Economy

WASHINGTON (Reuters) -The Biden administration has sent five senior U.S. Treasury officials to Beijing this week for economic talks that will include China’s “non-market” policies that are adding excess industrial capacity, a Treasury official said on Monday.The delegation, led by Treasury Undersecretary for International Affairs Jay Shambaugh, planned to hold frank conversations on Monday and Tuesday as part of the U.S-China Economic Working Group about Beijing subsidies that the U.S. says encourage overproduction of goods, potentially flooding global markets.Affected industries include electric vehicles, a sector whose development in the United States the Biden administration is trying to boost with its own tax subsidies.The group will discuss the U.S. and Chinese economic outlooks, investment screening regimes for national security in both countries, and opportunities to cooperate on climate change and debt relief to poor countries, the Treasury official said. The emphasis on China’s industrial subsidies comes as the Biden administration is continuing a review of U.S. tariffs imposed on hundreds of billions of dollars worth of Chinese imports by former President Donald Trump.U.S. Treasury Secretary Janet Yellen and other senior administration officials have called for the punitive duties of up to 25% to be shifted to a more strategic focus.Trump, the expected Republican presidential nominee, has signaled he would double down on stronger tariffs if elected, calling for China’s most-favored nation trading status to be revoked, a move that would effectively raise nearly all tariffs on Chinese goods. Biden is expected to take a tough but more nuanced approach to China.The meeting is the third since Yellen and her Chinese counterpart, Vice Premier He Lifeng, launched the group in September alongside the parallel Financial Working Group.That group met in Beijing in late January, with Treasury officials receiving assurances that Chinese banks were “doing well” despite China’s real estate and financial market turmoil, according to Yellen.The meetings are the first for the economic group in Beijing. The group last met in San Francisco ahead of November’s Asia Pacific Economic Cooperation Summit after an initial virtual meeting. More

WASHINGTON (Reuters) – World Bank President Ajay Banga on Monday rejected allegations that the bank’s International Finance Corp arm sought to cover up reports of sexual abuse at a for-profit school chain in Kenya in which it held a stake from 2013 to 2022.Banga, asked during a Center for Global Development public event about the IFC’s response to an independent investigation into the allegations at Bridge International Academies, said he disagreed with the characterization of a cover-up by the IFC.Civil society groups have expressed concern that IFC ignored evidence of child sexual abuse at the some of Bridge’s Kenya schools until the World Bank’s Office of Compliance Advisor Ombudsman (CAO) received complaints from parents in 2018 and opened an investigation.The IFC’s Board of Executive Directors this month is expected to formally discuss an action plan following the CAO’s findings related to the $13.5 million Bridge equity investment, which was divested in March 2022 as part of a plan to exit for-profit education.The divestment came nearly a year before Banga was nominated for the World Bank’s top job, but he will have to deal with its aftermath as he seeks to improve the lender’s operations.”I think there’s a series of things management could have done better. And that’s the discussion we’re going to have with the board shortly,” Banga said in response to an audience question on the matter.”So I’m not going to pre-empt that. I just disagree that there was a legal effort to cover it up. That, I will not accept as a question,” he added. If a cover-up “is proven to be so, I will take all the action that is necessary, but merely conjecture that is in a public space, I will refuse to sign up. That’s who I am, I’m sorry if you don’t like it,” Banga said.Banga, a former Mastercard (NYSE:MA) CEO, took office in June with a mandate to shift the World Bank’s mission to fight climate change and other global crises. He has pledged to make the World Bank nimbler and more focused on improving lives in the process. Bridge did not immediately respond to a Reuters request for comment. The firm acknowledged some cases of sexual abuse in its Kenyan schools in a study it commissioned by the Tunza Child Safeguarding consultancy, but at rates far less than in Kenyan public schools.SEEKING TRANSPARENCYU.S. Senators Elizabeth Warren and Peter Welch asked Treasury Secretary Janet Yellen in a letter last October to take necessary steps to ensure that Kenya abuse allegations were thoroughly investigated.A Treasury official said the department is “profoundly concerned, alarmed at the prospect that children may have been sexually abused in the context of an IFC project.”Treasury “vehemently condemns” violence against children and other human rights violations, the official said, and it will press for transparency and accountability in the investigation and seek policy changes based on lessons learned. “Treasury has engaged IFC management and the CAO to understand what may have gone wrong given IFC’s robust policies intended to prevent or detect any such harm. We likewise believe any threat to the independence of the CAO – be it in fact or