Economy

China’s exports contracted in October for the first time since the early stages of the Covid-19 pandemic, a sign of mounting pressure on an economy still gripped by strict antivirus measures.Exports in dollar terms fell 0.3 per cent year on year last month, official data showed on Monday, compared with an economists’ forecast of 4.5 per cent growth and a 5.7 per cent gain in September. The figure last fell in May 2020.China’s trade has supported its economy throughout the pandemic. Its exports rocketed in 2020 and 2021 as global markets shifted to buying goods rather than services.But the latest data highlight the country’s exposure to a global slowdown as other big economies raise interest rates to tackle higher inflation. Unlike China, most countries have largely removed Covid restrictions.“Consumer preferences overseas have changed, and the decline in goods consumption undermines the demand for China’s exports,” said Hao Zhou, chief economist at Guotai Junan International, an investment bank.As policy tightens, “the risk of economic recession overseas will rise, considerably weighing on global demand”, he added.The weaker-than-expected trade data add to domestic pressures on China’s economy as policymakers struggle to contain a nationwide property slump and the damping impact of its strict zero-Covid policy. The strategy aims to rapidly eliminate all coronavirus outbreaks through mass testing, lockdowns and quarantine for close contacts of positive cases.In the three months to the end of September, China’s economy grew just 3.9 per cent year on year, below a 5.5 per cent target that was already the lowest in three decades. Lockdowns of big cities to contain small outbreaks have weighed on consumer demand, with retail sales adding just 2.5 per cent in September.

Equities in Hong Kong and mainland China have gyrated in the past week following rumours that the zero-Covid policy would be eased. But Beijing quashed the rumours over the weekend. And at the Communist party’s congress last month, zero-Covid was praised and no timetable was offered for any relaxation of the rules.Last month, imports also fell for the first time in more than two years, dropping 0.7 per cent in dollar terms year on year.Zichun Huang, an economist at Capital Economics, noted that a third of China’s imports were in turn used for its exports. “We anticipate further weakness,” he said.China on Friday launched its fifth International Import Expo in Shanghai, a vast conference that hosts thousands of foreign and domestic companies. President Xi Jinping, in remarks delivered by video link, emphasised that China remained committed to opening up to the outside world. More

The writer is chair of Rockefeller International Economists tend to think in small incremental steps, missing big turns in the story, which helps explain why their consensus view had not forecast a single US recession since records began in 1970 — until now. For the first time, economists as a group not only expect a recession in America in the next year, but give it a very high probability, more than 60 per cent. Given their record, it’s worth asking whether the consensus is, in fact, unlikely. With inflation at four-decade highs and central banks raising rates aggressively and in a way that has seldom been so well telegraphed, a recession does seem inevitable. Still, as John Maynard Keynes once warned, “the inevitable never happens and the unexpected constantly occurs.” The case for the unexpected scenario — no recession in the coming months — would start with inflation declining rapidly. That would allow the Fed to back off from further tightening. Just when the consensus has come to accept that inflation will be higher for longer, and not “transitory” as previously assumed, the easing of supply chain bottlenecks could lower inflation faster than expected. The signs include cargo shipping prices plummeting, delays at ports shortening and the Fed’s “supply chain pressure index” coming down sharply. China’s economy is in a funk and is exporting slower inflation to the rest of the world. Goods inflation is decelerating with prices for everything from used cars to energy now in decline. Many still assume that because an unusually tight labour market is driving up wages at a rapid pace, the Fed will have to act as it did in the early 1980s under Paul Volcker — raising rates aggressively and averting an inflationary wage-price spiral by inducing a recession. But for now America’s economy still seems far away from recession territory. Weak growth in the first half of this year vanished in the third quarter, when US GDP grew at an annual rate of 2.6 per cent. Disposable incomes are keeping pace with inflation, encouraging healthy growth in consumer spending. Spending on travel is stronger now than on the eve of the pandemic. The private sector is spending too, with corporate capital expenditure growing much faster than business revenues and earnings. The unemployment rate also remains very low at 3.7 per cent and has barely budged despite all the Fed tightening. None of this is what one would expect on the eve of a recession. The tight labour market does push up wage inflation but some analysts are holding out the hope that with job openings coming off significantly from the all-time highs of March this year, wage growth too will cool shortly. The public expects inflation to fall back into the low single digits, not remain stuck near double digits, as was the case in the 1980s. So today there is less pressures on the Fed to keep raising rates. Lower inflation would further boost the confidence of American consumers, who are in unusually strong financial shape. Bank deposits swelled during the pandemic, and $2.5tn of that cash is still in the banks. Personal net worth is still about $25tn higher than before the pandemic. The debts that imploded in the Great Recession of 2007-2009 have largely vanished: today nearly 70 per cent of home buyers have FICO credit scores in the top tier — over 760 — compared with 20 per cent before the crisis. While we have been conditioned to expect economic shocks to be negative, there is always the possibility of a “bluebird” event bringing unexpected joy. A warm winter or peace in Ukraine would lower energy bills, helping to slow inflation and raise economic growth. This is hardly the most likely scenario and compared with economists, who typically call recessions months after they have begun, markets have a good forecasting record. Though markets can send false signals, showing jitters before downturns that never arrive, they also anticipate real recessions consistently. Going back to the second world war, the US stock market has typically fallen at least 20 per cent and bond traders have always pushed short-term yields above long-term yields in the months before a recession. Both of those market signals are warning of a recession now, so to picture alternate outcomes may be magical thinking. Still, when the consensus is so strong, anchored by economists whose recession forecasting record is so poor, it is hard not to think of that quote from Keynes. The unexpected is a constant in markets and the economy, which suggests we should at least entertain the possibility that a recession is not inevitable. More

