A monthly Bank of Italy report on domestic banks’ balance sheets showed that loans to non-financial companies were up 3.7% year-on-year, almost double the 1.9% rise seen in May.Gross unpaid loans were down to 68.05 billion euros ($79.98 billion) at the end of June versus 71.21 billion euros a month earlier.Italian residents’ deposits with domestic banks kept rising, reaching 2.64 trillion euros, while holdings of domestic government bonds were steady at 434.3 billion euros in June compared to 419.3 billion euros in May.(This story corrects final paragraph to show comparison is with May not April) More
- in Economy
Beneath a headline number showing a better-than-expected gain in July jobs, the government’s employment report contained indications of underlying weakness.Payrolls remain 13 million below pre-pandemic levels and the number of people out of work for 15 weeks or longer more than doubled from the prior month, to 8 million. The labor-force participation rate fell for the first time in three months and the number of people discouraged by job prospects hit a five-year high.Such figures, along with recent high-frequency indicators pointing to a pause in the recovery, suggest the pandemic slump will be more drawn-out.With lawmakers failing to extend supplemental unemployment benefits that have supported incomes and spending, President Donald Trump signed orders over the weekend to provide limited relief that faces questions over its implementation and legality.Reports due later this week on July retail sales, industrial production and consumer sentiment are expected to confirm a moderating pace of economic activity.“There’s definitely a lot of work to be done in getting the economy back to where it used to be,” said Michael Feroli, chief U.S. economist at JPMorgan Chase (NYSE:JPM) & Co.Trump’s latest moves create “some downside risk to the outlook as it removes pressure on Congress to agree to something more comprehensive,” he said.Read more:Goldman Sachs Group Inc (NYSE:GS). economists took a different view, saying in a note that because the new jobless benefits could run out in a month, it could raise pressure on lawmakers to do more.In any case, some of the long-term economic and labor-market effects of the virus have already been set in motion, such as a lengthening duration of unemployment. Others will take longer to develop: wage gains coming under pressure, the impact on female labor-market participation as schools extend virtual classes and the effect of shaky job prospects for recent graduates.Unemployment DurationThe number of Americans who have been unemployed for at least 15 weeks grew by about 4.7 million people in July. That was the biggest monthly increase in records back to 1948 and highlights the need for fiscal relief.In the wake of the last recession, the number of people in the 15 weeks or more category hit a record 9.1 million in 2010, and it took four years to reduce that by half. Just how fast Americans will be able to get back to work this time is unclear.“When we look at where we go from here, we’re past that mechanical bounceback,” said Sarah House, senior economist at Wells Fargo (NYSE:WFC) & Co. “Now you have to justify, from a cost perspective, bringing back new workers. And for that you need revenue to increase” and economic activity to improve, she said.Economic SpilloverThe economy is forecast to rebound in the third quarter but recovering to pre-pandemic levels could take years. Meanwhile, the replacement of the extra $600 in weekly jobless benefits with a smaller amount and a lack of new funding for the Paycheck Protection Program for small businesses means less spending and investment in the economy.“This slowing trend in the economic recovery is deeply concerning,” said Daniel Zhao, senior economist at jobs website Glassdoor. “The risk is that will spill over to businesses and the rest of the economy, as well as households.”And Trump’s order to provide more stimulus “doesn’t change the overriding fact that the public health crisis will determine the trajectory of the economy,” Zhao said.What Bloomberg’s Economists Say“Following an unprecedented swing from severe drop to sharp rebound, the economy is entering more conventional recession dynamics. A prolonged period of elevated unemployment and subdued participation in the labor market will weigh heavily on income growth, personal spending and top-line growth.”– Yelena Shulyatyeva, Andrew Husby and Eliza WingerRead more for the full note on the jobs report.Workforce participation has also come under pressure. The overall participation rate and that of prime-age workers, or those age 25-54, edged lower in July.At the start of the year, the rate among prime-age workers had finally clawed its way back to levels more consistent with those prior to the 2007-2009 recession. That took over a decade and was driven by a key group — women.Around downturns, participation tends to decrease at least in part because of a lack of job opportunities. But for women in particular, the closing of childcare businesses, summer camps and uncertainty around school reopenings adds pressure on them while working from home, or after being laid off.Job losses may also have a deeper impact on Black workers, like in the last recession. While the White unemployment rate has already dropped by 5 percentage points since its pandemic high in April, the rate for Black Americans has declined by just 2.2 points since its pandemic high in May.The longer it takes the economy to recover, the worse it will be for wages as a weak jobs market reduces worker bargaining power. For the employed, that may mean a skipped raise or even a pay cut. For the jobless searching for a new position, an enormous pool of applicants may mean accepting less pay.©2020 Bloomberg L.P. More
The writer heads the China Development Forum
Anger triggered by the death of George Floyd continues to spread in the US. My experience as a Chinese researcher focused on economic and social development issues tells me that his killing by a Minneapolis police officer does not only reflect entrenched racism toward black people in the US. It is rather a symbol and a demonstration of the many difficulties a minority may encounter in America.
