Economy

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer is chief economist at Enodo EconomicsJust how bad is the economic distress rippling through the Chinese economy? The bankruptcy of China’s largest private real estate company, Evergrande, has generated international attention. But the travails of China’s small and medium-size firms are less documented, and now new rules designed to reduce risk are further stressing small borrowers that need credit to survive.While firms like Evergrande represent a risk because of their size — the company’s liabilities are estimated at $300bn — defaults by local firms reflect the breadth of the trouble in the Chinese economy with SMEs providing 80 per cent of urban employment.Beijing is aware of the liquidity plight of SMEs and does want China’s banks to lend to them more. But so far policymakers have not only failed to move the needle but have also focused on preventing risk at the expense of real economic activity by private sector firms. In short, what Beijing needs is to embrace private companies as part of the solution to what ails the Chinese economy — not part of the problem.China’s small and private companies may not be household names outside their hometowns, but they are the life force of the Chinese economy, especially at the local level. In recent years, they have borne the brunt of the economic slowdown, the Covid lockdowns and the regulatory crackdown on private financing as well as lending to oversupplied industries.The obstacles facing small businesses are evident at the micro level; for instance, in instruments known as bankers’ acceptance bills. Popular as a way to ensure smaller businesses get paid up front, the bills have evolved into a key channel for liquidity and credit in the past five years.The bills are a commitment, by a bank, to pay a specified amount on behalf of a customer. They are commonly used in commercial transactions as a guarantee of payment, and in practice are often traded as fungible instruments.They are popular among Chinese SMEs because they allow them to get paid earlier, easing cash flow and becoming one of their few reliable channels of financing. Over the past few years, as regulators shut off access to other traditional sources of financing, the bills became a way for SMEs to secure small-scale or short-term loans.Now, new regulations have constricted this important financing channel. These reforms have sought to shore up the financial stability of regional banks by reducing abuse of these instruments. They include requiring bills to be based on “real transaction relationships” and making banks classify overdue acceptance bills as non-performing loans.But they could have a broad, and probably unintended, negative economic impact. Starting at the beginning of this year, regulators limited banks’ ability to extend this financing to SMEs by restricting the maximum value of acceptance bills and reducing the payments period for new acceptance bills to six months. This heightens the pressure on commercial enterprises to pay within a shorter timeframe amid tightening cash flow.The rules require the reporting of firms who have defaulted on bankers’ acceptance bills and of bank branches that fail to honour them. Failures to pay are recorded and published by the Shanghai Commercial Paper Exchange, which also maintains a separate list of repeat offenders.Analysis of this new data series by my firm shows the problems rippling through small and medium-size enterprises in China. Defaults on bankers’ acceptance bills peaked in the second and third quarters last year.The data also reveals that the pressures piling up on indebted local businesses are starting to bleed into banks as well. Hundreds of local bank branches defaulted on bankers’ acceptance bills in 2023, including outlets of some of the Big Four state-owned banks.Individually, the companies tracked by the SHCPE data are just blips on the radar, but collectively they are a barometer for the health of local and regional economies.These vulnerabilities remain as long as the real estate crisis and substantial credit losses weigh on China’s growth — and that will be a long time yet.If Beijing maintains its risk aversion at the expense of the small companies that support the local and regional economy and does not find a way to channel more funding to them, we should expect to see more signs of a China slowdown emerge in 2024. More