British manufacturers have warned that proposed UK anti-dumping duties on Chinese aluminium extrusions are too low and threaten to cause a flood of imports, factory closures and job losses. In its first new post-Brexit investigation, the Trade Remedies Authority, an independent government advisory body, has recommended setting duties on aluminium extrusions from a group of three large Chinese exporters that collectively account for 70 per cent of the country’s exports to the UK at 10.1 per cent. Aluminium extruding is a process through which alloyed material is heated and moulded into shapes that have uses in the automotive, infrastructure and construction sectors. The EU has set tariffs on the products at 22.1 per cent, while the US has put them at 33.3 per cent.Hydro Aluminium UK, the UK’s largest producer of aluminium extrusions, accounting for a quarter of the market, has warned that if the TRA’s recommendation is adopted it would be forced to close its factories, which employ close to 1,000 people and supply London’s electric black cabs and Jaguar Land Rover.“It’s not just a few percentage points difference, it’s half of the EU level. The duties will be so low it will simply be absorbed by the Chinese exporters,” warned Roger Ablett, managing director of extrusions at Hydro Aluminium UK.Chinese aluminium producers receive substantial government support, with a 2019 OECD report showing that 85 per cent of subsidies in the global aluminium industry went to five Chinese companies. Ablett warned that the lower UK tariffs on top of a steep rise in energy bills would result in factory closures, continuing a trend of consolidation and production shutdowns in the country.“If these final intended measures are at the level they are at the moment then it’s obvious what will happen — that history of closure will continue,” he said. “It could be a complete wipeout.”

He added that closures could also leave the UK re-exporting the Chinese extrusions to EU countries, putting Britain at risk of a trade dispute with Brussels. Small UK-based producers that supply another 25 per cent of the country’s approximate 190,000 tonne of demand for aluminium extrusions say they could also be at risk under the proposed duty.Roger Hartshorn, managing director of Garner Aluminium Extrusions, which employs 155 people, said his firm would struggle to compete with Chinese producers unless the anti-dumping tariffs were raised to match other nations.“In reality if they take away the boundaries or open up the floodgates, we will be left exposed and the UK will lose its internal supply chain for aluminium products,” he warned.The TRA has had a faltering start since it was established in 2021. It was forced to change its position on anti-dumping duties on steel from China in September after provoking outcry from the domestic industry after initially suggesting measures on imports should be lifted.The authority began its investigation into the Chinese companies last year and concluded in May that it had “found clear evidence of dumping and injury” for UK producers. Its recommended tariffs for aluminium extrusions range from 7.3 per cent to 29.1 per cent depending on the producer. A TRA spokesperson said its recommendations were based on evidence related to “the UK market only”, which differs from the EU and US in several aspects. They added that provisional measures had been put in place in the meantime to prevent further damage to British producers. A final recommendation will be submitted to the secretary of state for international trade in the coming weeks.

