distributions while the account holder is alive, unlike traditional and nondeductible IRAs.
“A taxable account provides the flexibility to add money and take money out with few limits, penalties, or restrictions,” Judith Ward, a certified financial planner at T. Rowe Price, an asset manager, wrote recently. More