Pandemic disruptions may have muddled the measurement of home prices in inflation data. That could complicate the Fed’s course on interest rates.The Federal Reserve may have a housing problem. At the very least, it has a housing riddle.Overall inflation has eased substantially over the past year. But housing has proved a tenacious — and surprising — exception. The cost of shelter was up 6 percent in January from a year earlier, and rose faster on a monthly basis than in December, according to the Labor Department. That acceleration was a big reason for the pickup in overall consumer prices last month.Listen to This ArticleOpen this article in the New York Times Audio app on iOS.The persistence of housing inflation poses a problem for Fed officials as they consider when to roll back interest rates. Housing is by far the biggest monthly expense for most families, which means it weighs heavily on inflation calculations. Unless housing costs cool, it will be hard for inflation as a whole to return sustainably to the central bank’s target of 2 percent.“If you want to know where inflation is going, you need to know where housing inflation is going,” said Mark Franceski, managing director at Zelman & Associates, a housing research firm. Housing inflation, he added, “is not slowing at the rate that we expected or anyone expected.”Those expectations were based on private-sector data from real estate websites like Zillow and Apartment List and other private companies showing that rents have barely been rising recently and have been falling outright in some markets.For home buyers, the combination of rising prices and high interest rates has made housing increasingly unaffordable. Many existing homeowners, on the other hand, have been partly insulated from rising prices because they have fixed-rate mortgages with payments that don’t change from month to month.The Housing ConundrumHousing costs, as measured in the Consumer Price Index, are still rising faster than before the pandemic, even as overall inflation has eased.

Source: Labor DepartmentBy The New York TimesA Wider GapAfter surging in 2021 and 2022, rent growth has moderated. But the slowdown has been more gradual for single-family homes than for apartments.

Notes: Data is shown as a 12-month change in a three-month moving average. “Houses” include both attached and detached single-family homes.Source: ZillowBy 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