perception – is unacceptable,” the official told Reuters in an emailed statement.’DEEPLY DISTURBED’IFC Managing Director Makhtar Diop wrote in a letter to non-profit group Inclusive Development International in November that IFC was “deeply disturbed” by the reports of child sexual abuse,” saying it “does not tolerate any form of abuse in the projects we finance.”Diop said the IFC was reviewing the CAO report into abuse at Bridge and would publish a plan for “remedial actions” when it is approved by the board. He said a confidentiality agreement between the IFC and Bridge – criticized by civil society groups – was designed to allow CAO to complete its investigation after the divestment.Bridge International Academies operates hundreds of low-cost schools in Africa and South Asia with hundreds of thousands of students. More

TOKYO (Reuters) – Japan’s real wages fell for a 21st straight month though at a slower pace, while household spending dropped for a tenth consecutive month, showing that inflation outpaced wage recovery and continued to weigh on consumer spending.Japan’s wage trend, along with inflation, is closely watched, with the Bank of Japan regarding both indicators among the key data to consider in preparation for phasing out its massive stimulus policy.Prime Minister Fumio Kishida has repeatedly called for business leaders to increase wages at spring labour negotiations to a level higher than last year’s to beat inflation. Japan needs price increases to be propelled by demand and higher pay, instead of the cost-push inflation led by energy prices and a weak yen. Inflation-adjusted real wages, a barometer of consumer purchasing power, fell 1.9% in December from a year earlier, but the pace of the decline slowed from a revised 2.5% drop in November, data from the labour ministry showed. It was the slowest pace of decline since June 2023.The consumer inflation rate the government uses to calculate real wages, which includes fresh food prices but excludes rent or equivalent, slowed to a 3.0% gain, the slowest pace of increase since June 2022, reflecting receding inflationary pressure from raw material costs.Total cash earnings, or nominal pay, climbed 1.0% for the month, after a revised 0.7% gain in November. Japan’s biggest business lobby Keidanren and trade unions started annual labour talks earlier this month that may pave the way for the BOJ to exit its decade-long super-loose monetary policy. Keidanren last month also called for wage hikes this year that exceed the inflation rate, setting the tone for annual wage talks. Labour talks last year brought pay rises of nearly 3.6%, the highest in three decades.For the full year, over 40-year-high consumer inflation weighed down on Japan’s real wages, which dropped 2.5%, the biggest decline since 2014 when the nation raised sales taxes. Nominal wages grew 1.2% last year, slowed down from a 2.0% increase the previous year. SUBDUED HOUSEHOLD SPENDING Japanese household spending in December fell 2.5% from a year earlier, government data showed on Tuesday.That was slightly worse than the median market forecast for a 2.1% decline.On a seasonally adjusted, month-on-month basis, spending slipped 0.9%, versus an estimated 0.2% increase.Spending on household durable goods such as air-conditioners dropped due to warm weather, while expenditure on dining out and auto related goods rose, the data showed. More

(Reuters) – Inflation and the U.S. presidential election will be the biggest drivers of global markets this year, while liquidity challenges are a growing focus, according to traders surveyed by JPMorgan.Some 27% of traders see inflation as having the biggest impact, followed by 20% for the November election, the survey published on Tuesday showed.Bonds and equities rallied late last year on hopes that slowing inflation would prompt hefty central bank rate cuts this year. But those bets have been scaled back, with Friday’s blowout U.S. jobs data prompting the biggest sell-off in U.S Treasuries since September.Markets are bracing for further volatility as the U.S. presidential election looms, with former president Donald Trump’s victory in the New Hampshire Republican primary bringing him closer to a rematch with Democrat President Joe Biden. JPMorgan’s Global Head of Digital Markets Eddie Wen said greater focus this year on macro and risk events may create short-term volatility, with particular focus on the release of U.S. monthly jobs and inflation numbers.Recession fears, which topped last year’s survey, fell to third place at 18% as economic growth beats expectations, the survey said.War in Europe, where Russia’s invasion of Ukraine heads into its third year, and the Middle East, where the Hamas-Israel conflict is watched for signs of escalation, followed at 14%. Traders expected volatile markets to remain their top trading challenge, but the share of respondents putting it in first place dropped 18 percentage points from last year to 28%. Liquidity availability neared the top of the list of trading challenges at 24%, up from 22% last year, while access to liquidity remained traders’ biggest market structure concern. Chi Nzelu, global head of macro e-Trading at JPMorgan, said as electronic trading grows in prominence, having consistent access to liquidity across a breadth of providers was becoming more important to investors. “They want to know that it will continue to be reliable even in shock times, which has broadly been the case across different markets in recent years,” he said. Traders in credit markets and cash equities named liquidity availability as their top challenge.”The market structure within the credit markets is becoming more complicated,” said Wen. “There are more trading platforms to support trading of corporate bonds alongside the emergence of portfolio trading, bloc trading, larger trades, all now becoming more electronic over time.”This meant selecting the best way to execute trades was becoming a key question for investors, he said. More