I took my first trip to the US in the 1980s, to a conference at the UN headquarters in New York. As part of the visit I attended a show performed by children from around the world. The first group on stage came from the Soviet Union. They all had light-coloured hair and skin and wore uniform clothing. The American children were different: they had black, white, yellow or brown skin, and were of different heights and weights.
I was impressed. The US was truly a melting pot of multiracial groups, where people worked and played together. No matter their skin colour or their religious background, they all believed they were at the same starting point and had a chance to achieve the “American dream”.
As head of a Chinese non-profit organisation, I continued to visit the US, researching and observing its efforts to promote social equity, from President Lyndon Johnson’s Great Society, to the national Head Start project for preschoolers and the Harlem Children’s Zone anti-poverty programme. My good friend Darren Walker, now president of the Ford Foundation, was a member of the first Head Start class in 1965.
The US pioneered advanced research on dealing with social inequality through early childhood development programmes. We in China, including my team, have learnt a great deal from Americans about early childhood interventions, and US-based scholars such as Amartya Sen and James Heckman have supported our efforts and provided valuable advice.
We in China are still fighting against social inequity. But I am shocked by what has happened in the US. Social rifts are widening. The US has one of the highest income inequality rates among OECD countries. America provides minorities with reduced opportunities for education, health, and political rights, and this disparity has persisted for decades.
Why has the US, a country with such advanced sciences and rich experience in dealing with social inequity, fallen so short? Based on my understanding of both the US and Chinese social systems, I believe the answer is that the US has not been able to capitalise on its good intentions, and has instead allowed some of its best innovations to founder.
First, interventions are costly. The Harlem project spends up to $20,000 annually per child, raised through charity. Only 36 per cent of eligible children aged 3-5 have access to Head Start, and just 11 per cent those aged 0-3 could attend an Early Head Start programme. Donations can pay for projects like the Harlem Children’s Zone but finding the money to promote a nationwide programme is far more challenging.
Second, the structure of American government limits its ability to intervene. A patchwork of federal, state and local authorities makes it difficult to provide services, such as home-based parenting guidance, to everyone who needs it. In China, almost every child has a birth and vaccination record which make it easy to locate the child’s village and determine his or her needs. In the US, volunteers sometimes have to go to hair salons and community centres to find young mothers and persuade them to participate in intervention projects.
Thirdly, Americans spend too much time fighting about and lobbying for government spending, and too little time carrying out and monitoring the programmes that are funded. Even when local governments and charities come up with innovative and feasible programmes, there is a lack of co-ordination at the federal level.
China and the US have a lot of room for co-operation. We both need to promote better social mobility for people living in underprivileged communities.
In the more than 30 years since I first visited New York, China has absorbed US’s best anti-poverty practices and adapted them to the Chinese setting. We are boosting income levels and living conditions as well educational equity. Yet the US seems to have little willingness to learn from other countries’ experiences. As Jared Diamond points out in Upheaval, Americans always insist that they are unique. And until now, they have been unable to agree that more needs to be done about income inequality.
Now two further challenges are arising. The US faces increased competition as developing economies including China, India and Brazil, with a total population of around 3bn, continue to modernise. And America itself is changing — in 20 to 30 years, the white population will no longer be the majority.
Proper handling of internal racial conflicts will be vital if the US is to sustain its founding values and cope with a world where other countries are rising. As a longtime student of the US, I am disappointed by its current failure to attend to social inequality at home while its leaders focus on provocations abroad. More
Xi Jinping’s Belt and Road Initiative — launched in 2013 with the prosaic ambition of funding infrastructure projects within and outside of China — has attracted two main critiques.
Some saw it as an attempt to build neocolonial influence across emerging markets as US power waned. Others saw the failure of specific projects as further evidence of economic over-reach, already widely associated with Chinese ghost towns and bridges to nowhere.
To Thomas Orlik, chief economist at Bloomberg Economics, these responses amount to an acute case of what he calls “sinophrenia” — a condition of modern commentary that combines the belief that China will imminently collapse with the belief that it is taking over the world. It may be the sign of a first-rate intelligence to hold two contradictory ideas in your mind at the same time. But Orlik argues that both views focus so intently on their own version of the future that they miss what exactly is happening in the present.
