Economy

To meet the goal, China plans to run a budget deficit of 3% of economic output, down from a revised 3.8% last year, the report said. But crucially, it plans to issue 1 trillion yuan ($139 billion) in special treasury bonds, which are typically not included in the budget.The National People’s Congress (NPC), China’s rubber-stamp parliament, is due to hear Premier Li Qiang’s maiden work report at its annual meeting in Beijing this week.The report sets out the government’s key economic and social development goals each year.The special bond issuance quota for local governments was set at 3.9 trillion yuan, versus 3.8 trillion yuan in 2023, the report said.China also set the inflation target at 3% and aims to create over 12 million urban jobs this year, keeping the jobless rate at around 5.5%.China’s economy expanded 5.2% in 2023, but it remains heavily reliant on credit-driven, state-led investment, raising concerns over whether it can sustain that pace in the longer-term.This year’s target will be harder to reach than last year’s because the favourable base effect from a COVID-hit 2022 has faded, analysts say. A property crisis, deepening deflation, a stock market rout, and mounting local government debt woes are putting great pressure on China’s leaders to take momentous policy decisions that will put the economy on a solid footing for the long-term.Analysts expect China to lower its annual growth ambitions in the future as it needs to make tough calls on how to fix these deep structural imbalances.Reform advocates, worried about record low consumer confidence and plunging investor and business sentiment, want China to return to a path of pro-market policies and boost household demand.The NPC is not the traditional venue for sharp policy shifts, which are usually reserved for events known as plenums, held by the Communist Party between its once-every-five-year congresses.One such plenum was initially expected in the final months of 2023. While it could still take place later this year, the fact that it has not yet been scheduled has fuelled investor concerns over policy inaction.The International Monetary Fund projects China’s economic growth at 4.6% this year, declining further in the medium term to about 3.5% in 2028.($1 = 7.1987 Chinese yuan renminbi) More

TOKYO (Reuters) -Core inflation in Japan’s capital re-accelerated in February above the central bank’s target as the effects of government fuel subsidies faded, data showed on Tuesday, a sign conditions for ending negative interest rates were falling into place.But an index stripping away the effect of energy costs, seen as an indicator of the broader price trend, slowed, shifting the focus on whether Japan can see wage hikes strong enough to underpin consumption.The data will be among factors the Bank of Japan (BOJ) will scrutinise ahead of its policy-setting meeting on March 18-19 in judging whether to phase out its massive stimulus programme.Core consumer price index (CPI) in Tokyo, a leading indicator of nationwide figures, rose 2.5% in February from a year earlier, matching market forecasts, data showed on Tuesday.The rise in the core index, which strips away the effect of volatile fresh food prices, followed a 1.8% rise in January.A separate index that excludes the effect of both fresh food and fuel costs, rose 3.1% in February from a year earlier, slowing from a 3.3% gain in January. It was the slowest annual pace of increase since February 2023.”The disinflation isn’t very broad-based as it mostly reflects a slowdown in processed food inflation,” Marcel Thieliant, head of Asia-Pacific at Capital Economics, said on the slowdown in the index excluding fresh food and energy.”There’s nothing in today’s report that would prevent the Bank of Japan from ending negative interest rates next month.”Japan unexpectedly slipped into a recession at the end of last year with the economy shrinking an annualised 0.4% in October-December on weak corporate and household spending.But with inflation having exceeded 2% for well over a year and prospects for bumper wage hikes heightening, many market players expect the BOJ to end its negative interest rate policy by April.BOJ Governor Kazuo Ueda said last week that it was too early to conclude that inflation was close to sustainably meeting the central bank’s 2% target. But he said the economy was recovering moderately and showing promising signs on the wage outlook.In an effort to reflate growth and keep inflation stably at its 2% inflation target, the BOJ currently guides short-term rates at -0.1% and the 10-year government bond yield around 0%. More

