Economy

US Treasury secretary Janet Yellen said the move by Opec+ to cut oil production was “unhelpful and unwise” for the global economy, particularly emerging markets already struggling with high energy prices. The Biden administration has been loudly critical of the decision by the oil cartel backed by Saudi Arabia and Russia this week, which took the step in defiance of US pressure to keep global oil prices down. “I think Opec’s decision is unhelpful and unwise — it’s uncertain what impact it will end up having, but certainly, it’s something that, to me, did not seem appropriate, under the circumstances we face,” said Yellen in a phone interview with the Financial Times. “We’re very worried about developing countries and the problems they face.”Yellen was speaking ahead of the IMF and World Bank’s annual meetings in Washington next week, which will be dominated by discussions of high inflation and commodity prices, the impact of the sharp tightening of monetary policy by many central banks, and the economic and financial impact of the war in Ukraine. “I think we’re going to exchange views on whether our countries are addressing these problems, and try to consider whether our collective reaction adds up to something that is sensible, and the best we can do, in that difficult environment,” she said. The US is hoping to use the meetings to push European countries to deliver economic aid to Ukraine much more rapidly, amid growing frustration in Washington that some of its allies are behind in terms of fulfilling their vows to help Kyiv financially. “A number of countries have pledged significant economic assistance, but simply haven’t quite gotten around to dispersing it. The pace of transferring money to Ukraine is far too slow. There are commitments but the money needs to be deployed,” Yellen said, noting that the US had delivered $8.5bn in grants for Ukraine and another $4.5bn were just approved by Congress. “We need to see other countries meet the pledges that they’ve made. And it’s critical to get this funding to Ukraine as rapidly as possible,” she added. Speaking on Tuesday, Valdis Dombrovskis, European Commission executive vice-president, said the EU was seeking to speed up its disbursements of funding to Ukraine and would “work intensively” with member states to unlock the final €3bn of a €9bn package that leaders committed to earlier this year. However, he said it was also important to have a “more structured and predictable financing flow” for Ukraine next year and that the EU would integrate this into its work on preparing its 2023 budget. The US and G7 allies are entering the final stretch of talks to set a price cap on Russian oil exports, in order to deprive Moscow of vital energy revenues to finance the war, but also keep some oil flowing from the country in a way that does not lead to a jump in prices around the world. “Holding down prices is something that’s particularly helpful to developing countries that are suffering from high energy prices,” Yellen said.

But the Treasury secretary would not be drawn on what countermeasures the US might deploy in response to the Opec move, after White House officials said they would launch consultations with Congress about possible reactions. “The president has been focused for a lot of time on exploring all available options to try to bring [oil prices] down,” she added. Yellen is likely to face some concern from counterparts around the world about the value of the dollar, which has appreciated strongly against many other currencies in recent months as the Federal Reserve has aggressively increased interest rates. But she said the rise in the dollar was driven by economic reality. “We have seen a significant appreciation in the dollar, but I think it’s mainly driven by differences in macro fundamentals, across countries. In the case of the US, it’s safe haven flows responding to geopolitical tensions and of course different paces of monetary tightening,” she said. Yellen also dismissed worries about some of the market turmoil and volatility in recent weeks. “We’re monitoring currency movements and their impacts very closely. And we continue to think that markets are functioning pretty well and are generally appropriate given the underlying differences across countries and policies and economic situations”,” she said.Yellen declined to comment on Britain’s sweeping tax cuts, which caused tremors in financial markets before the Bank of England was forced to make an emergency intervention and the prime minister Liz Truss rolled back some of the plan. Additional reporting by Sam Fleming in Brussels More