As a result, a lightly professorial “yes and no” tone pervades this wide-ranging and nuanced survey of China’s recent economic history which gently challenges the prevailing orthodoxy.
The book divides the country’s reform-driven history after the 1976 death of Mao Zedong into distinct cycles: the opening of the economy under Deng Xiaoping; the period from the crackdown after the 1989 Tiananmen demonstrations to the 1997 Asian financial crisis; and the changes associated with China’s 2001 entry into the World Trade Organization.
We are nearing the end of a fourth cycle, which began with infrastructure spending to counteract the effects of the 2008 crisis. The implication from these cycles is that China has demonstrated a continued ability to fend off crises, which casts doubt on fears of impending collapse.
© Oxford University Press Inc
Orlik partly explains this resilience as the “advantage of backwardness” — China’s economy in the mid-20th century dramatically lagged behind many other large nations and had more room to rise. He also suggests the country’s policymakers are “more imaginative and flexible than their critics give them credit for”. They have “faced down” the Asian financial crisis and the crisis of 2008, stopped equity routs, and prevented capital outflows.
There is no shortage of pending challenges: an enriched middle class that may demand political liberalisation; the need to reform the state’s control of economic activity; runaway real estate prices. But this is a Leninist state, that can shift policy fast without meddlesome factional feuding (at least, without it in the open).
Orlik outlines several familiar ways in which China could continue to stave off crisis, including transitions to a more dynamic private sector, or to more service-driven economy, or by reducing export-dependency. More importantly, he develops detailed arguments that these transitions, among others, are more fully under way than is often acknowledged.
The strength of this book — and one that is even more valuable as US-China tensions rise — is its capacity to resist stridently ideological interpretations of the Chinese model. It is instead a history of crisis and response, in which policymakers are often seen as learning from earlier experiences. But the seeming clarity of China’s economic lessons may be a product of constraints on information and intellectual freedom that Orlik points to elsewhere. More deeply debated histories tend to divulge less clear-cut truths.
Moreover, the state’s control complicates the ability to identify economic trouble, such as rising unemployment, in the first place. If history is built only on crises that are able to smash through information constraints, the bar may be too high.
Lastly, the book provides strong evidence of the Chinese government’s competence and flexibility when faced with challenges. But it is not necessarily straightforward to conclude, as implied through learning from history, that the main goal of the individuals running the country is stability.
After all, the global history of crises has already taught us that it is extraordinarily difficult to map out the incentives built into the bureaucracy of a single investment bank, let alone the Chinese Communist party.
Thomas Hale is the FT’s Shanghai correspondent
China: The Bubble That Never Pops by Thomas Orlik, Oxford, $29.95, 240 pp
When 21-year-old Wang Laichun walked through the gates of a connector factory owned by Taiwan’s Foxconn in 1988, she was just another migrant worker. Little did she — or her employer — know that 32 years later, she would turn into a serious challenger for Foxconn, the company which has dominated the production of tech gadgets for decades.
In July, Ms Wang’s company Luxshare said it would buy two China-based subsidiaries of Foxconn rival Wistron, including one iPhone plant, in a Rmb3.3bn ($474m) deal that puts assembly of the iPhone, the centrepiece of global technology manufacturing, in the hands of a Chinese company for the first time.
As the US is in an escalating stand-off with China and seeks to cut Chinese companies out of the global technology industry, it could also mark the kick-off for partitioning the iPhone supply chain.
“Amid this trade war and tech war, this is a natural step for Apple,” said Alex Ng, an analyst at China Merchant Bank International. “We will eventually see one system for China, and another for non-China.”
Executives at Taiwanese electronics manufacturing services (EMS) companies and analysts said giving Luxshare a systemic role in iPhone production was a good risk management strategy for Apple. With no end in sight to tensions between Beijing and Washington, China is less likely to retaliate against US companies that use Chinese companies for manufacturing, because it would hurt its own economy, the people said.
“One driver behind the rise of Chinese EMS companies is that vendors are trying to achieve a certain localisation of the supply chain,” said Kyna Wong, an analyst at Credit Suisse.
Industry experts said Apple could let Foxconn, Pegatron and Wistron, the Taiwanese EMS companies that have controlled iPhone manufacturing so far, concentrate on expanding capacity outside China for serving the US and other western markets, while developing Luxshare into the leading assembler of iPhones for the Chinese market.
