Economy

BEIJING/HONG KONG (Reuters) – Yang Guang’s rise from a village farmer to an Audi-driving businessman with two properties hinged largely on one of the most coveted documents in China: an urban hukou, or residency permit.The 45-year-old who lives in the central city of Zhengzhou likens the permit – which typically ties a person’s access to health, education, loans and other services to their birthplace – to a “cattle ear-tag the state clipped us with”.”It uses this tag to sort us into different categories of people entitled to different sets of privileges and subjected to different obligations,” he said.When Zhengzhou in the early 2000s temporarily allowed those who bought an apartment to also qualify for a city hukou, Yang seized the opportunity, allowing him to register a business and open stores across Henan province’s capital, transforming his fortunes.In recent months, Chinese authorities have fanned hopes among some economists that the internal passport system that has largely tethered people’s destinies to their place of origin since the 1950s may be in its dying days. A distressed property market and sluggish consumption have injected new urgency into a drive to loosen restrictions and grant more people the opportunities that urban registration affords.The Ministry of Public Security in August called on cities with up to 3 million people to abolish hukou, and those with 3-5 million to significantly relax issuance. Zhejiang and Jiangsu provinces have announced plans for an almost complete opening to new residents.But two people involved in hukou policy discussions within the central government told Reuters that progress is stalling, making further significant breakthroughs unlikely, especially in China’s larger cities.The accounts described previously unreported tensions over hukou reform, with Chinese officials acknowledging a strong economic rationale for change but hesitant to take decisive moves that might disrupt social stability and burden indebted cities with added costs. “Hukou reform is a hard bone to chew,” said Jia Kang, founding president of the China Academy of New Supply-Side Economics, who advises the government on policies including hukou. “It should be a natural process, it’s not something you can do simply because you want to.” “Currently, all reforms are difficult.”Jia said that while neither the central government nor local governments oppose further hukou easing, implementation depends on cities having the funds and public service capacity. China’s Ministry of Public Security and the National Development and Reform Commission, the top planning agency, did not respond to requests for comment. The advisers said China’s largest cities have limited residential supply and face pollution and congestion, affecting their ability to absorb more people. Medium-sized and smaller cities have excess housing stock they would gladly offer to new residents, but due to surging debt they lack the funds to expand access to health facilities, elderly care and education.”The quality of our urbanisation is poor,” said the second government adviser, who spoke on the condition of anonymity due to the topic’s sensitivity. Most Chinese cities grew dramatically over the past four decades as the country opened up to entrepreneurship and invested in transport infrastructure and residential projects. But the world’s second-largest economy still lags the 80-90% urbanisation rate in the developed world. About 65% of China’s 1.4 billion people live in urban areas, compared with 55% in 2013. But only 48% of the population have a city hukou, official data show. That gap has remained steady throughout the period.While Beijing is working to address strains in local finances, another set of reforms to encourage more people to settle in cities is not in the pipeline, the advisers said.In China, rural hukou come with land rights – and, implicitly, the insurance policy of living off the farm if city jobs are unavailable – making many migrant workers from the countryside reluctant to apply for urban permits, especially in a slowing economy.Local governments can lease land for farming, as well as residential, commercial and industrial development, but there is no private land ownership in China and land rights cannot be traded freely.”We must push forward land system reform. We have plenty of land, which has been wasted,” the second adviser said, adding however that China’s leaders are unwilling to go down that path.Shao Xiaogai, a 39-year-old store manager in Zhengzhou, prefers to stay registered in her village in the central Henan province. She had tried to get an urban hukou to make it easier to enrol her son in a public school, but a spot opened up for him eventually anyway.”I tell my son to study hard