Video: The Brexit effect: how leaving the EU hit the UK More

China ordered an industrial park that houses an iPhone factory belonging to Foxconn to enter a seven-day lockdown on Wednesday, in a move set to intensify pressure on the Apple supplier as it scrambles to quell worker discontent at the base.The Zhengzhou Airport Economy Zone in central China said it would impose “silent management” measures with immediate effect, including barring all residents from going out and only allowing approved vehicles on roads within that area.Foxconn, the world’s largest contract electronics maker, said in a statement that the provincial government in Henan, where Zhengzhou is located, “has made it clear that it will, as always, fully support Foxconn in Henan”. “Foxconn is now working with the government in concerted effort to stamp out the pandemic and resume production to its full capacity as quickly as possible.”In a statement released at the same time, Apple said it expects lower iPhone 14 Pro and iPhone Pro Max shipments than previously anticipated as COVID-19 restrictions temporarily disrupt production in Zhengzhou. Apple’s new iPhone 14 went on sale in September.Foxconn, formally Hon Hai Precision Industry Co Ltd, is Apple’s biggest iPhone maker, accounting for 70% of iPhone shipments globally. It makes most of the phones at the Zhengzhou plant where it employs about 200,000 people, though it has other smaller production sites in India and southern China.Having previously guided for “cautious optimism” in the fourth quarter, Foxconn said it will “revise down” its outlook given events in Zhengzhou.However, the firm reported October sales had soared 40.97% year-on-year, a record high for the same period, but down 5.56% compared to the previous month.”Benefiting from the launch of new products in October, stable demand for major products, and strong demand in the server market, revenue in all four major product segments grew,” it said, referring to computing products, smart consumer electronics products, and cloud and networking products.Computing products, smart consumer electronics products, and cloud and networking products all showed double-digit growth last month, compared to the same period last year, the company added.The fourth quarter is traditionally the hot season for Taiwan’s tech companies as they race to supply cellphones, tablets and other electronics for the year-end holiday period in Western markets. Foxconn releases third-quarter earnings on Nov. 10. More

Alibaba and start-up Biren Technology are tweaking their most advanced chip designs to reduce processing speeds and avoid US-imposed sanctions aimed at suppressing Chinese computing power.Alibaba, Biren and other Chinese design houses have spent years and millions of dollars creating the blueprints for advanced processors to power the country’s next generation of supercomputers, artificial intelligence algorithms and data centres. These are produced offshore by the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing Company (TSMC). But sanctions announced by Washington last month that cap the processing power of any semiconductor shipped into China without a licence have thrown a wrench into their ambitions.Both Alibaba and Biren had already conducted expensive test runs of their latest chips at TSMC when Washington unveiled the controls. The rules have forced the companies to halt further production and make changes to their designs, according to six people briefed on the situation.They mark another blow for Alibaba, the tech group founded by billionaire Jack Ma. Its shares have lost 80 per cent of their value since Beijing cancelled sister group Ant’s initial public offering two years ago. The group’s new chip was to be its first graphics processing unit (GPU) and was close to being unveiled, according to three people close to the matter.The US export controls extend to third-country chip manufacturers because almost all semiconductor fabrication plants use American components or software, meaning the rules may amount to an embargo on all high-end processors entering China. Washington earlier restricted such imports from California chip companies Nvidia and AMD. Meanwhile, China’s own domestic chip plants are possibly decades away from producing cutting edge chips such as those designed by Alibaba and Biren.Analysts said Washington’s sanctions, of which the high-end processors restrictions are one part, aimed to forcibly slow China’s tech sector development.“Attempting to freeze a country in place for a technological level of hardware is a big deal,” said Paul Triolo, head of tech policy at consulting group ASG. “That is what the US is trying to do by restricting sales and closing off the manufacturing road map to get to these advanced levels of hardware.”Triolo said high-end processors were the building blocks for research into supercomputing and AI, which power everything from autonomous driving to drug discovery. “If Commerce doesn’t give out licences then China has a real problem,” he said.However, the US Department of Commerce was unlikely to grant such licences, said Kevin Wolf, an expert on export controls at Akin Gump. “This part of the rule states that such applications will be ‘presumptively denied’,” he said.China’s semiconductor design sector is quickly catching up to US rivals, helped by huge funding from the government and venture capitalists.Biren is among the most advanced and vocal of these groups, also known as fabless semiconductor companies. The company has raised over Rmb5bn ($695mn) from investors, including Sequoia Capital China, Qiming Venture Partners and Chinese and Russian state funds, to create a processor it claims outperforms rival GPUs from Nvidia and AMD.“You have to be low-key,” said a Shanghai-based founder of a rival fabless start-up. “They’ve done too much PR and their specs are out there in black and white. Now it’s difficult for TSMC to help them find a way out.” Three Chinese engineers at design groups working with TSMC said it was difficult for the Taiwanese group or any fab to accurately judge a processor’s power. So TSMC had begun to ask Chinese clients to self-report their chips’ output and sign disclaimers.A person close to TSMC said Biren’s public presentations touting its processors had forced the contract chipmaker to halt supplies because the chips’ performance probably met the specifications banned by the US restrictions. “Unless they can prove that they are OK under the export controls, we will not be able to ship to them,” the person said. “Whenever there is a red flag, we will have to review.” Chinese engineers said figuring out what was compliant was complicated by Washington’s unclear rules for calculating a key metric in the thresholds for chips called the bidirectional transfer rate, or the speed with which they send data to each other. The export controls cap chips at below 600 gigabytes per second (gb/s).“There are several ways in which [this transfer rate] can be calculated,” said a senior engineer at Biren, who asked not to be named. The company had begun to tweak its designs to reduce processor speeds in the hope of getting them manufactured by TSMC, the person said. Archived versions of Biren’s website from before the US imposed sanctions show specifications for its first processor, the BR100, that would give it a transfer rate of 640 gb/s, exceeding the US limits. Now Biren’s site shows slower specs for the BR100 of 576 gb/s, according to calculations from research group Bernstein.Dylan Patel, chief analyst at semiconductor research group SemiAnalysis, who first noticed Biren’s change of specs, said the company was attempting to slow down its processors by disabling part of the chip. “They are not changing the chip design, so it’s like saying ‘pinky promise we won’t re-enable it later on’ and it’s unclear if the [US] government will accept that,” said Patel. Biren celebrated the unveiling of its “record-breaking” new chip line in August with a lavish press conference attended by Shanghai’s top officials. But its website has deleted one photo from the event: founder Mike Hong posing in front of the chip’s specs.People briefed on the situation at Alibaba’s T-Head semiconductor unit said the team was studying how to modify its new 5-nanometer processor designed for AI work. Changes being contemplated could require another production test run at TSMC, which would mean a months-long delay and could cost $10mn or more, they said.The unit’s biggest fear was turning into HiSilicon, the chip design unit of telecom equipment maker Huawei, which has been shattered by US-imposed sanctions, said one of the people.“Many of T-head’s core team members are from HiSilicon, so it’s like a nightmare all over again,” the person said. “Internally, we’ve all agreed we will do anything to remain compliant . . . at least then we can still operate.”Biren did not respond to a request for comment.A spokesperson for T-head said: “T-Head core products are solely for Alibaba Group’s proprietary use and compliant with all relevant regulations.” More