Few doubt Luxshare is up to the task. Ms Wang’s company has conquered key parts of the iPhone supply chain over the past few years. Although its 2019 revenues were only 5 per cent of Foxconn’s, the Chinese company’s market capitalisation soared past that of its Taiwanese rival earlier this year.
After 11 years working at Foxconn and Cheng Uei, the electronics manufacturing group run by the brother of Foxconn’s founder Terry Gou, Ms Wang set up her own business in 1999, working with her brother Wang Laisheng to supply connectors to Foxconn. “They were our subcontractor,” said a Foxconn executive.
Soon Luxshare also started selling to other electronics contract manufacturers including Flextronics, Cheng Uei and Lite-On, and established very close ties with some. Cheng Uei even invested Rmb40m in Luxshare before its 2010 initial public offering and acquired 25 per cent stakes each in two subsidiaries — a tie-up the Taiwanese company ended in 2018.
Luxshare declined requests for an interview and a factory visit. But people who have worked with the company said it resembled Foxconn in many respects. “Some of Chairman Gou’s famous sayings were hanging on the walls, and her management style was also really similar to his,” said the Foxconn executive, pointing to an emphasis on discipline and execution.
But Ms Wang has gone much further in her emulation of Mr Gou. After taking Luxshare public in 2010, she went on an acquisition spree, buying a pole position in the iPhone supply chain component by component — just like Foxconn had done.
After investing in Chinese and Hong Kong-backed cable and connector makers, it proceeded with tie-ups with Taiwanese earphone maker Merry Electronics and Lite-On, a producer of camera modules for smartphones also from Taiwan.
The acquisitions helped make Luxshare a key supplier for AirPods, Apple’s earbuds.
According to industry experts, Tim Cook, Apple’s chief executive, has been a crucial factor in Luxshare’s meteoric rise. “He supported Luxshare in key moments, and leaned on Foxconn to help cultivate them,” said Kirk Yang, a private equity investor who covered Foxconn for more than a decade as an investment banking analyst.
Pointing to Mr Cook’s past job as a procurement manager and his key role in building Apple’s supply chain with contract manufacturers, Mr Yang said: “As a procurement manager, he wants more than one supplier.”
Luxshare has in the past quickly raised the efficiency and profitability of its newly acquired assets. When it starts running iPhone assembly at Wistron’s China plant, those famed execution skills will be crucial. For Wistron, the smallest among Apple’s three iPhone assemblers with only about a 10 per cent share of orders, the business has become a drag on profitability.
#techFT brings you news, comment and analysis on the big companies, technologies and issues shaping this fastest moving of sectors from specialists based around the world. Click here to get #techFT in your inbox.
Luxshare’s entry is expected to result in further squeezing already razor-thin margins in the assembly business as it sets about conquering a bigger share from Foxconn and Pegatron. Don Yew, an analyst at Morningstar, said that with iPhone sales growth increasingly driven by lower-end models, Apple needed to cut manufacturing cost. “They do that by introducing new players, Chinese players which will compete on price,” he said.
Industry insiders said Luxshare could grab 20 per cent of iPhone orders over time — roughly in line with China’s share of the global iPhone market.
But while this will eat into the Taiwanese incumbents’ market share, it could help speed up their efforts to reduce their exposure to China and instead expand in south-east Asia and India.
People close to Luxshare claimed Foxconn welcomed the company’s entry into iPhone assembly. An executive at Luxshare said neither Foxconn nor another contract manufacturer had “a vested interest to lose”. More
The Southeast Asian nation, one of the fastest growing economies in Asia before the pandemic, suffered its first recession in 29 years as strict coronavirus lockdown measures ground economic activity to a halt in the second quarter.”This time, I do not see a strong reason why we should have another policy cut,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno told ANC news channel.No more rate cuts for the entire year is “a possibility”, he added.The central bank’s policy-making body next meets on Aug. 20 to set key rates. More
WASHINGTON/Morristown, NJ (Reuters) – U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Sunday said they were open to restarting COVID-19 aid talks, after weeks of failed negotiations prompted President Donald Trump to take executive actions that Democrats argued would do little to ease Americans’ financial distress.Discussions over a fifth bill to address the impact of the coronavirus pandemic fell apart on Friday, a week after the expiration of a critical boost in unemployment assistance and eviction protections, exposing people to a wave of economic pain as infections continue to rise across the country.Trump on Saturday sought to take matters into his own hands, signing executive orders and memorandums aimed at unemployment benefits, evictions, student loans and payroll taxes.Trump told reporters in New Jersey before returning to Washington on Sunday that his suspension of the collection of the payroll tax could be made permanent. He said doing so would have no impact on Social Security because reimbursement would be made through the general fund.Trump, noting that Democrats want to resume stimulus discussions, said