Economy

The government will fend off risks for high-quality property firms and reduce the burden of interest payments for local governments, the outgoing premier said in his work report to the opening of the annual meeting of China’s parliament.”We need to deepen reform of the financial system, improve financial regulation, and see that all those involved assume their full responsibilities to guard against regional and systemic financial risks,” the premier said. China has stepped up its efforts to cope with financial risks as the economy grew by just 3% last year, one of its worst showings in decades. The economy was squeezed by three years of COVID restrictions, a crisis in its property sector, a crackdown on private enterprise and weakening demand for Chinese exports.The premier also gave greater emphasis to institutional reform compared with last year. This came after state media reports on Tuesday that President Xi Jinping plans for an “intensive” and “wide-ranging” re-organisation of state-owned enterprises (SOEs) and Communist Party entities. Xi, who secured a precedent-breaking third leadership term in October, is planning to resurrect the Central Financial Work Commission, two people briefed on the matter told Reuters. That signals Xi’s push to increase oversight of the financial sector. To promote economic growth, China’s top planning agency also said on Sunday the country will advance reforms in key areas and continue to open up to foreign investment.     “We will carry out critical reform tasks to remove institutional barriers that stand in the way of promoting development,” the National Development and Reform Commission (NDRC) said.     China will formulate and implement a plan for another round of state-owned enterprise reform, and move faster to help Chinese companies to become “world-class”, the NDRC said.     China seeks to “create a positive environment in which SOEs show great initiative, private enterprises are not afraid to blaze new trails, and overseas companies feel free to make investment,” it said.     The NDRC also said China will make better use of foreign investment and accelerate China’s transformation into a “powerful trading nation”.   More

China has set its 2023 growth target for its economy at around 5%, according to a government work report released at the opening of the country’s annual meeting of parliament on Sunday. That compares with its 2022 target of around 5.5%. The Chinese economy expanded 3% last year, significantly missing the 2022 target and marking one of the slowest rates of growth in almost half a century. A 2023 government budget deficit target of 3.0% of gross domestic product has been set, according to the report, widening from a deficit goal of around 2.8% last year.In the report, China has set a 2023 target of around 3% for its Consumer Price Index (CPI), unchanged from its 2022 target. The CPI rose 2.0% last year. More

Last week Tokyo was teeming with fund managers from around the world eager to establish how Japan will fare as its biggest trading partners square up for a new cold war. The Daiwa Investment Conference provided the venue and the bento lunch boxes; robots, via their human advocates, provided the most convincing part of the answer. Geopolitics, runs an argument that particularly favours a cohort of Japanese companies, is increasingly colliding with labour shortages. If we really are entering a phase where the manufacturing arrangements of companies in the US, China, Japan and elsewhere (South Korea and Taiwan in particular) are impelled to relocate by a new set of deglobalised carrots and sticks, then automation will be everyone’s best bet when it comes to deglobalised donkey-work. To a significant extent, their slide into this role is already under way: factory automation has always looked like the future, but more so now that cold war-style tensions are forcing a grand reset of manufacturing. Even before the pandemic, Beijing had been deploying the rhetoric of Made in China 2025 to cover a broad range of efforts to secure greater self-sufficiency in tech and specialist manufacturing. The impetus of that campaign has been accelerated by Covid-19, emerging with a much sharper nationalistic edge.As relations between the world’s two biggest economies deteriorated, the US was also free to harden in favour of decoupling. The passage of the nakedly dirigiste Inflation Reduction Act and the Chips and Science Act last year meant that the US and China both entered 2023 with clear and oppositional industrial policies. Japan, whose industrial policy in the 1970s and 80s was both bogeyman and beacon to the world, has been left looking the least interventionist of the trio and, perhaps, best placed to play chief roboteer to the others.All of this has enshrined concepts such as “reshoring”, “nearshoring” and “friend-shoring” as part of the new geopolitical toolkit. However deep the scepticism within the corporate world, the consensus for now is to play along, especially when there are generous incentives to move manufacturing bases and to create shorter and less globalised supply chains.No one is sure how long this period will last, and it may be safest to assume that it is permanent. But as long as geopolitics are in the driving seat, the economic calculations that previously shaped global manufacturing will merely be passengers. Specifically, the pressure on companies to build multiple supply chains and reduce dependency on China creates new constraints on the ability to chase cheap labour wherever it is available. In many cases, moving manufacturing to the US or Japan will explicitly put it in places where labour and skills shortages are the most acute. The same dynamics are true in China, where the labour supply and demand gap has been widening steadily.This, of course, is where robots and factory automation jump in. In the case of brokers trying to sell Japan, it re-enforces the “buy” recommendations on (among many others) robot maker Fanuc and factory automation supremo Keyence. The latter is now the country’s second most valuable company behind Toyota and arguably the one that more clearly represents Japan’s industrial cutting edge. Since last year, the export volumes of industrial robots from Japan to the US have been rising at an unprecedented rate, with shipments in October and December at record highs. Research by the Association for Advancing Automation found robot sales to North American companies at a record $2.38bn in 2022, up 18 per cent from the year before.Critically, says Morten Paulsen, a robotics analyst at CLSA, the composition of those exports is changing. The US auto industry remains the dominant source of robot demand but the balance is now shifting towards other industries including semiconductors, food and metals production.The idea that the politics of deglobalisation will continue to favour the robots has also produced some eye-catching forecasts. A recent report by Grand View Research found that the global market for machine vision — the cameras, sensors and readers that empower robots and other automation technology — reached $16.9bn last year. Grand View forecast that the industry will exceed $40bn by the end of the decade. Goldman Sachs recently hit clients with a weighty report outlining the investment case for humanoid robots. In its “blue sky” scenario, the US labour shortage gap could be 126 per cent filled by 2030 if humanoids can be made to toil for a solid 20 hours a day. That is a mere trifle compared with the workload of brokers currently attempting to sell investors on the great robot [email protected] More