Exports likely rose 4.3% last month from a year earlier, according to the median forecast of 20 economists in the poll, slowing from a 5.7% pace in September. That would mark the slowest growth since April when Shanghai COVID lockdowns rocked the world’s second-largest economy.”The tepid outlook for global supply chains does not bode well for China’s exports,” said Raymond Yeung, chief China economist at ANZ.”As the U.S. and European economies slow, demand for electronic components may remain sluggish into next year,” he added.The trade data will be released on Monday. China’s booming exports outperformed expectations in the first half of 2022 — and were one of the few bright spots for its struggling economy — but global interest rate hikes, surging inflation and disruptions from the Russia-Ukraine war have combined to dampen global demand. An official survey showed factory activity unexpectedly shrank in October, weighed by fewer export orders and strict COVID-19 curbs. Orders are flagging despite a further weakening in the yuan currency which should make Chinese goods more competitive heading into the key year-end shopping season.[CNY/]High-frequency data point to a further slowdown in the fourth quarter, with container throughput at major ports falling 9% in the first 10 days of October, Barclays (LON:BARC) economists said in a note. “In addition to slowing global demand amid a likely global recession, we note export orders normally sent to China are being diverted to other emerging market economies.”Combined with a high base of comparison from last year, Barclays forecast China’s exports could fall 2-5% in 2023. Imports, meanwhile, are expected to remain extremely weak as widespread COVID-19 containment measures weigh on domestic consumption.Imports were forecast to have risen just 0.1% from a year earlier, the poll showed, compared with a 0.3% gain in September.Goldman Sachs (NYSE:GS) analysts said lower oil prices would also drag on headline import growth. South Korea’s exports, a leading indicator for China’s imports, saw their worst fall in 26 months in October. Exports to China, its largest market, fell 15.7%.The weak trade forecasts implied that China’s trade surplus would widen to $95.95 billion from 84.74 billion in September. China’s COVID-19 cases hit their highest in two and a half months on Thursday, with the impact of the curbs continuing to reverberate. Goldman Sachs say cities with high or mid-risk districts accounted for around 52% of national GDP as of Friday. (Poll compiled by Anant Chandak; Reporting by Ellen Zhang and Ryan Woo; Editing by Kim Coghill) More