the White House would be willing to talk to them again “if it’s not a waste of time.”Joe Biden, the presumptive Democratic presidential nominee, called Trump’s orders a “series of half-baked measures” and accused him of putting Social Security, the government pension plan for the elderly, “at grave risk” by delaying the collection of payroll taxes that pay for the program.Trump’s move came as the number of U.S. cases of COVID-19 rose past 5 million. More than 160,000 Americans have died. Trump’s orders also raised questions about the legality of bypassing Congress’ constitutional powers to tax and spend.On Sunday, both Pelosi and Mnuchin appeared willing to consider a narrower deal that would extend some aid until the end of the year, and then revisit the need for more federal assistance in January. That would come after November’s election, which could rebalance power in Washington.”Let’s pass legislation on things that we agree on,” Mnuchin told Fox News in an interview. “We don’t have to get everything done at once. … What we should do is get things done for the American public now, come back for another bill afterwards.”Pelosi dismissed Trump’s orders as unconstitutional and “illusions” that would not quickly or directly help Americans. She said separately to “Fox News Sunday” that a deal between congressional Democrats and the White House was essential.”Right now, we need to come to agreement,” she said, adding that Democrats could shorten the length of time aid is provided in order to bring the bill’s costs down closer to the Trump administration’s proposal.”We could talk about how long our provisions would be in effect, so we can take things down — instead of the end of September of next year, a shorter period of time — and we’ll revisit all of it next year anyway,” said Pelosi, whose fellow Democrats control the U.S. House of Representatives.Mnuchin appeared open to consider the idea, telling Fox: “Anytime they have a new proposal, I am willing to listen.”$2 TRILLION GAPThe House passed a $3.4 trillion coronavirus support package in May that the Republican-led Senate ignored for weeks before putting forward a $1 trillion counteroffer.Democrats, pushing hard to keep a $600 per week unemployment benefit, which is a supplement to state jobless payments, and deliver more funds to cash-strapped states and cities battered by the pandemic, had offered to meet Republicans halfway to close the $2 trillion gap — a move the White House rejected.On Sunday, Mnuchin urged lawmakers to accept the money the administration was willing to lay out now to help schools reopen, boost local coffers and help the jobless, even if it fell short of Democrats’ goals.While it remained unclear whether there would be formal legal challenges to Trump’s orders, some legal and tax experts said his actions took few concrete steps to provide immediate relief.”It’s basically nothing,” Josh Blackman, a professor at the South Texas College of Law, said of Trump’s move directing his Cabinet to look at the issue of evictions.Trump’s memo on unemployment aid did not extend benefits under the current system, but instead authorized a separate system that would have to be paid for in part by the states, which are already struggling to pay benefits amid a wave joblessness not seen since the Great Depression.White House economic adviser Larry Kudlow told CNN on Sunday it was unclear how states would come up with the additional money, while Mnuchin on Fox said, “They can either take that out of the money we’ve already given them or the president can waive that.”Democratic New York Governor Andrew Cuomo, vice chair of the National Governors Association, said states cannot afford to pay 25% of unemployment costs as outlined by the president. “It’s simply impossible,” Cuomo wrote on Twitter.Trump’s memo calling on companies to defer withholding payroll taxes changed the deadline for when such taxes were due but did not eliminate them. It would rely on employers’ compliance and does not help Americans who are out of work.A fourth memo allowed borrowers to defer payments on student loans.Pelosi declined to say whether Democrats would challenge the legality of Trump’s actions in court. More
Evans said it was up to U.S. lawmakers to protect small businesses and vulnerable communities with measures that ensure they can continue to pay their rent and buy food as long as the virus was not under control.”I think that public confidence is really important and another support package is really incredibly important,” Evans said on CBS’s Face the Nation program.He also said that the most pessimistic economic projections involved not supporting state and local governments, which in turn would have to implement drastic cuts to support some of the federal aid measures.Evans’ comments come after U.S. lawmakers failed to strike an agreement on a second aid package after weeks of negotiations, leaving tens of millions of unemployed Americans without direct federal support.U.S. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin on Sunday said they were open to restarting COVID-19 aid talks.U.S. President Donald Trump on Saturday sought to take matters into his own hands, signing executive orders and memorandums aimed at unemployment benefits, evictions, student loans and payroll taxes. Some of his orders raised questions about the legality of bypassing Congress’ constitutional powers to tax and spend.Under Trump’s plan, unemployment aid would have to be partially funded by U.S. states, which have already struggled to pay benefits amid a wave joblessness not seen since the Great Depression. More