Economy

China will need investment in power and transport estimated at $14tn to hit Beijing’s goal of net zero emissions by 2060, according to a World Bank report, as the ruling party congress this week reinforced a commitment to a “green energy revolution”.The Chinese decarbonisation plan would need to decouple economic growth and emissions at a faster pace and at a lower income level than in advanced economies, the bank warned, as it made the “significant investments in a massive green infrastructure and technology scale up”.But China could also leverage some advantages, said the World Bank, such as its position at the forefront of advancing low carbon technologies. China is already home to one-third of the world’s installed wind power and a quarter of its solar capacity. In his opening speech to congress, President Xi Jinping emphasised his plan to “basically eliminate” pollution, in spite of a central message emerging about energy security, food security and other key supplies powering the Chinese economy, the independent China Dialogue reported.State-run media also quoted Wang Wenbin, the Chinese foreign ministry spokesperson, saying China hoped “countries can overcome difficulties as soon as possible and return to the right track of low-carbon and green development, so as to jointly achieve the goals of the Paris Agreement”. China, the world’s largest producer of greenhouse gases annually, is “severely affected” economically by global warming, the World Bank noted. Its low-elevation coastal cities that account for a third of China’s gross domestic product are affected by rising sea levels, storm surges and coastal erosion.The inland provinces of northern and western China are increasingly exposed to heatwaves and droughts, intensifying water scarcity risks and impacting rural farmers.Ilaria Mazzocco, a fellow with the trustee chair in Chinese Business and Economics at CSIS, a Washington think-tank, said in Beijing there was “an understanding that by reforming their energy system they can become a more efficient economy”.President Xi pledged in 2020 that China would reach peak CO₂ emissions by 2030 and achieve net zero emissions by 2060. Reaching that target would require reducing coal demand in China, which accounts for half of the world’s consumption, close to zero. According to China’s National Bureau of Statistics, coal represented 56 per cent of China’s energy consumption in 2021. Lockdowns to contain coronavirus have depressed industrial demand in China, and coal consumption fell 3 per cent during the first half of 2022, the International Energy Agency has estimated. Power outages earlier in the summer during bouts of extreme heat led Beijing to offer extra assistance to coal plants to help maintain electricity supplies as demand for power soared.Beijing had made “serious efforts” to reduce its reliance on coal, said Jennifer Turner, director of the Wilson Center’s China Environment Forum. “But you have to view this as trying to turn the Titanic, right?”China’s power sector — the largest source of Chinese carbon emissions — would need to be decarbonised first to achieve the rapid decline in emissions needed over the next two decades, said the World Bank, with investments in solar and wind steadily reducing coal use. Electrification and increased energy efficiency would boost decarbonisation of China’s industry in the short term, the World Bank said.Continued investment in public mass transport systems and electrification would reduce emissions from that sector.Out of the estimated $14tn in additional investments needed between now and 2060 for power and transport, the bank said the majority would need to be front-loaded to avoid locking in carbon intensive assets.Public investment would “be necessary but not sufficient to meet the overall investment needs,” the World Bank said in its report. “They will need to be complemented by good sector policies, broad-based regulatory reform, and new standards to fully tap the potential and incentivise private sector investment and innovation in these sectors”. More

The US in October introduced expansive chip export controls in an effort to slow China’s progress in artificial intelligence and super computers and make it harder for the country to manufacture advanced semiconductors.The controls are arguably the toughest measures President Joe Biden has taken against China and his first serious attempt to slow its military modernisation by targeting the technologies behind everything from nuclear weapons modelling to hypersonic weapons development.“When Huawei was targeted, it was trade tensions during peacetime. Now we’re in a state close to war,” said Hideki Wakabayashi, professor at Tokyo University of Science, referring to the Chinese telecoms equipment group. How will they impact China’s semiconductor industry?China’s top chipmaker Semiconductor Manufacturing International Corporation, which makes logic chips that power computers, will be hit by the restrictions as they bar US companies from supplying technology for chips that are more advanced than 14 nanometres or, in some cases, 16nm. The rules will make it harder for SMIC to continue production at the 14nm level because they will impact areas like maintenance and equipment replacement.Memory chipmakers such as Yangtze Memory Technologies Corp and ChangXin Memory Technologies will also be impacted. Their more advanced products already meet the thresholds the US has set for memory chips. In the case of YMTC, for example, the