(Reuters) – A look at the day ahead in Asian markets.Japanese inflation figures could provide the biggest market fireworks in Asia on Tuesday, potentially pushing the yen to a new 2024 low, closer to its recent three-decade depths, and into territory likely to spark louder warnings from Tokyo.Asian markets have started the week on a more cautious footing following the tech-fueled buying frenzy of last week – the MSCI Asia ex-Japan index had its biggest fall in over two weeks, and a 1% decline in Chinese stocks snapped their longest winning streak in six years.Tuesday’s economic calendar is light, with current account data from Taiwan and Hong Kong trade figures overshadowed by January consumer inflation numbers from Japan.Inflation is expected to have fallen below the Bank of Japan’s 2% target for the first time in nearly two years, according to a Reuters poll, with annual core inflation seen slowing to 1.8% from 2.3%.Headline inflation should also ease from December’s 2.6% pace.This could further complicate the BOJ’s policy normalization plans, after figures earlier this month showed the economy unexpectedly fell into a recession at the end of last year. A below-consensus reading could be particularly problematic.Some economists think the BOJ could end years of ultra-loose policy and raise interest rates as soon as next month. But that might be hard for the BOJ to deliver and communicate with inflation below target and the economy in recession. Little wonder, perhaps, that the yen remains under heavy selling pressure. While the dollar is struggling against a major currencies on an index basis, it is pushing new highs for the year against the yen just under 151.00 yen. U.S. Commodity Futures Trading Commission data show that speculators increased their net short yen position – effectively a bet that the currency will depreciate – to the largest since November and the second biggest in six years.There are reasons to believe Japanese authorities may be less willing to conduct yen-buying intervention to support the currency like they did in 2022, but stretched positioning among hedge funds and speculators will almost certainly be a red flag.FX traders don’t seem to be too concerned though – three-month dollar/yen implied volatility is its lowest in almost two years.In China, meanwhile, official figures on Monday showed that Chinese banks purchased the most dollars from their clients via FX swaps in January, suggesting exporters preferred to only temporarily acquire the local currency while holding on to dollars.State media also reported that President Xi Jinping held a meeting of a key economic policy body on Friday, the Central Financial and Economic Affairs Commission, to discuss providing support to manufacturers and lowering logistics costs. Here are key developments that could provide more direction to markets on Tuesday:- Japan inflation (January)- Hong Kong trade (January)- Taiwan exports (January), current account (Q4) (By Jamie McGeever) More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Good morning. We have an exclusive story today on China’s growing surveillance capabilities in the sea near Taiwan. Chinese maritime research vessels have dramatically increased incursions into waters just 24 nautical miles off Taiwan. The latest operations include an unprecedented sailing by China’s newest research ship, a drone carrier with links to the People’s Liberation Army, down the full length of the Taiwanese east coast in November.The Zhu Hai Yun’s voyage was one of nine such intrusions since September, a sharp uptick from just two in each of the previous three years, according to tracking data of nearly 80 ships from Spire Global, a satellite data company, analysed by the FT.China frequently uses vessels operated by government and military-affiliated research institutes to assert its claims in disputed waters. These ships can measure water temperature, salinity and ocean currents and map the seabed — data that can be used for a broad range of scientific research, but also for naval warfare.“Where the maritime research vessels go is where Chinese submarines will go in the future,” said Christopher Sharman, director of the China Maritime Studies Institute at the US Naval War College. Here’s the full story — complete with graphics showing the activity of the Chinese vessels. More China news: China’s Ant Group is bidding against Citadel Securities for Credit Suisse’s Chinese securities unit, a move that will test Beijing’s appetite for letting the Jack Ma-founded company expand again after a long-running crackdownAnd here’s what else I’m keeping tabs on today:Economic data: Japan publishes its consumer price index, which is expected to show inflation rising 1.8 per cent in January from a year ago, the lowest rate in nearly two years. (Reuters) Elections: Israel holds its first local elections since the war in Gaza began, while US presidential primary elections take place in the state of Michigan. Brics: Finance ministers and central bank governors from the group of emerging nations meet in São Paulo, Brazil.Five more top stories1. Sweden has overcome the last remaining hurdle in its quest to become a Nato member as Russia’s full-scale invasion of Ukraine redraws the geopolitical map. Hungary’s parliament voted yesterday to approve Stockholm’s application to become the 32nd member of the military alliance, which could now be formalised as soon as Friday. 2. BYD has rejected EU accusations that the success of Chinese car companies stemmed from state aid as Brussels forges ahead with a probe into whether local subsidies were helping electric cars made in China undercut European-made models. The Chinese group’s European head Michael Shu said BYD’s success was due to “unique technology” and “management efficiency”, in the company’s first public comment on the investigation launched last year.3. South Korean officials unveiled measures yesterday to boost shareholder returns, as Seoul seeks to replicate Japan’s success in raising stock valuations. The Korean proposals include a new “Korea Value-Up index” — mirroring the Tokyo exchange’s “name and shame” regime — as well as tax incentives for businesses that prioritise shareholder returns. But Korean investors said the reform measures fell short of expectations. 4. Israel launched air strikes on what it said were Hizbollah targets near the north-eastern Lebanese city of Baalbek, in its deepest attack into Lebanon since the war in Gaza triggered renewed hostilities with the Iran-backed militant group. The Israeli military said yesterday it had hit sites “used by Hizbollah’s aerial defence array” in the Bekaa Valley in response to the launch of surface-to-air missiles by the group. Here’s the latest on the Israel-Hamas war.Palestinian PM resigns: Mohammad Shtayyeh has resigned from his role as Palestinian prime minister, confirming a long-anticipated move that could set the stage for a new technocratic government responsible for the reconstruction of Gaza.5. Microsoft has struck a deal with French artificial intelligence start-up Mistral as it seeks to broaden its involvement in the fast-growing industry beyond OpenAI. The tech giant’s “multiyear partnership” with Mistral aims to help the 10-month-old company bring its AI models to market. As part of the deal, Microsoft will take a minor stake in Mistral although the financial details have not been disclosed. The Big ReadChina’s President Xi Jinping has prioritised signing bilateral and regional free trade agreements More

JPMorgan Chase CEO Jamie Dimon said market expectations are too high that the U.S. economy will see a soft landing.
However, he doesn’t expect a replay of some of the other serious downturns the U.S. economy has faced, such as the 2008 financial crisis.
Higher interest rates along with a recession could hit areas such as commercial real estate and regional banks hard, but with limited macroeconomic impacts, Dimon said.