because we are outsiders in this city,” said Shao. “If he doesn’t do well here, his dad and I will become his burden if we stay in the city. In the village, we can grow whatever food we need.”Jia said these hurdles mean further hukou liberalisation will be on a city-by-city basis. The second adviser said the pace of urbanisation will slow in coming years, making rural revitalisation more of a priority for China’s leaders.CONSUMING LESSHukou date back to the famines of last century, when Mao Zedong tied food rations to people’s birthplaces to prevent starving peasants from flocking to better-fed cities. In their modern iteration, hukou limit access to public services for many of the almost 300 million rural migrants who leave their families behind to assemble the smartphones, raise the skyscrapers, lay the roads and clean the malls in Chinese cities. Migrants get smaller reimbursements for medical expenses than those with urban registration and cannot take their employer’s contributions to retirement savings – two-thirds of the pot – with them when they return home. As a result, they save more of their income, keeping household consumption – which China wants to make a more prominent driver of economic growth – subdued.Cai Fang, a central bank adviser, estimates migrant workers typically spend 23% less than those with urban hukou, potentially depriving the economy of more than 2 trillion yuan ($281 billion) – or 1.7% of last year’s GDP – in domestic consumption annually.There’s also the imperative of boosting demand for apartments, of which China has too many. The property market, which accounts for roughly a quarter of the economy, has been rattled by private developer defaults.The market would “substantially improve if migrants could be treated more equally” through improved access to better jobs and benefits and enabling them to buy apartments, said Martin Whyte, professor emeritus of international studies and sociology at Harvard University. ‘LOW-END POPULATION’An uncontrolled influx of migrants into the cities, however, may present risks for China’s leaders.In 2017, after a fire broke out in migrant workers’ living quarters, Beijing authorities launched a campaign to expel people without capital-city hukou, sparking a rare open backlash against the government.Mega-cities such as Beijing, Shanghai, Shenzhen and Guangzhou have “no chance” of opening up in coming years due to “considerations of social stability and harmony”, said Jia.”Beijing tried to drive out ‘low-end population’ at one point, which created chaos,” he said, referencing the term that officials in the capital used at the time.In Zhengzhou, Yang, the businessman, recalled how life was different before he obtained a city hukou. He made a living operating an unlicensed mini-mart in a district of rural migrants, often sleeping on a straw mat in a park as he played hide-and-seek with the police.”They would organise big teams of volunteers and officers to knock on doors at night to flush out people without hukou,” Yang said.Zhengzhou’s government did not respond to Reuters queries.Once he had the permit, Yang’s prospects soared.In addition to expanding his business, he bought a second home – something only hukou holders could have – and his first car, a locally made Changan 50 minivan. He enjoyed a more active social life.”Not many people could afford private vehicles at the time. Pretty girls would ask me to drive them around for some fun,” Yang said. “And I did!” ($1 = 7.1233 Chinese yuan renminbi) (Graphics by Kripa Jayaram; Editing by Marius Zaharia and David Crawshaw) More

WASHINGTON (Reuters) -An emergency spending bill to provide billions of dollars in new security assistance for Ukraine and Israel was blocked in the U.S. Senate on Wednesday as Republicans pressed their demands for tougher measures to control immigration at the U.S. border with Mexico.The vote was 49 in favor to 51 against, leaving the $110.5 billion measure short of the 60 votes needed in the 100-member Senate to pave the way to start debate, threatening President Joe Biden’s push to provide new aid before the end of 2023.The vote was along party lines, with every Senate Republican voting no along with Senator Bernie Sanders, an independent who generally votes with Democrats but had expressed concerns about funding Israel’s “current inhumane military strategy” against Palestinians.The bill would provide about $50 billion in new security assistance for Ukraine, as well as money for humanitarian and economic aid for the government in Kyiv, plus $14 billion for Israel as it battles Hamas in Gaza.Senate Majority Leader Chuck Schumer, a Democrat, also voted “no” so that he could introduce the measure again in the future. After the vote, Schumer noted the risks if Ukraine