Mark Zuckerberg, Meta’s chief executive, said last month that many “teams will stay flat or shrink over the next year” as his company faces economic challenges.SAN FRANCISCO — Meta plans to lay off employees this week, three people with knowledge of the situation said, adding that the job cuts were set to be the most significant at the company since it was founded in 2004.It was unclear how many people would be cut and in which departments, said the people, who declined to be identified because they were not authorized to speak publicly. The layoffs were expected by the end of the week. Meta had 87,314 employees at the end of September, up 28 percent from a year ago.Meta has been struggling financially for months and has been increasingly clamping down on costs. The Silicon Valley company, which owns Facebook, Instagram, WhatsApp and Messenger, has spent billions of dollars on the emerging technology of the metaverse, an immersive online world, just as the global economy has slowed and inflation has soared.At the same time, digital advertising — which forms the bulk of Meta’s revenue — has weakened as advertisers have pulled back, affecting many social media companies. Meta’s business has also been hurt by privacy changes that Apple enacted, which have hampered the ability of many apps to target mobile ads to users.Last month, Meta posted a 50 percent slide in quarterly profits and its second straight sales decline. The company said at the time that it would be “making significant changes across the board to operate more efficiently,” including by shrinking some teams and by hiring only in its areas of highest priority.More on Big TechMusk’s Twitter Takeover: Elon Musk has moved quickly to overhaul Twitter since he completed his $44 billion buyout of the company. But can he make the math work?Big Tech’s Slowdown: Amid stubborn inflation and rising interest rates, Google, Meta, Microsoft and other tech companies are signaling that tough days may be ahead. Some have already announced hiring freezes and job cuts.App Store Battle: Spotify wants to get into the audiobooks business, but Apple has rejected its new app three times. The standoff is the latest in a series of confrontations between the companies.Inside Meta’s Struggles: After a rocky year, employees at Meta are expressing skepticism, confusion and frustration over Mark Zuckerberg’s vision for the metaverse.Mark Zuckerberg, Meta’s chief executive, had added that most “teams will stay flat or shrink over the next year.” He said the company would “end 2023 as either roughly the same size, or even a slightly smaller organization than we are today.”The Wall Street Journal earlier reported Meta’s plans for layoffs this week.Mr. Zuckerberg has been signaling tougher times ahead for months. In July, he told employees that the company was facing one of the “worst downturns that we’ve seen in recent history” and that workers should prepare to do more work with fewer resources. Their performances would also be graded more intensely than previously, he said.“I think some of you might decide that this place isn’t for you, and that self-selection is OK with me,” Mr. Zuckerberg told employees in a call at the time. “Realistically, there are probably a bunch of people at the company who shouldn’t be here.”Meta joins other tech companies that have been laying off employees as economic conditions have grown more challenging. Tech companies boomed during the coronavirus pandemic but many of the largest firms reported financial results in recent weeks that showed they were feeling the impact of global economic jitters.On Friday, Elon Musk, the world’s richest man and the new owner of Twitter, laid off half of the company’s staff. Last week, Lyft also said it would cut 13 percent of its employees, or about 650 of its 5,000 workers. Stripe, a payment processing platform, said it would cut 14 percent of its employees, roughly 1,100 jobs. Snap, Robinhood and Coinbase are among other companies that have announced job cuts this year.Other tech companies are freezing their hiring. Last week, Amazon said it had decided to pause incremental corporate hiring because the economy was “in an uncertain place.” The move added to a freeze from last month, when the e-commerce giant halted corporate and technology hiring in its retail business for the rest of the year. More

Sunak, who became prime minister late last month, had initially said he would be too busy coming up with a plan to fix Britain’s economy to attend the COP27 summit, drawing criticism from political opponents and campaigners.Now, he will join more than 100 other leaders speaking at the event. He is expected to call on governments to deliver on the promises made at COP26 in the Scottish city of Glasgow a year ago, when host nation Britain helped to broker a wide-ranging climate pact – much of which has yet to be implemented.”The world came together in Glasgow with one last chance to create a plan that would limit global temperature rises to 1.5 degrees. The question today is: can we summon the collective will to deliver on those promises?” he will say, according to extracts released by his office in advance.The chances look slim. A United Nations report at the end of October said government pledges to cut greenhouse gas emissions put the planet on track for an average 2.8 Celsius temperature rise this century after “woefully inadequate” progress.Sunak will also meet his French and Italian counterparts on the sidelines of the U.N. conference. More