JPMorgan Chase CEO Jamie Dimon thinks there’s a better-than-even chance that the U.S. is heading for a recession, though he doesn’t see systemic issues looming.
Speaking Monday from the JPMorgan High Yield and Leveraged Finance Conference in Miami, the head of the largest U.S. bank by assets said markets probably aren’t pricing in a strong enough probability that interest rates could stay higher for longer.

Dimon noted “there are things out there which are kind of concerning,” and he disagreed with the high level of probability being assigned to the economy missing a recession.
“The market is kind of pricing in a soft landing. That may very well happen,” he told CNBC’s Leslie Picker. “But the [market’s] odds are 70 to 80 percent. I’ll give you half that, that’s all.”
The comments come as the market indeed has had to reprice its expectations for monetary policy. Where futures traders earlier in the year had been assigning a high probability to an aggressive series of interest rate cuts starting in March, they now see the easing not starting until June or July, with three cuts now priced in — half of the prior expectations.
Along with the elevated rates, markets have had to contend with the Federal Reserve rolling off its bond holdings, a process known as quantitative tightening. While the central bank is expected to start tapering the program soon, it remains another factor in tight monetary policy.
“It’s always a mistake to look at just the year,” Dimon said. “All these factors we talked about: QT, fiscal spending deficits, the geopolitics, those things may play out over multiple years. But they will play out and they will have an effect and in my mind I’m just kind of cautious about everything.”

However, Dimon said he doesn’t expect a replay of some of the other serious downturns the U.S. economy has faced, such as the 2008 financial crisis that saw Wall Street plunge as banks were hit with fallout from the subprime mortgage industry collapse.
Higher interest rates along with a recession could hit areas such as commercial real estate and regional banks hard, but with limited macroeconomic impacts, Dimon said.
“If we have a recession, yes, it’ll get worse. If we don’t have recession, I think most people will be able to muddle through this,” he said. “Part of this is just a normalization process. [Rates] were so low for so long. If rates go up, and we have recession, there will be real estate problems, and some banks will have a much bigger real estate problem than others.”
As far as regional banks go, he labeled issues that hit institutions such as Silicon Valley Bank and New York Community Bank as “idiosyncratic” and said private credit could take hit but not at a systemic level.
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WASHINGTON (Reuters) -The U.S. on Monday placed Canada-based Sandvine Inc on a trade restriction list for allegedly helping the Egyptian government target human rights activists and politicians.Sandvine, a networking equipment company, was added to the Commerce Department’s “Entity List” for supplying technology to the Egyptian government, “where it is used in mass web-monitoring and censorship to block news as well as target political actors and human rights activists,” according to a posting in the Federal Register, the official U.S. government journal.Sandvine, which has been accused of helping facilitate surveillance on Egypt’s opposition, supplies what is known as “deep packet inspection technology” which examines and manages network traffic.U.S. companies are effectively barred from shipping goods and technology to Sandvine with its addition to the list. The Commerce Department also added China’s Chengdu Beizhan Electronics to the list for illegally acquiring U.S.-origin items on behalf of the University of Electronic Science and Technology, which was added more than a decade ago.The university is an alias for the Chinese Academy of Engineering Physics (CAEP), which is involved in China’s nuclear weapons program, the Commerce Department has said.”We will continue to leverage all of our enforcement and regulatory authorities to prevent U.S. technology from enabling destabilizing activities, from mass surveillance and the targeting of human rights activists and political opponents to nuclear weapons programs,” Commerce official Matthew Axelrod said in a statement after the posting.In addition to Waterloo, Ontario, in Canada, Sandvine’s locations in India, Japan, Malaysia, Sweden and the United Arab Emirates are included on the export control list. Sandvine did not immediately respond to a request for comment. Representatives for the Egyptian embassy in Washington, and the government in Egypt also did not respond. Chengdu Beizhan Electronics could not immediately be reached. In the same posting on Monday, the U.S. removed Jazirah Aviation Club in the United Arab Emirates from the export control list. Jazirah, a light sport aviation club, was placed on the list in 2018 for its involvement in procuring items for an entity on the Entity List, the U.S. said at the time. The posting said it was removed after a review. More