The report surfaced as President Joe Biden’s administration weighs restrictions on outbound investments, and the president prepares to release his proposed budget for the next fiscal year that starts in October. U.S. lawmakers have been pushing the administration to boost oversight of investments by U.S. companies and individuals in other countries, particularly China, citing concerns over national security and supply chain issues, and have urged the president to issue an executive order.Congress sought the analysis from the Treasury Department, which would lead any such program’s implementation, as well as a review by the U.S. Commerce Department, which would coordinate with Treasury. In its analysis, Treasury said it would need about $10 million to set up the program for fiscal year 2023 and that it anticipated Biden would ask for additional resources in his proposal, scheduled to be released on Thursday.While the president can request resources, it is up to Congress to pass any funding into law.”I am excited we should expect to see support for outbound investment review reflected in the president’s … budget,” Rosa DeLauro, the ranking Democrat on the U.S. House of Representatives Appropriations Committee, said in a statement. She added that she would seek to support any executive action on outbound investment through legislation.The Treasury report did not cite China specifically.”As currently contemplated, the program would … focus on investments that could result in the advancement of military and dual-use technologies by countries of concern. The investments that would be subject to the program are of a nature that they are not presently captured by export controls, sanctions, or other related authorities,” it said. Commerce Secretary Gina Raimondo, speaking at a Bloomberg News event on Thursday, said any ultimate restrictions on U.S. investors should not “be overly broad,” and added that the department was considering a “pilot program” on outbound investment controls.Asked by Reuters after the event how long it would take to put restrictions in place, Raimondo said: “months not years for sure. We’re on it every day working it. We’re talking to industry, talking to stakeholders, talking to Treasury whose going to have to administer this.”The Commerce Department, in a separate report to Congress seen by Reuters on Saturday, said it would need adequate resources to take action but did not cite a specific amount, adding that it expected Biden’s budget to seek additional funding. More