Two years after the US hit Huawei with harsh sanctions, the Chinese technology group’s revenue has dropped, it has lost its leadership position in network equipment and smartphones, and its founder has told staff that the company’s survival is at stake.Now, China’s entire chip industry is bracing for similar pain as Washington applies the tools tested on Huawei much more broadly.Under new export controls announced on Friday, semiconductors made with US technology for use in AI, high performance computing and supercomputers can only be sold to China with an export licence — which will be very difficult to obtain.Moreover, Washington is barring US citizens or entities from working with Chinese chip producers except with specific approval. The package also strictly limits the export to China of chip manufacturing tools and technology China could use to develop its own equipment.“To put it mildly, [Chinese companies] are basically going back to the Stone Age,” said Szeho Ng, Managing Director at China Renaissance.Paul Triolo, a China and technology expert at the Albright Stonebridge consultancy, said: “There will be many losers as the tsunami of change unleashed by the new rules washes over the semiconductor and associated industries.”He added the impact would be especially profound on Chinese companies using US-origin hardware to deploy AI algorithms including for autonomous vehicles and logistics, as well as medical imaging and research centres using AI for drug discovery and climate change modelling. “The full impact will take some time to become clear, but at a minimum will slow innovation in both China and the US, ultimately costing US consumers and companies hundreds of millions or even billions of dollars,” Triolo said.Several of the new controls work through third-country chip manufacturers as almost every semiconductor is designed using US software and most chip plants contain US machines. “You can look at Huawei as a case study,” said Brady Wang, an analyst at technology market research house Counterpoint. While Huawei could still obtain certain supplies, he said, it was not the most advanced ones but those from a previous era, which would limit the functionality of its products.The new controls on semiconductor equipment are also a potent weapon, set to hit mainstream manufacturers and leading-edge chip producers. According to analysts at the Bank of America, the equipment restrictions will affect logic chips designed in the past four to five years, and Dram chips designed after 2017. “It’s their sweet spot right now — they’re a laggard in technology and are relying on older tools and technology,” said Wayne Lam, an analyst at CCS Insight.Chinese chip companies are even more concerned about Washington’s attempts to bar US citizens from supporting them.“That is a bigger bombshell than stopping us from buying equipment,” said a human resources executive at a state-backed semiconductor plant. “We do have [US passport holders] in our company, in some of the most important positions,” she said, calling them a “core weapon” for developing technology. “We need to find a way for these people to continue working for our company. This is very difficult. Most people are not willing to give up their US passports.”Most US citizens in the Chinese chip sector are Chinese and Taiwanese returnees from the US. There are no statistics on the size of this group. But a Taiwanese intelligence official estimated that as many as 200 US passport holders worked in Chinese semiconductor companies. And the restrictions extend beyond that group. An executive at a semiconductor materials supplier said his company would have to replace all American sales and technical support staff sent to Chinese customers.Another threat to China’s entire technology industry is a new licence requirement for exporting chips for use in AI and high performance computing.“The whole point of the policy is to kneecap China’s AI and HPC efforts, at least those related to the military, with the commercial side collateral damage from the US government point of view,” said Douglas Fuller, an expert on the Chinese semiconductor industry at Copenhagen Business School.Even some of China’s largest technology companies such as Alibaba and Baidu are thought to be vulnerable. “[Their] whole research and development progress will be slowed down,” said Counterpoint’s Wang.

Experts believe China’s dynamic breed of AI chip design companies will suffer. “If you lose the AI start-ups, you lose their innovation dynamic,” said a Taiwanese electronics industry executive. As the Chinese semiconductor market by end user now accounts for nearly a quarter of global demand, foreign suppliers are also set to take a hit.US equipment maker Applied Materials derived 33 per cent of its sales from China last year and its peer Lam Research 31 per cent. Lam Research named Yangtze Memory Technologies, China’s largest memory chipmaker that the US specifically targets under the new rules, as a significant customer in its annual report, and BofA estimates that 6-7 per cent of Lam Research sales are to YMTC. Since many of Intel’s high-end processors go into Chinese supercomputers, BofA expects that the restrictions could hit up to 10 per cent of Intel’s sales.But some analysts believe that the measures will favour foreign chipmakers. As the US’s main motive was to slow down China’s development in the most advanced semiconductor technology, leading foreign chipmakers such as Taiwan Semiconductor Manufacturing Company (TSMC) or Intel would benefit, said Akira Minamikawa, a semiconductor analyst at research firm Omdia.He said flash memory makers that compete directly with YMTC, such as Japan’s Kioxia, might “get some benefit” from the new US measures, but the gains would probably be small.Kim Young-woo, head of research at SK Securities, said the fact that Washington had not imposed a blanket ban on equipment supplies for foreign chipmakers operating in China would come as a relief for Korean semiconductor companies, but the need for export licences could still be a hassle.The biggest question is how China responds. “We’re in a negative cycle where the US continues to push for restrictions, which pushes the Chinese to strive for technological independence, which in turn pushes the US towards harsher restrictions,” said an industry insider in Beijing. But Beijing’s levers are limited. “This will propel the Chinese to look for alternatives but with the acknowledgment that alternatives to US technology are decades away,” the person said.This dire situation could lead to more intellectual property theft. As some equipment now under export controls is already used in China, Beijing could ignore intellectual property rights and reverse-engineer the machinery to strengthen local equipment makers, said Lam at CCS. He added: “We may be shooting ourselves in the foot.”Reporting by Kathrin Hille in Taipei, Qianer Liu and Eleanor Olcott in Hong Kong, Richard Waters in San Francisco, Demetri Sevastopulo in Washington, Kana Inagaki in Tokyo and Song Jung-a in Seoul More