falls, saying it was a “serious moment that will have lasting consequences for the 21st century,” risking the decline of Western democracy.Republicans said it was essential to make their case for tighter immigration policies and control of the southern border.”Today’s vote is what it takes for the Democratic leader to recognize that Senate Republicans mean what we say,” Senate Republican Leader Mitch McConnell said in a floor speech earlier on Wednesday. “Then let’s vote. And then let’s finally start meeting America’s national security priorities, including right here at home.”Even if the bill passes the Senate, it still would need to be approved in the Republican-controlled House of Representatives, where dozens of Republicans have voted against Ukraine aid, including Speaker Mike Johnson.Congressional Republicans and Democrats have been debating for months how to address Biden’s request for billions of dollars in funding for Ukraine as it fights Russian invaders, for Israel following the Oct. 7 attacks by Islamist Hamas militants, for U.S. interests in the Indo-Pacific, and for international humanitarian relief.MONTHS-LONG IMPASSEThe White House’s two requests for Congress to pass spending bills have failed to advance, and tempers have become increasingly frayed on Capitol Hill as the impasse threatens to stretch into 2024. Democrats argue that aid for allies is essential to support global democracy and ward off autocracy.”Make no mistake, today’s vote is going to be long remembered. History is going to judge harshly those who turned their backs on freedom’s cause,” Biden said in remarks at the White House.A group of Senate Democrats called a press conference to argue that blocking the bill would send a message to both U.S. adversaries and allies that the United States does not stand with its international partners.”This is running out. We have but a few days for us to make clear, positive progress toward working out the final details necessary for us to show that the United States is a reliable ally,” Senator Chris Coons said.Republicans contend that excessive illegal immigration across the southern border with Mexico is a hugely important security concern, and say they want more accountability than they are getting from the Biden administration for U.S. taxpayer funds that go to Ukraine.The emergency spending bill included $20 billion for border security.Schumer said on Tuesday he would try to break the impasse by offering Republicans the chance to add an amendment on border policy to the legislation.No such amendment had been announced by Wednesday evening. More

WASHINGTON (Reuters) -President Joe Biden pleaded with Republicans on Wednesday for a fresh infusion of military aid for Ukraine, warning that a victory for Russia over Ukraine would leave Moscow in position to attack NATO allies and could draw U.S. troops into a war.Biden spoke as the United States planned to announce $175 million in additional Ukraine aid from its dwindling supply of money for Kyiv. He signaled a willingness to make significant changes to U.S. migration policy along the border with Mexico to try to draw Republican support.”If Putin takes Ukraine, he won’t stop there,” Biden said. Putin will attack a NATO ally, he predicted, and then “we’ll have something that we don’t seek and that we don’t have today: American troops fighting Russian troops,” Biden said.“We can’t let Putin win,” he said.However, Senate Republicans later on Wednesday blocked Democratic-backed legislation that would have provided billions of dollars in new security assistance for Ukraine and Israel, among other international concerns, saying they wanted to press their point about the importance of tighter border policy.The White House warned this week that the U.S. is running out of time and money to help Ukraine repel Russia’s invasion.White House national security adviser Jake Sullivan, in a phone interview with Reuters about building up Ukraine’s defense industrial base, said the U.S. was sticking to its long-held position not to pressure Ukraine into negotiations with Russia.”That’s going to have to be up to them. We’re just going to keep fighting day in and day out to try to secure this money,” Sullivan said.”We’re going to keep making the case that it would be a historic mistake for the United States to walk away from Ukraine at this moment and we believe that argument will ultimately penetrate and prevail,” he said.He said Biden is prepared to have “reasonable, responsible discussions to produce a bipartisan outcome on border policy and border sources.”By mid-November, the U.S. Defense Department had used 97% of $62.3 billion in supplemental funding it had received and the State Department had used all of the $4.7 billion in military assistance