Though inflation by the Fed’s preferred measure has fallen from its mid-2022 highs of around 7% to 5.4% in January, the latest monthly reading showed price pressures gaining at their fastest pace in seven months. That’s despite what last year was the Fed’s most aggressive set of interest rate hikes in 40 years as it took its benchmark rate from near zero in March to what is now 4.5%-4.75%. The acceleration of inflation in January “suggests that the disinflation momentum we need is far from certain,” Daly said in remarks prepared for delivery to the Princeton Economic Policy Symposium. “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”Coming from Daly, whose views are typically in line with Fed leadership, the remarks may add to expectations that Fed policymakers will lift rates higher in coming months than the 5.1% that most of them had penciled in December. Fed policymakers will publish fresh projections for policy and the economy at the close of their upcoming March 21-22 meeting. Some traders are even betting the Fed will deliver a half-point hike in March, rather than the quarter-of-a-percentage point rate hike seen as most likely – a reversion of sorts to the super-aggressive stance the U.S. central bank pursued much of last year. Daly did not use her prepared remarks to offer a view on how big March’s rate hike ought to be, or exactly how high rates should go. Still, she painted a challenging picture for the Fed, not only of stubbornly high inflation now, but of the range of new pressures that could feed into high inflation for some time to come, including corporate efforts to relocate factory production back to the U.S. from abroad, and the ongoing labor shortage at home. She also called out the potential for additional price pressures as firms pass on to consumers the cost of transitioning to lower-carbon energy sources in the fight against climate change.And she said that she was particularly focused on the possibility – so far not in evidence – that an inflationary psychology could take hold in the American mind and make the Fed’s inflation fight even harder. “Achieving our mandated goals takes time and a broader view,” she said. “As policymakers, we have to respond to an economy that is evolving in real time and prepare for what the economy will look like in the future.” More

Federal Reserve officials are converging around the need to keep US interest rates high for longer, reflecting concern about recent hotter-than-expected inflation data and worries about global economic trends that could fuel price pressures.“In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will probably be necessary,” Mary Daly, president of the San Francisco Fed, said on Saturday in remarks at Princeton University. “Restoring price stability is our mandate and it is what the American people expect. So, the FOMC remains resolute in achieving this goal,” she added. Daly’s remarks follow a series of hawkish comments from other senior officials at the US central bank, reacting to economic indicators showing that US inflation is not subsiding as rapidly as hoped. The US labour market also remains remarkably strong. They come ahead of a pivotal month for Fed policy and economic data. Next week, Jay Powell, the Fed chair, will testify before Congress in comments that will set the stage for a highly anticipated Fed policy meeting on March 21-22 including new economic projections and interest rate forecasts.In between, new data on inflation and the US jobs market could determine whether the Fed presses ahead with a new 25 basis point interest rate increase, as has long been expected, or is forced to be more aggressive and move interest rates up by 50 basis points.

“I think my colleagues agree with me that the risk of undertightening is greater than the risk of overtightening,” Neel Kashkari, president of the Minneapolis Fed, said this week at an event in South Dakota. He added that he was “open-minded” about whether to increase rates by 25 or 50 basis points at the next meeting. Christopher Waller, a Fed governor, said on Thursday that “recent data suggest that consumer spending isn’t slowing that much, that the labour market continues to run unsustainably hot, and that inflation is not coming down as fast as I had thought”. Waller added that he hoped future data showed signs of “moderation” and “progress” in the Fed’s goal of cooling the economy, but “wishful thinking is not a substitute for hard evidence, in the form of economic data” and “we cannot risk a revival of inflation”. In her Princeton speech, Daly raised the possibility that a number of structural factors in the US and global economies may have shifted in recent years to create a far more inflationary environment in the post-pandemic world. Over the past decades, a combination of globalisation and technological changes kept prices and wages down, as policymakers struggled to boost employment and get inflation up to the Fed’s preferred 2 per cent target. But Daly suggested that was changing. She said one trend to watch was a decline in “global price competition”. Another was the “domestic labour shortage”, as fewer Americans seek to work and immigration remains subdued. A third was the transition to a “greener economy, which will require investment in new processes and infrastructure”, with companies looking to pass costs to consumers. Daly also warned of the danger that inflation expectations, which have remained under control, could also start to move higher. “If the old dynamics are eclipsed by other, newer influences and the pressures on inflation start pushing upward instead of downward, then policy will probably need to do more,” she said.Speaking to reporters after the speech, Daly said it was too early to discuss the specifics of any policy adjustment at the next meeting, saying she would be looking for “additional information” from the data. More