“Emmanuel Macron is using inflation to widen the wealth gap, to boost capital income at the expense of the rest”, the group of 69 signatories, including writers, film directors and university teachers, said in a text published in the Journal Du Dimanche.”It is all a matter of political will”, said the text, co-signed by Ernaux, who on Thursday became the first French woman to win the Nobel Prize for Literature. The text said the government has not done enough to fight spiralling energy prices and declined to rise taxes on companies making windfall profits because of high inflation. While French inflation has risen sharply this year, mainly as a result of the war in Ukraine, the rise is among the lowest of euro-zone countries in recent months as the French government put in place measures ranging from a gas price freeze to food cheques and special subsidies on pump prices. The signatories made a call to join the protest march planned for Oct. 16 that is organised by the political movement of the hard-left France Unbowed party, which this year struck an alliance with more moderate leftwing parties to form France’s largest opposition bloc. The march, promoted by France Unbowed as being “against the high cost of living and climate inaction,” comes as Macron faces stiff resistance from unions over a planned pensions reform and as strikes by workers demanding a pay rise from retail to refineries have disrupted parts of the economy. The Swedish Academy, in awarding the 82-year-old Ernaux the Nobel prize, said she “consistently and from different angles examines a life marked by strong disparities regarding gender, language and class”. More

A mood of mounting economic pessimism is taking hold across the world’s major economies, as soaring prices and geopolitical uncertainty damage the prospects of businesses and consumers. In the past year consumer and business confidence has fallen by the most in a decade, with the exception of the initial months of the coronavirus pandemic, according to research for the FT.Hard economic data and leading financial indicators are also falling from strong levels after Covid-19, signalling that momentum in the world economy is stalling, the latest twice-yearly Brookings-FT tracking index showed.The collapse in confidence comes as global financial officials gather in Washington this week for the IMF’s and the World Bank’s annual meetings. The two bodies are expected to publish forecasts warning that the world economy is on the brink of recession.Eswar Prasad, senior fellow at the Brookings Institution, said the index’s findings reflected “a series of self-inflicted wounds” by businesses and governments. These ranged from supply chain bottlenecks and weak policy responses in the face of high inflation to China’s zero-Covid policy and fiscal recklessness in countries such as the UK, he said. Prasad said: “Growth momentum, as well as financial market and confidence indicators, have deteriorated markedly around the world in recent months.” The Brookings-FT Tracking Index for the Global Economic Recovery (Tiger) compares indicators of real activity, financial markets and confidence with their historical averages, both for the global economy and individual countries. Confidence indicators have fallen sharply and are at all-time lows since the index began over a decade ago in countries including the US, UK and China. In emerging economies, which are more exposed to rising food and energy prices, confidence has fallen even more sharply. India is the world’s only large economy described as a “bright spot”, with strong indicators pointing to robust growth this year and next.The rest of the world’s major economies are struggling with mounting economic problems according to both hard data and softer measures such as confidence indicators. “Many countries are already in or on the brink of outright recession amid heightened uncertainty and rising risks,” Prasad said. Despite this, the hard data are not yet weak enough to indicate that central banks can reverse their fight to tackle high inflation by halting rate rises, analysts have warned.“Governments and central banks no longer have the luxury of unfettered fiscal and monetary stimulus to stabilise growth and offset adverse shocks,” Prasad said, adding that governments should avoid unhelpful populist policies such as poorly-targeted packages to counteract the impact of higher energy prices. Despite the worsening outlook, many economists think it unlikely that finance ministries and central banks will reverse their strategies. The US is under pressure from other countries to moderate the rise in the dollar, which is fuelling inflation in other parts of the world, while China must decide whether to scale back its zero-Covid policy. Germany has been criticised by economists for the scale of its financial support for domestic energy users, and the UK for unfunded tax cuts at a time of soaring inflation. The recent turmoil in UK financial markets and pension funds has fuelled investors’ nervousness about the financial stability of the global system as interest rates rise.Some analysts have warned that the simultaneous tightening of monetary policy by many major central banks could produce an unnecessarily deep and prolonged global downturn. More