US has put restrictions on the export of technology to manufacture Nand memory chips with 128 layers or more — the level of the Chinese company’s most advanced chips.Without access to US technology, China will struggle to maintain its fast expansion in artificial intelligence and super computing — two areas important to the Chinese military — as well as cloud computing.Douglas Fuller, an expert on the Chinese semiconductor industry, said the whole point of the US policy was to “kneecap” Chinese artificial intelligence and high-performance computing that have military applications. But Tudor Brown, a former independent director at SMIC, said the controls could also backfire in the long run because they could “turbocharge” China’s homegrown chip industry. “The US is being naive if it thinks this is going to slow them down for any length of time. I think it will slow them down for two to five years, not 10.”What US companies will be hit?Analysts said the impact depends on how aggressively the US applies the controls. Many US firms that produce chips or chipmaking tools list China as their biggest market. China accounts for 33 per cent of sales at Applied Materials, 27 per cent at Intel and 31 per cent at Lam Research.Applied Materials said the restrictions would cut about $400mn, or 6 per cent, from next quarter’s sales. Nvidia, which will be unable to export its advanced GPUs (graphic processing units) used in machine learning systems to China, also put the quarterly impact on revenues at $400mn, or 7 per cent of its sales. Lam Research, a big supplier to China’s YMTC, said the export controls would slice as much as $2.5bn, or up to 15 per cent, from 2023 sales.But some US companies could benefit, such as memory chipmaker Micron, which is facing rising competition from YMTC.Will China retaliate?Experts say Beijing has limited ability to retaliate. As one Chinese chip industry source put it, Beijing “doesn’t have many levers to respond” in kind.Last year, China passed a law allowing countermeasures against sanctions. But it has not yet been used in response to Washington’s tightening semiconductor controls or to retaliate against other moves from the US.Some experts speculated that China could cut off tech giants, including Microsoft and Apple, from its massive consumer market. But one Chinese chip company executive said this was unlikely. “China is keen to reach a truce in the tech war, rather than confrontation,” said one expert.Will there be spillover to other industries?On Oct 7, the US also added 31 Chinese companies, including YMTC, to the “unverified list” of entities for which Washington has not been able to conduct end-user checks to verify that American technology is being used for legitimate purposes.If those concerns are not resolved within 60 days of a company being added to the list, they will almost certainly be put on the “entity list”, which would effectively ban US companies from providing them with technology. In the case of YMTC, this would hit the company’s less advanced memory chips since the restrictions would be more broad.European officials believe the US will probably widen its range of hard-hitting measures, which would create knock-on effects for EU business.Some analysts warn that the majority of Chinese manufacturers could run out of inventory, sparking a chip shortage that would affect other industries including aerospace, consumer electronics, medical devices and cloud computing. “A chip shortage could cause downside risks including an overall slowdown of vehicle deliveries and or further deterioration of Chinese auto manufacturers profitability,” said Gui Lingfeng, a principal at consultancy Kearney. What has been the global fallout?Taiwan Taiwan Semiconductor Manufacturing Company, the world’s largest contract-chip maker, said the immediate impact was “limited and manageable”. But chief executive CC Wei warned that it was “too early” to assess the long-term impact. South Korea South Korea’s chipmakers won a one-year exemption to the controls. But they will have to apply for US export licences after the grace period. Experts said they would struggle to get US approval to export cutting-edge equipment to their factories in China based on previous American opposition to SK Hynix’s plans to install extreme ultraviolet lithography equipment at its Wuxi factory in eastern China.Japan Since the US imposed tough export restrictions against Huawei in 2019, Japanese companies such as Sony have reduced their ties with Chinese chipmakers. But there is sharp division in the Japanese business community about how widespread the fallout would be. “We need to carefully check where US technology is included in our manufacturing equipment,” said one Japanese executive.Europe ASML, the Netherlands-based global leader in chipmaking equipment, said the controls would have “limited” impact on its shipment plans next year, as its business predominantly serves more mature chip production technologies in China rather than the advanced chip production targeted by Washington’s export control rules. Yet underscoring the far-reaching nature of the US restrictions, ASML was one of many firms that told US nationals on staff to stop serving Chinese customers while it assessed the impact of the export controls. More