funding it had been allocated, U.S. budget director Shalanda Young said this week.A U.S. official said Washington has less than $1 billion in “replenishment authority.” This means that if Congress does not provide new funds to buy replacement equipment, the U.S., Ukraine and arms makers may have to take other steps to backfill stocks.Border security with Mexico is a major issue weighing on the negotiations about Ukraine and Israel funding.House and Senate Republicans are backing renewed construction of a border wall, former President Donald Trump’s signature goal, while deeming large numbers of migrants ineligible for asylum and reviving a controversial policy under which asylum seekers are told to remain in Mexico while their immigration case is heard.Biden said he was willing to make “significant” compromises on the border issue but said Republicans will not get everything they want. He did not provide details.”This has to be a negotiation,” he said.Biden, who had discussed Ukraine in a virtual summit with G7 leaders earlier on Wednesday, said U.S. allies are prepared to continue supporting Ukraine in its 22-month war to repel Russian invaders.”Extreme Republicans are playing chicken with our national security, holding Ukraine’s funding hostage to an extreme partisan border policy,” said Biden. More

ORLANDO, Florida (Reuters) -The Federal Reserve could comfortably lop a percentage point off its policy rate next year without changing its mantra of ‘higher for longer’ – what seems a contradiction is easily resolved.Given the Fed’s best estimate of a ‘neutral’ policy rate that neither stimulates nor slows growth or inflation is 2.5%, anything above that is essentially still bearing down on the economy. Policy remains ‘restrictive,’ in central bank parlance.The Fed’s official fed funds rate now is the mid-point of the 5.25-5.50% range, and rates futures market pricing has it being lowered to around 4.00% by the end of next year. While markets are already nervy that expecting cuts of that magnitude may be jumping the gun given a persistent ‘higher for longer’ mantra and lack of recession, it would still leave the policy rate some 150 basis points above neutral.At 4.0%, rates would still be far higher than they were before the tightening cycle began in March 2022 and around a full point higher than what markets assumed the end-2024 rate would be just a year ago. A fed funds rate of 4% would still be higher than the peak of the last cycle, considerably higher than where it has been for most of the last 20 years and, in real terms, still the highest in several years.And of course, as inflation ebbs further from here without any policy rate cut, the real fed funds rate is rising. And if prevailing core PCE inflation rates of 3.5% were to fall to target, then the Fed could comfortably cut 150 bps without ever reducing the real policy rate – again, ‘higher for longer’ applies.”That is probably the base case now in terms of likelihood,” says Alex Etra, senior macro strategist at Exante Data and a former New York Fed analyst.”‘Higher for longer’ is always a function of your base of comparison – it is possible the Fed could still cut interest rates and still have higher rates than previously experienced or higher than had previously been anticipated,” he adds.HIGHLY RESTRICTIVE A trend has emerged over the last 30 years or so – the Fed is keeping its policy rate at the cycle peak for longer than it used to. If the first rate cut comes in May, as futures market pricing indicates, the 10-month gap since the last hike will be the second longest since at least the 1950s.That could fairly be seen as keeping rates ‘higher for longer,’ in nominal and basic timeline terms. But the ‘higher for longer’ line that Fed officials drove for much this year is evaporating from market thinking. Fed Governor Christopher Waller’s hints on Nov. 28 that rates could be cut sooner than previously anticipated were significant. Fed Chair Jerome Powell had the perfect opportunity to push back against that view in prepared remarks and a question and answer session on Dec. 1, but chose not to.Bond yields have slumped, implied interest rates have cratered, and the dollar has softened up. Financial conditions have loosened considerably, at least as far as market-based indicators go. The Chicago Fed U.S. financial conditions index (FCI) is its lowest since February last year, and Goldman Sachs’s FCI is the lowest in four months. These indexes are compiled of financial market inputs like money market rates, equity prices, credit spreads, the dollar exchange rate, and long- and short-dated yields.But if financial conditions for Wall Street have loosened over the past year, financial conditions for Main Street have tightened. A range of ‘Main