The institute’s export expectations indicator rose to minus 7.0 points in February, from minus 8.5 points in January.”The German export industry is currently hardly benefiting from global economic development,” Klaus Wohlrabe, head of surveys at Ifo said, adding there is still a lot of room for improvement.While the food industry and glass and ceramics manufacturers continue to forecast export growth, mechanical engineering expectations fell to their lowest level since June 2020. Weakness in exports also continues to hit car manufacturers and the metal sector, the study said.German exports as a whole fell in 2023 by 1.4% due to the global economy groaning under numerous burdens, caused by high inflation, increased interest rates and international crises. More

This article is an on-site version of our Disrupted Times newsletter. Sign up here to get the newsletter sent straight to your inbox three times a weekToday’s top storiesSweden overcame the last remaining hurdle in its bid to join Nato after Hungary’s parliament voted to approve Stockholm’s application to become the 32nd member of the military alliance.Palestinian Prime Minister Mohammad Shtayyeh offered his resignation in a long-anticipated move that could set up a new technocratic government responsible for the reconstruction of Gaza. The international community, led by the US, has called on President Mahmoud Abbas, who leads the West Bank-based Palestinian Authority, to accept the resignation.  Microsoft announced a new agreement with French artificial intelligence start-up Mistral in an attempt to diversify its relationships beyond ChatGPT-maker OpenAI, an alliance that is being reviewed by competition watchdogs in the US, EU and UK.For up-to-the-minute news updates, visit our live blogGood evening.The biennial ministerial conference of the World Trade Organization begins in Abu Dhabi today amid increasing frictions as China accelerates efforts to develop an alternative trade architecture insulated from US influence and focused on the developing world.As our new Big Read explains, China’s main trade strategy is to reinforce ties with the “global south” via its $1tn Belt and Road Initiative, an investment programme launched in 2012 and involving more than 140 countries in Asia, Africa, Latin America and elsewhere. Bilateral and regional free trade agreements allow for trade at low tariffs while also promoting direct investment. None of the FTAs include the US or EU member states.The push from Beijing reflects its fears about the waning of the post-second world war global trading system, a trend that gained impetus after the 2008 financial crisis and began to intensify in 2018 when then US president Donald Trump slapped heavy tariffs on trade with China. If Trump wins a new term in November, US intervention is likely to be even more dramatic.Other recent developments include accusations from the EU that China is unfairly subsidising sectors such as electric vehicles (although Chinese auto group BYD said today that the industry’s success stemmed from superior technology rather than state aid). The US this month vowed to take action if China tried to ease its industrial overcapacity by dumping EVs and other cheap exports on international markets.Washington has also been increasing efforts to restrict Chinese access to sensitive technology. Chinese companies meanwhile have become adept at circumventing US and EU tariffs by, for example, delivering goods via third countries such as Mexico.“Nearshoring” — the relocating of production to closer and more politically friendly countries is another growing trend in world trade. China is directing investment into countries such as Malaysia and Indonesia while western businesses are looking to move more capacity to Europe.FT senior trade writer Alan Beattie in today’s Trade Secrets newsletter (for Premium subscribers) says for all the criticisms levelled against it (he’s not generally a fan) the World Trade Organization plays a useful role in identifying problems and defusing them through negotiation, as well as resolving disputes, although perhaps not as efficiently as it ought to.One overwhelming issue that world trade needs to address is the environment, writes Beattie, and carbon emissions in particular. Slow and iterative litigation through the WTO looks the most promising route to a global carbon pricing regime, he argues.The bigger picture on world trade, writes FT columnist Rana Foroohar, is that the hopes of economist John Maynard Keynes, who in 1944 foresaw a system that would “target persistent imbalances between surplus and deficit countries, rather than policing one-off trade violations”, have been dashed.Instead, “the long-term imbalances between the deficit countries and the surplus nations have created unsustainable