WASHINGTON (Reuters) -A U.S. appeals court on Friday temporarily blocked President Joe Biden’s plan to cancel billions of dollars in college student debt, one day after a judge dismissed a Republican-led lawsuit by six states challenging the loan-forgiveness program.The 8th U.S. Circuit Court of Appeals granted an emergency stay barring the discharge of any student debt under the program until the court rules on the states’ request for a longer-term injunction while Thursday’s decision against them is appealed.The St. Louis-based appeals court also ordered an expedited briefing schedule on the matter.U.S. District Judge Henry Autrey in St. Louis ruled on Thursday that while the six Republican-led states had raised “important and significant challenges to the debt relief plan,” he threw out their lawsuit on grounds they lacked the necessary legal standing to pursue the case.Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina said Biden’s plan skirted congressional authority and threatened the states’ future tax revenues and money earned by state entities that invest in or service the student loans.The non-partisan Congressional Budget Office in September calculated the debt forgiveness would cost the government about $400 billion. White House press secretary Karine Jean-Pierre said Thursday’s temporary order does not prevent borrowers from applying for student debt relief or bar the Biden administration from reviewing applications and preparing them for transmission to loan servicers.”We encourage eligible borrowers to join the nearly 22 million Americans whose information the Department of Education already has,” Jean-Pierre said. “It is important to note that the order does not reverse the trial court’s dismissal of the case or suggest that the case has merit,” she added. “It merely prevents debt from being discharged until the (appeals) court makes a decision.”Nebraska Attorney General Doug Peterson, a Republican who is leading the lawsuit, welcomed the temporary stay.”It’s very important that the legal issues involving presidential power be analyzed by the court before transferring over $400 billion in debt to American taxpayers,” he said. The case reaching the 8th Circuit is one of a number that conservative state attorneys general and legal groups have filed seeking to halt the debt forgiveness plan announced in August by Biden, a Democrat.Autrey ruled about an hour after U.S. Supreme Court Justice Amy Coney Barrett denied without explanation an emergency request to put the debt relief plan on hold in a separate challenge brought by the Wisconsin-based Brown County Taxpayers Association. Biden said the U.S. government will forgive up to $10,000 in student loan debt for borrowers making less than $125,000 a year, or $250,000 for married couples. Borrowers who received Pell Grants to benefit lower-income college students will have up to $20,000 of their debt canceled.The policy fulfilled a promise that Biden made during the 2020 presidential campaign to help debt-saddled former college students. Democrats are hoping the policy will boost support for them in the Nov. 8 midterm elections in which control of Congress is at stake. More

MEXICO CITY (Reuters) -Mexico’s Grupo Financiero Banorte said on Friday it had pulled out of the bidding process for Citigroup (NYSE:C)’s local retail arm Banamex, leaving just a handful of potential buyers in the race.Banorte, which has previously been open about its interest in Banamex, declined to explain its withdrawal.Mexican President Andres Manuel Lopez Obrador told a news conference on Friday at least three bidders remained in the race: “The three are very good,” he said, without naming them.Lopez Obrador has said he wants Banamex, which could sell for between $7 billion and $12 billion, to go to a Mexican buyer.Mexican bank Inbursa, owned by billionaire Carlos Slim, has expressed interest in buying Banamex for the right price and been tipped by analysts as a top contender.Mining tycoon German Larrea, who controls Grupo Mexico, along with the president of private lender Banca Mifel, Daniel Becker, are also preparing their own bids, according to media reports.Spokespeople for Slim, Larrea and Becker all declined to comment.Citibanamex said in a statement it is in constant dialogue with a number of potential buyers and “remains committed to pursuing any route that maximizes value” for their shareholders.Citigroup’s Latin America chief Ernesto Torres Cantu has previously said it expects to reach a deal to sell Banamex by January 2023.Citi had in February said it could also sell the bank through an initial public offering (IPO), and analysts have said this remains an option.”Citi could do an IPO for a percentage of Citibanamex, and redistribute the remaining stake to Citigroup’s shareholders, just as Itau did with XP (NASDAQ:XP),” a senior market analyst told Reuters, “or it could carry out a series of follow-on offerings.”Monex analyst Carlos Gonzalez told Reuters that Larrea’s Grupo Mexico seemed a good candidate, while Mifel and its investors may not be able to afford the high price and Slim’s group may not be willing to pay it.He added that lack of potential buyers could cause an issue: “The problem is that there are few bidders, so they will probably have to sell it in an auction-type public offering.”Banorte’s decision to pull out of the race follows similar withdrawals by retail and media tycoon Ricardo Salinas Pliego and Spanish bank Santander (BME:SAN) earlier this year. Analysts from Barclays (LON:BARC) said the decision was positive for Banorte because it provided a “key reassurance” it would not engage in overly “aggressive transactions”. More