Tether issues a stablecoin which is designed to maintain a constant value of $1. It is widely used as a way of moving money in cryptocurrency without being exposed to price swings in other cryptocurrencies such as bitcoin and ether.The company says it maintains its dollar peg by holding dollar-based reserves which match the volume of cryptocurrencies it has created.U.S. regulators have warned banks that stablecoin reserves could be subject to rapid outflows, for example if holders rushed to exchange such tokens back into traditional currency.Tether agreed to provide quarterly reports on its reserves for two years, as part of a 2021 settlement with the New York Attorney General’s office.At the end of 2023, Tether’s reserves held $63 billion of U.S. Treasuries, as well as $3.5 billion of precious metals, $2.8 billion of bitcoin, $3.8 billion of “other investments” and $4.8 billion of “secured loans”, its latest report says. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.UK retail sales and consumer spending rose at the slowest pace since 2022 in February, according to industry data published on Tuesday, spurred by bad weather and falling inflation. Total retail sales increased at an annual rate of 1.1 per cent last month, down from 1.2 per cent in January, said trade body the British Retail Consortium. This was below the three-month average of 1.4 per cent and the 12-month average of 3.1 per cent.The rate of growth was the lowest since August 2022 and was also below the 4 per cent rate of consumer price inflation in January, indicating that the three-year run of falling sales volumes, especially for non-food items, continued last month.“Consumer demand was dampened by the wettest February on record, translating into a poor month of retail sales growth,” said BRC chief executive Helen Dickinson. “Not even Valentine’s Day lifted customers out of the gloom.”Non-food sales fell at an average annual pace of 2.5 per cent between December and February, the largest three-month decline since 2022. Average food sales over the past three months rose by 6 per cent year on year, down from 6.3 per cent between November and January.The data — released by advisory firm KPMG and the BRC ahead of official figures next week — suggests that even as sales volumes in food rise, profits at grocery stores and supermarkets may be declining as consumer prices decrease.“The UK grocery market saw sales and volumes both increasing from last year, with February the third month in a row where volumes were in year-on-year growth” said Sarah Bradbury, chief executive of the Institute for Grocery Distribution, an industry group.The BRC data echoed separate figures from Barclays, which showed consumer card spending rose 1.9 per cent year on year in February, the lowest rate of growth since September 2022. Spending on non-essential items increased just 1.7 per cent year on year last month, the slowest rate of increase since September 2022, according to the payments company.Meanwhile spending on “in-speriences”, such as takeaways or film rentals, rose at an annual rate of 6.5 per cent, suggesting households stayed indoors to avoid record rainfall. The Barclays report also attributed the slowdown in sales, especially for foodstuffs, to falling inflation.Jack Meaning, chief UK economist at Barclays, said less steep prices would “be a welcome reprieve for consumers, and a probable explanation of this month’s subdued card spending growth”.Last week, separate figures showed UK business activity expanded more than expected in February, fuelling hopes the recession Britain entered at the end of 2023 could be over and of better months ahead for the retail sector. “As inflationary pressures begin to ease, retailers will be hopeful that the onset of warmer weather lifts spending,” said Karen Johnson, head of retail at Barclays. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and Gramercy“It’s a trade rather than an investment.” This is how a portfolio manager framed their purchase of Chinese equities on a recent Bloomberg show. It is consistent with a notable shift in the consensus view on foreign investments in China in recent years — from being a destination for long-term investments to more of a short-term speculative stop.This framing aligns with a broader change in the Chinese economy. Once hailed for its repeated economic miracles that lifted hundreds of millions out of poverty, today it faces a perception of being on more shaky ground, at risk of succumbing to the dreaded middle-income trap — where countries struggle to transition from an economy where growth, typically, is heavily reliant on low costs and sizeable global demand. Let’s start with the performance of the country’s stock market. After years of lacklustre overall performance, Chinese stocks have recently shown signs of a bounce. Since the start of February, the CSI 300 index is up about 11 per cent. That followed a long 44 per cent decline from 2021 highs. However, despite the recent uptick in Chinese stocks, the interest of foreign investors seems predominantly tactical, more focused on quick profits than long-term investment opportunities.At first glance, this shift seems preferable for China compared with the prior widespread characterisation in 2022-23 that its markets had become “uninvestable.” That perception stemmed from poor market performance, disappointing management of debt issues and heavy-handed market interventions by authorities in areas like the technology sector that were sometimes hard to comprehend.Yet this change in sentiment is too small to help China reduce what has become the clear and present danger of the “middle-income trap”. In that outcome, growth momentum dissipates, competitiveness erodes, financial robustness weakens, and long-term foreign investments become even more elusive.The main reason for these predicaments is that, over the past few years, many of China’s internal and external tailwinds have all turned into headwinds. The current unfavourable alignment includes foreign direct investment at multi-decade lows and persistent outflows of portfolio funds, mounting domestic debt problems, growing economic insecurity among households, greater restrictions on Chinese firms accessing foreign markets and technology, and shaky real estate valuations.This is being reflected in investor shifts beyond flows. The key benchmark for emerging market investors — the MSCI Emerging Markets index — has been heavily weighted towards China, meaning that every dollar managed passively would have an important part invested in China. But MSCI’s EM index that excludes China, launched in 2017, is gaining increased attention recently from investors. The assets held by the iShares MSCI Emerging Markets ex-China ETF have risen to more than $10bn from just $120mn at the end of 2020. At the same time, the governing boards of a growing number of active institutional investors, including US pension funds, have mandated “ex-China” approaches.Together, these developments seriously undermine the growth dynamism and financial status of China. They also heighten the costs for Beijing to pursue its non-economic objectives, from military build-up to exerting more influence in what is known as the Global South group of nations.Also worrisome for China is that it would not take much for it to go from being threatened by the middle-income trap to ending up in it. Contributing factors could include additional domestic policy delays, worsening household confidence, a tightening of US trade and investment restrictions, reduced engagement from multinationals that still have large businesses in the country, and more determined western efforts to counter China’s international influence.China should find little solace in the recent performance of its stock market. These speculative “tourist flows” are not a leading indicator for more stable, long-term “resident flows”. To attract the latter, the government needs three elements: decisive reform measures to facilitate critically-needed economic transitions, reduced tensions with the US, and a shift away from the expensive expansion of international economic and financial influence. In the interim, foreign investors are justified in regarding their ventures into Chinese stocks as short-term. More