“As long as this brother of yours is in this position, the interest will continue to fall with each passing day, each passing week, each month,” he told a rally in the western province of Balikesir.Inflation has surged since November last year, as the lira slumped following cuts to the policy rate by the central bank, in an unorthodox easing cycle long sought by Erdogan. More

Negative bond yields have become a thing of the past this year, following a string of large interest rate rises by global central banks — everywhere, that is, except Japan.Negative yields — which occur when bond prices climb so high that buyers holding them to maturity are guaranteed to lose money — engulfed a large chunk of the global debt market during the depth of the Covid crisis. Those sub-zero levels stemmed from huge central bank stimulus programmes, with the US Federal Reserve and several peers slashing interest rates and buying up swaths of debt in a bid to backstop pandemic-hit markets.The total stock of negative-yielding bonds ballooned to a record of more than $18tn at the end of 2020, according to a Bloomberg index of debt trading at yields below zero. But that pile has now dwindled to less than $2tn — all of it in Japan — after the eurozone and Switzerland ended their experiments with negative interest rates in an effort to tackle inflation.“This is a stunning reversal given negative-yielding bonds accounted for 40 per cent of the government bond universe at the apex of the pandemic,” wrote analysts at JPMorgan this week.In the UK, some short-term debt traded at slightly negative yields as recently as June despite the Bank of England never setting a negative interest rate, according to the Wall Street bank. Yields below zero disappeared from the euro area in September, two months after the European Central Bank lifted its benchmark interest rate to zero, JPMorgan added.The almost complete disappearance of negative yields from markets where they were recently commonplace underlines the speed of this year’s shift in monetary policy. It is also the latest sign of the Bank of Japan swimming against the global tide, by holding rates below zero and sticking with its policy of capping longer-term bond yields — so-called “yield curve control”. The contrast with rapid increases in borrowing costs elsewhere has pushed the yen to its weakest level in 24 years, sparking speculation that the BoJ could be pressured to raise its yield limit.“Sayonara for negative yields may be just months away as we have now brought forward the timing of the BoJ’s yield curve control adjustment” to the first quarter of 2023, JPMorgan said. More

The property market has lurched from crisis to crisis, with slumping sales and developers defaulting on debts, while consumer confidence has been soured by repeated COVID-19 lockdowns and a mortgage boycott.Among 20 cities monitored by the China Index Academy, the average daily floor area of homes sold in four tier-one cities all fell sharply from last year’s holiday season, with declines of 64% in Beijing, 49% in Shenzhen and 47% in Shanghai.The sharpest fall, of 80% on the year, was in the eastern city of Hangzhou, higher than the rest of the cities monitored.”Homebuyers are still in a wait-and-see mood in the near term, and stimulus measures will take time to take effect,” said Chen Wenjing, an analyst from an independent real estate research firm.”The new-home market is likely to gradually stabilise in the fourth quarter.”Many Chinese cities advised against unnecessary trips for the public holidays, worsening the impact of COVID-19 policies that have kept tens of millions under lockdown.China’s 422 million tourist trips over the National Day holiday this year were down 18.2% from a year earlier.Beijing is ramping up efforts to prop up the distressed property market by easing mortgage rate floors, cutting the interest rate on provident fund loans and offering individual income tax rebates for home buyers.But with few signs that COVID-19 measures will ease in the near term, demand remains bleak.”Property sales during the National Day holiday are the first test of policy effectiveness,” analysts at ANZ said in a research note.There was no reason to cheer up, they added, as “the policy effectiveness is still tied to several uncertain factors which could limit the upside of any rebound”. More

The U.S. government published a sweeping set of export controls on Friday that including a measure to cut China off from certain semiconductor chips made anywhere in the world with U.S. equipment.”The United States will only hurt and isolate itself when its actions backfire,” Mao said at a regular briefing. More