WASHINGTON (Reuters) -The U.S. government on Friday reported that its fiscal 2022 budget deficit plunged by half from a year earlier to $1.375 trillion, due to fading COVID-19 relief spending and record revenues fueled by a hot economy, but student loan forgiveness costs limited the reduction.The U.S. Treasury said the $1.400 trillion reduction in the deficit was still the largest-ever single-year improvement in the U.S. fiscal position as receipts hit a record $4.896 trillion, up $850 billion, or 21% from fiscal 2021.President Joe Biden touted the deficit reductions in remarks at the White House and at Delaware State University, and said the deficit would shrink by another $250 billion over the next decade, given Medicare’s ability to negotiate lower drug prices.Biden chided Republicans for voting against the deficit reduction. While his administration lowered the deficit, it has boosted spending on infrastructure and expanded benefits for middle- and low-income Americans.”You know, we’ve gone from an historically strong economic recovery to a steady and stable growth, while reducing the deficit,” Biden said.Outlays for fiscal 2022, which ended Sept. 30, fell by a record $550 billion, or 8% from last year to $6.272 trillion. But the outlays for September, the fiscal year’s final month, included the recognition of $430 billion in costs from the Biden administration’s plan to forgive student debt of up to $20,000 for former college students now earning under $125,000 a year and under $250,000 for married couples.The move brought the September budget deficit to $430 billion, more than six times the prior-year September deficit of $65 billion. In most years, September is a surplus month due to the payment of quarterly corporate and individual taxes.The Congressional Budget Office estimated that the plan would cost about $400 billion. It also includes the extension of a COVID-19 moratorium on all student loan payments until the end of 2022, which added about $21 billion in budgetary costs.Non-governmental budget analysts have estimated that the plan would wipe out a much-touted deficit reduction from Democrats’ recently enacted climate, healthcare and Internal Revenue Service funding bill.’RESPONSIBLE PATH’U.S. Treasury Secretary Janet Yellen told reporters that the Biden administration was maintaining a “credible fiscal policy” despite the unfunded student debt relief that was a Biden campaign promise.”I do see our debt as being on a responsible path,” she said, adding that net interest on the debt as a share of GDP was forecast to only rise to about 1%, a “low” historical level. Revenue gains during September started to slow from prior months, growing only 6% from a year earlier to $488 billion.And the CBO is projecting that with the economy slowing further amid higher Federal Reserve interest rates, revenues will slow further in future years. Rising interest costs also will start to consume a bigger share of the federal budget, the non-partisan fiscal referee agency predicts.Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a fiscal watchdog group, said the effect of recognizing the student loan forgiveness costs in fiscal 2022 will be to show a steadier decline in deficits from the pandemic – rather than a sharper narrowing to around $1 trillion, followed by an increase to around $1.4 trillion for fiscal 2023.The CBO had forecast a fiscal 2023 deficit of about $984 billion, with deficits rising steadily thereafter to nearly $2 trillion by 2030. “I think it’s more appropriate to recognize the costs as the debt is being canceled, and the bulk of that will happen in fiscal 2023. But the government has latitude here,” Goldwein said in a phone interview prior to the release. More

WASHINGTON (Reuters) -An IMF team held productive discussions with Ukrainian authorities this week and will work in coming weeks on their request for enhanced program monitoring in the wake of Russia’s invasion, IMF mission chief Gavin Gray said on Friday.Gray said International Monetary Fund staff met for four days in Vienna with Ukrainian authorities, and discussed their findings with Finance Minister Serhiy Marchenko and Governor of the National Bank of Ukraine Andriy Pyshnyi.He said Ukrainian leaders deserved “considerable credit” for maintaining an “important degree of macroeconomic stability” after the invasion, which has caused a severe contraction in gross domestic product and a sharp rise in inflation, while sending the country’s fiscal deficit to unprecedented levels.”The Russian invasion of Ukraine that started over seven months ago has caused tremendous human suffering and had a severe economic impact,” Gray said, adding that the talks focused on recent macro-financial developments, the 2023 budget and associated external financing needs, financial sector issues and the mix of policies to support macroeconomic stability. Gray said IMF officials were encouraging Ukraine to refrain from measures that erode tax revenues as they worked to align expenditures with available financing, but gave no details.He said both sides would continue work in coming weeks on Kyiv’s request for Program Monitoring with Board Involvement (PMB), a new option recently approved by the fund’s board.Such an agreement would lay out the authorities’ policy intentions to support macroeconomic and financial stability and present an assessment of external financing needs for 2023, and could pave the way for a fully-fledged IMF program, Gray said. The IMF this month approved $1.3 billion in fresh emergency funding for Ukraine through a new food shock window, on top of $1.4 billion in emergency aid approved in March.Ukrainian authorities are seeking new IMF lending of around $20 billion as part of a larger program.Ukrainian President Volodymyr Zelenskiy last week appealed to international donors for $55 billion in additional financial support – $38 billion to cover next year’s estimated budget deficit, and another $17 billion to start to rebuild critical infrastructure. More