HONG KONG (Reuters) -Bank of America and Citigroup (NYSE:C) have cut some investment banking jobs in Asia, people familiar with the matter told Reuters, joining global peers in paring headcount as China dealmaking slows.Bank of America (NYSE:BAC) (BofA), which is shrinking its investment banking business globally, did away with around half a dozen Hong Kong-based jobs on Thursday, two people familiar with matter said.David Lam, a managing director in BofA’s Greater China equity capital markets team, and Kevin Yang, a managing director in the bank’s China investment banking team were among those laid off, they said. Lam confirmed his departure when contacted by Reuters. Kevin Yang could not immediately be reached for comment on Saturday.Citi on Thursday trimmed four jobs from its China investment banking team, said one of the two people and a separate person. The Wall Street bank is laying off less than 1% of its workforce globally, people familiar with the matter have said.BofA and Citi both declined to comment on layoffs involving investment bankers in Asia. All sources were not authorised to speak to media and declined to be named.The number of the banks’ remaining China-focused investment bankers could not immediately be learned.After record dealmaking activity in 2021, M&A volumes and stock floats globally tumbled last year as volatility in capital markets and geopolitical tensions took their toll.China-related deals were particularly hard hit as harsh COVID-19 curbs, lifted only late in the year, hammered the economy.Other major banks that have trimmed Asia headcount include Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).JPMorgan (NYSE:JPM) has also cut around 20 investment banking jobs, mostly mid-level bankers focused on China deals, according to two separate sources. Bloomberg reported on Feb. 21 that the bank was laying off 30 bankers in Asia.”We regularly review our business needs and a small number of employees across Asia Pacific have been affected,” a JPMorgan spokesperson said, declining to comment on the number of layoffs and teams affected. Nomura Holdings (NYSE:NMR) Inc has cut 18 Asian banking jobs, most of them China-focused investment banking roles, sources have said. More

Investors’ bets on where UK interest rates will peak have shot higher over the past month, prompting an attempt by Bank of England governor Andrew Bailey to stop markets getting carried away.Futures markets are currently pricing in a jump in the BoE’s interest rate to just above 4.6 per cent by December. At the start of February, rates were expected to peak at around the current level of 4 per cent and fall slightly by the end of the year as investors worried that the UK was heading into a recession.That is despite a more mixed bag of UK economic data in recent weeks. Although headline inflation remains in double digits, domestic core inflation — which strips out volatile food and energy prices — declined more than forecast to 5.8 per cent in January from 6.3 per cent the previous month. Business surveys for February, by contrast, showed a faster than expected pick-up in activity. Bailey pushed back this week against the rapid shift in expectations, arguing that the central bank had “moved away” from a “presumption” that more rate increases were required. His comments led to a small decline in rate expectations, but traders are nevertheless betting that the BoE has become far more hawkish than it was a month ago.Some analysts argue that markets are overdoing bets that UK rates will follow those in the US sharply higher.“The consensus view appears to be that the BoE will largely mirror the US Federal Reserve over the next few months”, said Samuel Tombs, chief UK economist at Pantheon Economics. “It often has been a mistake in the past, however, to assume the [BoE] will follow the Fed.” February’s rebound in UK rate expectations came after a blockbuster US jobs report at the start of February, which shattered the impression of slowing economic activity and hopes of an imminent end to the Fed’s aggressive monetary tightening campaign. Traders spent the next month ramping up their expectations for where US rates might peak. Bailey’s comments “looked positively dovish”, said analysts at Rabobank, and stood in stark contrast with those from officials at the BoE’s peers in Europe and the US, where headline inflation is lower but proving stickier than previously forecast. The case for expecting the BoE to stop raising rates soon, and before the Fed, “remains strong”, Tombs said. Rate changes have a “proportionally bigger” impact on activity in the UK than they do in the US, since most UK corporate bank loans are floating rather than fixed rate, and “almost all” UK mortgages have to be refinanced within five years. These and other differences explain why the Fed last month warned “ongoing increases” would be needed to bring down inflation while the BoE suggested UK rates may have peaked. Bailey’s comments this week “make clear” the central bank’s monetary policy committee “is placing more emphasis on the substantial tightening already delivered”, Tombs said, though he did not completely rule out the possibility of a further quarter percentage point rate rise later this year. “In the US, it is rare for Fed officials to leave markets second-guessing its next policy decision,” Tombs said. “But the MPC has a penchant for drama.” More