TOKYO (Reuters) – Japanese Finance Minister Shunichi Suzuki said on Tuesday that he expected the Bank of Japan to guide monetary policy appropriately to achieve stable and sustainable inflation accompanied by wage growth.”The government respects independence of the BOJ, so I won’t comment on monetary policy management. I expect the BOJ to work closely with the government,” Suzuki told reporters. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Growth in UK retail spending slowed in January, according to new industry data that suggests households continue to be squeezed by the cost of living crisis. The value of retail sales rose by an annual rate of 1.2 per cent in January, the British Retail Consortium said on Tuesday. This was below the 1.7 per cent growth in December and the three-month average of 1.9 per cent, according to the trade body’s figures.The rate of growth was also below the 4 per cent rate of consumer price inflation in December, indicating that the rise in sales masked a drop in volume, a trend seen for the past three years.“Weak consumer demand led retail sales growth to slow,” said BRC chief executive Helen Dickinson. “While the January sales helped to boost spending in the first two weeks, this did not sustain throughout the month.”The figures, which are compiled by advisory firm KPMG together with the BRC, provide an early indication of retail spending ahead of official data next week. Weak spending will raise concerns over the rebound in activity seen in other economic data, such as mortgage approvals and business sentiment.The BRC figures chime with separate data published by Barclays on Tuesday, which showed a 1.7 per cent year-on-year increase in retail spending last month, below the average growth of 3.1 per cent across all consumer spending.However, the payments company, whose report also includes consumer confidence surveys, did point to brighter spots in the economy for the year ahead. While the 3.1 per cent growth in consumer spending last month was below the rate of inflation, it was up from 2.3 per cent in December, with a notable 11.4 per cent increase in spending on digital content and subscriptions, such as Netflix. According to Barclays, consumer confidence is also on the rise: 70 per cent of households polled said they felt confident in their finances, the highest reading since November 2021.Jack Meaning, chief UK economist at Barclays, said the increase in consumer confidence was “a positive message”, adding: “Spending looks to be on an upward trajectory [and] set to increase more than inflation in the coming months.” Separate industry data on Monday showed UK business activity increased faster than previously estimated and stood at an eight-month high in January.The final S&P Global UK services PMI business activity index rose to 54.3 last month, up from 53.4 in December and the initial reading of 53.8.Tim Moore, of S&P Global Market Intelligence, said the PMI numbers “provide a strong boost to business activity expectations across the service economy”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The Chinese economy grew by 5.2 per cent last year, according to official statistics. But for many in business, it probably did not feel like that from the evidence on the streets of Beijing and other large cities last year, Restaurants were not busy, shops were vacant and there were widespread reports of property prices falling more than the official numbers. Rhodium Group, a research company, argued in December that most economic indicators in 2023 suggested actual growth was more like 1.5 per cent. There were bright spots, it said, such as electric vehicle production, but these could not offset the “general malaise”. For business, the divide between such estimates and official data on how fast the world’s second-largest economy can grow this year and beyond has become an important issue for their global expansion plans. An annual survey by the American Chamber of Commerce in China of its members found just over half were planning to increase their investments in the country this year, a little up from last year. For slightly more than a quarter of this group, expectations of faster economic growth in 2024 were an important factor. The question of measuring that growth though is becoming increasingly politicised as Beijing seeks to steer the narrative away from criticisms that its growth model is overly dependent on state-driven investment rather than consumption. In its annual report on China released on Friday, the IMF said that the country’s post-pandemic recovery last year was “subdued” as property and weak exports and investment weighed on growth. It also forecast slower growth in 2024. This provoked an indignant response from Chinese officials. IMF staff should provide a “more appropriate forecast” to help China “stabilise” confidence “at home and abroad”, said a statement from Zhengxin Zhang, China IMF executive director, that accompanied the IMF’s report.So who is right? At 5.2 per cent year-on-year, Beijing’s official 2023 gross domestic growth figure is the lowest in decades, excluding the pandemic years of 2020 and 2022, But is still sizeable for an economy of China’s heft and sophistication.The issue for China though is that the rebound might have been expected to be more robust from 2022 — a year when Covid lockdowns and rigid travel restrictions hit service industries and supply chains and deepened the slowdown in the property sector.While growth was strong in the first quarter of 2023, it required increasing government support as the year wore on. Consumption, boosted by the release of pent-up demand from lockdowns, made up most of the growth in 2023. However, consumer confidence remained well below pre-pandemic levels towards the end of the year, the IMF said. It estimated that net foreign direct investment also declined from 2022.Lower business and market confidence was reflected in capital markets. China’s CSI 300 stock index has lost 5.5 per cent this year, compounding falls in 2023. The benchmark is down 45 per cent from 2021 highs. And the AmCham China survey showing that while profitability of its members had improved in China from 2022, most companies were breaking even or lossmaking, further suggesting less than robust growth.The government insists that everything is going to plan. Yet domestically it has cracked down on dissenting opinions about the economy, deepening long-running scepticism about the accuracy of official data. Some economists believe that when calculating real GDP growth from nominal data, Beijing is able to adjust the deflator, the broadest measure of prices in the economy, to hit its targets. “Some estimates suggest that official Chinese data overstate its GDP by around 20 per cent,” Oxford Economics wrote in December.For 2024, the IMF is forecasting 4.6 per cent growth and then about 3.5 per cent by 2028 on “weak productivity and ageing”. These forecasts are broadly in line with market expectations. Oxford Economics is predicting growth to fall to about 3.5 per cent by 2030 and just 2 per cent by 2040, possibly delaying the day that China’s economy will converge with the US in terms of size.China’s Zhang responded that the country still has many growth drivers — the population is getting older but more educated, urbanisation has more room to grow and Beijing is investing in science and technology. “China will continue to be the vital engine of global economic growth,” insisted Zhang. Global boardrooms are hoping he is right. But the bar is rising for China to prove it. [email protected] More

WASHINGTON (Reuters) -Some of the largest U.S. banking and business groups on Monday sued three bank regulators over recently-updated fair lending rules, escalating Wall Street’s counter-attack against what banks say are overreaching new regulations. The lawsuit, filed in the Northern District of Texas, seeks to vacate new rules enforcing the Community Reinvestment Act (CRA), arguing they exceed the regulators’ statutory authority, are too complex, and could disincentive lending.It was filed by the American Bankers Association (ABA), Chamber of Commerce and Independent Community Bankers (NASDAQ:ESXB) of America, among other groups. It seeks a preliminary injunction halting the rules’ enforcement while the courts consider the matter.The Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency last year updated their rules enforcing the CRA, a 1977 fair lending law that seeks to ensure banks lend in their local communities. “Given federal regulators’ failure to respond to public comments and fix significant flaws in this rulemaking, we were left with no choice but to reluctantly file this lawsuit,” ABA CEO Rob Nichols said in a press release.Conceived to prevent red lining – a discriminatory practice where banks refuse or offer only limited lending to certain areas or populations, primarily minorities – CRA regulations gauge how well banks service areas where they operate. The new rules broaden the geographies in which lenders will be required to extend loans and other services to low-income Americans.The regulators, which did not immediately provide comment, said the review was a much-needed modernization which reflected the rise of online banking and the decline of bank branches.The lawsuit is the latest legal challenge by lenders which, facing a wave of new rules and encouraged by a sympathetic judiciary, are growing bolder about fighting Democratic President Joe Biden’s regulators in court.Over the past 18 months, more than 30 companies and trade groups representing banks, funds and other firms have brought at least 15 suits against financial regulators over major rules, policies and supervision issues, Reuters reported in November.But while suits against the consumer watchdog and securities regulator are common, it is rare for banks to take on their prudential supervisors, particularly the Fed. According to research by Wharton School professor David Zaring, neither industry groups nor individual lenders have filed more than one suit over the past decade challenging Fed policymaking. The most recent comparable challenge was in 2013, when the ABA sued the Fed over proprietary trading rules, according to a Reuters analysis of Fed annual reports. More