The store – open until early January – offers shoppers the chance to take photos alongside the iconic Young-hee animatronic doll with laser eyes from “Squid Game” and Queen Charlotte’s throne from period drama “Bridgerton.” Costumes and props from the shows are also on display, including a guitar used by one of the main characters in “Stranger Things.” More

NEW YORK (Reuters) – Earnings reports from the four biggest U.S. companies by market capitalization in the coming week may test a nascent rally that has seen stocks claw their way back from yet another low.Apple, Microsoft (NASDAQ:MSFT), Google-parent Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) account for a combined 20% of the weight of the S&P 500 and more than a third of the Nasdaq Composite. Investors view the growth giants as bellwethers for how corporate America is faring during a year in which inflation has soared, pushing the Federal Reserve to quickly enact a series of jumbo-sized rate hikes that bruised markets and raised fears a recession may be coming.“If these megacaps can’t do well, then the question is: who can do well?” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. (Graphic: Megacaps market values vs stock market, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxdydxzvx/Pasted%20image%201666369186528.png) The S&P 500 is up nearly 5% from its Oct 12 closing low for the year after posting its biggest weekly gain since late June. Even with stocks’ latest rebound, the index has dropped 21% so far in 2022, on track for its biggest decline since 2008. Resilient corporate profits have been one bright spot this year, though doubts are growing over how sustainable they will be. With the bulk of S&P 500 companies still to report, third-quarter profits are estimated to have climbed 3.1% versus the year-ago period, which would be the weakest performance in two years, according to Refinitiv IBES, while earnings growth expectations for 2023 have fallen to 7.2% from 7.8% on Oct 1.Next week’s reports from the four megacaps may show whether companies with dominant positions can post solid performance despite worries of a potential economic downturn.Because of their heavy weightings, “if those stocks don’t get it done, that puts pressure on the indices to continue to go down,” said Chuck Carlson, chief executive officer at Horizon Investment Services.Microsoft and Alphabet are due to report on Tuesday, with Amazon and Apple set for Thursday. Apple shares (NASDAQ:AAPL) are the only ones of the megacaps that have outperformed the broader market this year. Shares of the iPhone maker, which account for a 7% weight in S&P 500, are down about 17% in 2022; Microsoft and Amazon are each off roughly 28%, Alphabet is down 30%. (Graphic: Megacaps vs the U.S. stock market, https://graphics.reuters.com/USA-STOCKS/MEGACAPS/gkvlwmwlepb/chart.png) Despite those steep losses, investors have maintained exposure to the megacap stocks. Actively managed U.S. mutual and exchange-traded funds held 11.41% of their portfolios in those four stocks combined as of the most recently available data, versus 11.44% at the end of 2021, according to Morningstar Direct. Investors have been drawn to the large companies broadly because of their financial strength and competitive advantages that, in theory, will drive profits even during uncertain economic times.Still, only Apple has topped analyst estimates for earnings and revenue in both of their most recent quarterly reports, according to Refinitiv data. “The bar is higher for Apple because it has outperformed and because you haven’t seen the earnings blink yet,” said Walter Todd, chief investment officer at Greenwood Capital.Questions loom over the other companies’ key market areas, including personal computers for Microsoft, advertising spending for Alphabet and consumer strength for Amazon.All three rely on cloud computing businesses, which will be in focus next week, according to Charlie Ryan, partner and portfolio manager at Evercore Wealth Management.“Cloud would be the pillar that one would put their hopes on when they report,” Ryan said. “It has been continued strength for quite some time now and any deviation from that would be a concern.” Meanwhile, soaring U.S. bond yields are pressuring valuations and complicating the picture for tech and other growth stocks, whose expected future earnings are discounted steeply by higher yields. Yields continued to rise this week, with the yield on the benchmark 10-year Treasury note hitting a fresh 14-year high.All four stocks command higher valuations than the S&P 500, which trades at nearly 16 times forward earnings estimates. The P/Es for Apple and Microsoft are both about 22 times, Alphabet trades at 17.5 times, while Amazon sits at 60 times, according to Refinitiv Datastream.“Those stocks have typically sold at earnings multiples that are on the higher side,” said Carlson, of Horizon Investment Services.“How they are going to continue to perform from here gives some insight into what investors are ultimately willing to pay for growth stocks.” More