economics and politics around the world”, she argues. “Fixing this requires more than incremental tweaks; it calls for a radical reorganisation of the global trading system.”Need to know: UK and Europe economySome British boardrooms are uneasy about plans from the UK’s opposition Labour party to improve workers’ rights should it win power in the general election. Planned reforms include strengthening the role of unions in workplaces, banning zero-hour contracts and “fire and rehire” tactics, and giving staff protection against unfair dismissal from day one.Petrochemicals billionaire Sir Jim Ratcliffe hit out at the EU’s “suffocating bureaucracy” and environmental red tape, which he said would drive away investment from the bloc.EU leaders are meeting in Paris to shore up support for Ukraine. Its president Volodymyr Zelenskyy has told the US that his country needs the $60bn aid at present stuck in a congressional stand-off within a month. Nato chief Jens Stoltenberg said at the weekend that it was inevitable that Ukraine would become a member.Ministers of EU countries urged Brussels to increase funding for the €60bn-a-year Common Agricultural Policy subsidy scheme in an attempt to quell protests from farmers.Need to know: global economyFT analysis suggests the global downturn in house prices is over. Across the 37 industrialised OECD countries, nominal prices grew 2.1 per cent in the third quarter of 2023 compared with the previous three months, up from near stagnation at the start of last year. UK housebuilders are in regulators’ crosshairs over information sharing.Donald Trump moved another step closer to becoming the Republican presidential nominee when a political group backed by conservative billionaire Charles Koch said it would stop funding the campaign of Nikki Haley, Trump’s last rival standing. Trump heavily defeated Haley in South Carolina’s primary on Saturday.Israel plans to raise about $60bn in debt this year, freeze government hiring and increase taxes as it doubles its defence spending to support its war in Gaza. The country’s economy shrank almost 20 per cent on an annualised basis in the last quarter of 2023. Israel today launched air strikes near the northeastern Lebanese city of Baalbek in the deepest attack into Lebanese territory since its war in Gaza triggered renewed hostilities with the Hizbollah militant group.French miner Eramet warned that Indonesia’s low-cost nickel suppliers would wipe out rivals in the next few years, confirming the country’s status as the dominant producer of the metal vital to electric car batteries, accounting for more than three-quarters of world supplies.Need to know: businessThe EU took its first steps towards a formal investigation into Apple over the iPhone maker’s decision to cut off access to some applications that bypass its app store.European banks are set to return more than €120bn to shareholders in the form of dividends and share buybacks thanks to high interest rates boosting their 2023 results.The growth in data centres for Big Tech’s AI products is fuelling concerns over water consumption. Academics suggest AI demand will drive up water withdrawal — where water is removed from ground or surface sources — to up to 6bn cubic meters by 2027, or about half the amount consumed by the UK each year.Cut-throat competition among Chinese electric-vehicle makers is producing some interesting new developments in in-car entertainment, such as big-screen cinema displays for back-seat passengers. Toyota’s bet on hybrid vehicles, after a long period of criticism from investors and environmentalists alike, appears to be paying off.A UK vaccine start-up has raised £14mn to develop AI-boosted adaptable jabs that can be modified to counter new variants of pathogens.The world of workThe post-pandemic business landscape has a new focus: “purposeful travel”. Thousands of business people have changed their travel schedules as video conferencing becomes commonplace, environmental concerns increase and employers look to cut costs. The human resources department is often the target of flak from senior leaders and rank-and-file staff alike. What can be done to improve its lot? One area of focus, suggests FT columnist Pilita Clark, might be to tackle the menace of overblown job titles. Current examples range from captain of moonshots at Google and chief underpants officer at Joe Boxer to technoking of Tesla (Elon Musk, in case you were wondering).Some good newsResearchers have discovered more than 100 new species living on underwater mountain chains off the coast of Chile, including deep-sea corals, glass sponges, sea urchins, amphipods and squat lobstersA chaunacops (a genus of sea toad from the Chaunacidae family) at a depth of almost 1,400 metres in Chile’s Nazca-Desventuradas marine park More