Street’ indicators like the Fed’s Senior Loan Officer Opinion Survey show that the Fed’s 525 bps of rate hikes since March last year are biting – bank lending standards are tightening, loan growth is turning negative, and delinquencies and bankruptcies are increasing. Ultimately though, the most important financial conditions indicator is the Fed’s policy rate, and whether it is accommodative, neutral, or restrictive for the economy at large. The Federal Open Market Committee next week updates its Summary of Economic Projections, including the median estimate for the longer-run policy rate which has been 2.5% for almost five years, save for a brief dip to 2.4% in early 2022.Assuming annual inflation returns to the Fed’s 2% target, this implies a real neutral interest rate – the nebulous, holy grail of central bankers known as ‘r-star’ – of 0.5%. New York Fed President John Williams said last week that some models suggest monetary policy right now is the most restrictive in a quarter century. “I expect it will be appropriate to maintain a restrictive stance for quite some time … to bring inflation back to our 2% longer-run goal on a sustained basis,” he said last week.Room to cut rates, and stay ‘higher for longer.’ (The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Andrea Ricci) More

NEW YORK (Reuters) – U.S. District Judge Richard Jones in Seattle on Wednesday signed off on plea deals agreed by U.S. prosecutors, Binance Holdings and its former chief Changpeng Zhao, according to court documents.In November, Binance agreed to pay over $4.3 billion and pleaded guilty to breaking U.S. anti-money laundering and sanctions laws. Zhao also pleaded guilty and awaits sentencing in February. More

(Reuters) -Oil major Chevron Corp (NYSE:CVX) said on Wednesday that it expects to spend between $18.5 billion and $19.5 billion next year on new oil and gas projects, an 11% increased compared to this year.Its 2024 budget and that of Exxon Mobil (NYSE:XOM) reflect the industry’s continuing rebound after pandemic-influenced pullbacks last decade, recent acquisitions and carbon reduction initiatives. Exxon outlined its plan to spend between $22 billion and $27 billion annually through 2027. While both are spending more, the combined sums are less than half the combined $84 billion Exxon and Chevron spent in 2013, when oil prices often traded above $100 per barrel. The two are benefiting from higher energy prices and pandemic cost-cuts.Chevron’s figure excludes any impact from its proposed acquisition of rival Hess Corp (NYSE:HES). That deal, which is expected to close next year, will push capital expenditures to between $19 billion and $22 billion, it said.Chevron in October agreed to buy Hess for $53 billion in stock to gain a bigger U.S. oil footprint and a stake in rival Exxon Mobil’s massive Guyana offshore oil discoveries.Wednesday’s disclosures did not include a new forecast for oil production next year. Chevron previously said the two deals would bring total oil and gas output to about 3.7 million barrels per day. Chevron plans to spend about $9 billion of its current budget in the U.S., as oil companies move investments to the Americas to reduce costs and pare geopolitical risks. Of the total projected budget, about $5 billion will be devoted to its fast-growing Permian shale production operation, and another $1.5 billion to other shale and tight oil businesses. The shale and tight oil spending increases reflect its acquisition of PDC Energy (NASDAQ:PDCE) earlier this year. Projects in the Gulf of Mexico will take up about $3.5 billion, with production from a new oil platform, Anchor, expected to start next year.About 80% of its expenditures next year on refining and chemicals will also be in the U.S., it said. The company intends to increase share repurchases by $2.5 billion to the top end of its guidance range of $20 billion per year once the Hess deal closes.Nearly half of a $3 billion budget for its affiliates are planned for the company’s Tengizchevroil project in Kazakhstan, it said. More

(Reuters) – A look at the day ahead in Asian markets.Bond yields, interest rate expectations, oil prices and inflationary pressures around the world are falling, and the conviction behind this broad-based move appears to be strengthening. That’s the backdrop to the Asian market open on Thursday, but it won’t necessarily boost investor sentiment or power a rally in risk assets like emerging market stocks.The slide in yields, oil and rate expectations on Wednesday, in some cases to multi-month lows, is increasingly being driven by worries over the U.S. economic outlook.Figures this week show that the U.S. labor market is softening, intensifying the spotlight on November’s non-farm payroll report to be released on