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(Reuters) – A look at the day ahead in Asian markets.There is no shortage of potential market-moving events in Asia on Tuesday, from key economic indicators to the start of China’s eagerly-awaited National People’s Congress (NPC), but current momentum is likely to limit any potential downside.The rally in world stocks and risky assets more broadly – bitcoin is leaping toward new all-time highs – paused for breath on Monday, but not before the leading U.S., Japanese and European benchmark indexes all hit fresh peaks.Rising U.S. bonds yields? Strong economic data? Weak economic data? Hawkish shifts in Fed expectations? It doesn’t seem to matter. Equities and risk assets either power on, or pause only briefly before going up through the gears again.The Nikkei on Monday burst above 40,000 points for the first time ever, taking its gains this year to a remarkable 20%. Chinese stocks tacked on 0.4% ahead of the NPC, and have now fallen only twice in the last 14 sessions.Although U.S. bond yields on Monday reversed some of Friday’s steep decline, the S&P 500 climbed to a record high, as did European stocks. Equity pullbacks are shallow, and the bigger picture continues to be dominated by optimism surrounding tech and AI. Analysts at Deutsche Bank note that the S&P 500 is up more than 20% since October, and is in one of its best winning streaks on record.The Asian economic and political calendar on Tuesday is packed with potential market-moving risk – inflation from the Philippines, Thailand and Tokyo, services PMIs from several countries including China, GDP from South Korea, and the annual session of China’s NPC. Much of the focus on Tuesday will be on Beijing, and how China plans to tackle a property crisis, deepening deflation, fragile stock markets, and mounting local government debt woes.All that, while achieving annual economic growth of around 5%, which is what economists expect Premier Li Qiang to announce. It is a huge challenge, but in managing expectations, perhaps Beijing will opt not to go firing policy bazookas.Core inflation in Japan’s capital, meanwhile, is expected to have re-accelerated in February to 2.5% from a near-two year low of 1.6% in January, above the Bank of Japan’s 2% target.The BOJ is in the process of winding down years of ultra-loose policy, and some economists think it could exit negative interest rates later this month. The Tokyo inflation data will be closely-watched, not least by yen traders. The yen is back below 150.00 per dollar, fueling speculation that Japanese authorities might soon intervene to support the currency. Tokyo doesn’t target any particular exchange rate level, but it will be well aware of the latest U.S. futures data that shows hedge funds and speculators are holding their largest net short yen position in over six years. Here are key developments that could provide more direction to markets on Tuesday:- China National People’s Congress- China Caixin Services PMI (February)- Japan Tokyo inflation (February) (By Jamie McGeever; editing by Bill Berkrot) More

(Reuters) – Defaults among U.S. corporate junk debt issuers reached a post-pandemic high in February, JPMorgan said in a new research report.Nine junk-rated borrowers either filed for Chapter 11 bankruptcy or missed their interest payments on a total of $5.97 billion in loans and bonds last month, JPMorgan noted.Three other companies opted for a distressed exchange on a total $3.96 billion in loans and bonds, the report added. February was only the second time in 11 months that the volume of defaults outweighed distressed exchanges. Since the Federal Reserve began hiking interest rates in 2022, companies facing default have increasingly turned to out-of-court distressed exchanges, credit rating agency Moody’s (NYSE:MCO) said in a recent report.Last month’s $9.9 billion in combined defaults and distressed exchanges surpassed 2023’s monthly average of $7.2 billion, JPMorgan said. It was the highest combined volume of the two since $16.9 billion posted in April 2023.Moody’s and other ratings agencies anticipate the default rate among junk-rated issuers will rise this quarter before leveling out by the end of 2024. More