Friday. Although financial conditions are loosening, Wall Street’s big three indexes fell on Wednesday (the Russell 2000 held up better as investors continued to rotate into small caps). Asian and emerging stocks may struggle too on Thursday. The Asia Pacific economic calendar on Thursday includes indicators that will shine a regional light on these issues and concerns, as well as FX reserves figures for five countries including China.Thailand publishes its November inflation numbers. Analysts polled by Reuters expect CPI monthly inflation of -0.3% and the annual rate to slow slightly to 0.6%.Thai CPI doesn’t often grab investors’ attention, but it will be watched more closely than usual to see whether it paints a similar picture to South Korean and Tokyo CPI this week.Both these reports showed inflation cooling more than expected. Indeed, consumer prices in South Korea plunged 0.6% in November from the previous month, the fastest rate of deflation in three years.The latest Chinese and Australia trade figures are on tap too. Alarmingly weak trade flows earlier this year were one of the biggest red flags that the Chinese economy was creaking, but the ship seems to have steadied in recent months.The outlook for Chinese trade isn’t particularly bright though – U.S. growth next year will slow significantly, perhaps to around 1-1.5%, the euro zone is flirting with recession, and slowing growth in China to less than 5% will weigh on demand for imports. Currency traders and central bank watchers, meanwhile, will take note of the latest FX reserves figures on Thursday from Asian countries – China, Indonesia, Malaysia and Singapore – and Hong Kong.Their total holdings currently exceed $4 trillion, of which China accounts for $3.1 trillion.International reserves managers are conservative by nature, so changes to their investments tend to come at a glacial pace. Still, the broad trend over the last year or so has been one of central banks reducing their holdings of U.S. Treasuries, potentially another headwind for the dollar.Here are key developments that could provide more direction to markets on Thursday:- China trade (November)- China FX reserves (November)- Thailand CPI inflation (November) (By Jamie McGeever) More

LONDON (Reuters) – Barbados Prime Minister Mia Mottley used a speech in London on Wednesday to call for a global conversation on reparations for countries that saw their people enslaved, sometimes for centuries, under colonial rule.”The conspiracy of silence has diminished the horror of what our people faced,” Mottley said in a lecture at the London School of Economics where she studied in the early 1980s. Barbados was one of Britain’s first slave colonies. English settlers first occupied the Caribbean island in 1627 and, under British control, it became a sugar plantation economy using enslaved people shipped from Africa.Slavery was abolished in 1834 and Barbados became fully independent in 1966 and then a republic in 2021, though it has remained part of the Commonwealth.Mottley had also had a meeting with new British foreign minister, and former Prime Minister, David Cameron while she was in London.Questioned whether she had asked him directly about the UK making reparations payment, which she had earlier cited an estimate of being worth $24 trillion based on a “standard definition” of damage, she said she would not disclose the details.But having also referred to how Britain’s King Charles had acknowledged on a trip to Rwanda last year when he was still the Prince of Wales that it was time to have “the conversation” about the wrongs of slavery, she added: “I hope the foreign secretary will take his lead from his Majesty”.She also said countries like hers did not expect reparation damages to be paid in one lump sum or over a short time frame. Instead she likened what needed to be done to the extraction of wealth in the first place, which had happened over centuries.”I want to salute the King for having the courage to recognise this is a conversation that the time has come to have,” Mottley said. Her comments were made in moving fashion, interspersed between a series of poems by Barbados’ first poet laureate about slavery and injustices, such as the 2020 killing of Floyd George by a white police officer in Minneapolis, Minnesota.Mottley has become a prominent voice in recent years in global discussions about inequality, climate change and overindebtedness.Having just attended the UN’s COP 28 climate summit in Dubai she repeated calls for global taxes to be levied on the financial services, oil and gas, and shipping industries to help poorer countries pay for the costs of global warming.”The world needs to share the burden,” Mottley said. “The world needs us to rise up and change our behaviour.” More