Economy

MUMBAI (Reuters) – Alphabet (NASDAQ:GOOGL) Inc’s Google has been asked by the Indian government and the central bank to introduce more stringent checks to help curb the use of illegal digital lending applications in India, according to sources.Even though Google doesn’t fall under the Reserve Bank of India’s (RBI) ambit, the U.S. tech giant has been called several times in the last few months to meetings by the central bank and the Indian government and urged to introduce tougher checks and balances that can help in weeding out such apps, according to four sources. Indian regulators have already asked lenders to step up checks against illegal lending apps, which became popular during the pandemic. Regulators seek to control the proliferation of such apps that engage in unscrupulous activities such as charging excessive interest rates and fees or in recovery practices which are not authorised by the central bank or violate money laundering and other government guidelines. Google said that last year it revised its Play Store developer program policy for financial services apps, including requiring additional requirements for personal loan apps in India effective September 2021.”We have removed over 2,000 personal loan apps targeting India from the Play Store for violation of the Play policy requirements,” a Google spokesperson said, adding that such steps are taken if its policies are violated.”We will continue to engage with law enforcement agencies and industry bodies to help address this issue,” the spokesperson added.While India’s central bank requires that any lending apps listed on app stores be backed by regulated entities, it is up to Google to enforce this and monitor compliance.Google has also been asked to look at curtailing the rise of such apps via other distribution channels such as websites and other means of downloads, according to another industry source who is directly involved.Google is also starting to act on complaints received from industry bodies.”Earlier Google would not respond to complaints on individual apps. Now they are more proactive and do look into it when a complaint is flagged to them,” said one of the four industry sources directly involved in the matter and who has been briefed about discussions with Google.The government and the RBI are in the process of preparing a white list of approved lending applications. The central bank has also laid down norms to ensure that a borrower must deal directly with a bank for lending and recovery which can help to keep the third-party recovery agents away.Google dominates India’s app market with 95% of smartphones using its Android platform.The Ministry of Electronics and Information Technology and the RBI did not immediately respond to an email request seeking comment.NEW ADVERTISING POLICYIndia’s digital lending market has grown quickly and facilitated $2.2 billion in digital loans in 2021-22. It is not clear how much of that is via apps engaging in illegal practices.These lenders often reach customers via advertisements on platforms like Facebook (NASDAQ:META) and Google.Starting from next month, Google will roll out a new advertising policy for financial services in India, a blog post on its website shows.The policy says that in order to show financial services ads in India, advertisers need to be verified in the country. As part of the verification, advertisers must demonstrate that they are licensed with the relevant financial services regulator, the blog says. More

Earlier this month, the ECB raised rates by an unprecedented 75 basis points, just weeks after a 50-point move, and promised several more steps over the coming months as euro zone inflation was at its highest rate in nearly a half a century and at risk of becoming entrenched.”Monetary policy always tries to act to fight inflation, that will have an effect on consumer spending and investment by companies…and further interest rates increases will depend on economic data,” de Guindos told a financial event in Madrid.”Inflation is the biggest pain for European population,” he added. More

Investing.com — The number of interest rate increases from the European Central Bank will be dependent on upcoming economic data, according to ECB vice president Luis de Guindos.Speaking at a financial event quoted by Reuters, de Guindos added that there will be an “effect on consumer spending and investment by companies” as the ECB hikes borrowing costs in its ongoing bid to cool red-hot inflation.Analysts expect the ECB to move its deposit rate up to as high as 2% by the end of the year from its current level of 1.25%.Philip Lane, the ECB’s chief economist, previously flagged over the weekend that there could be “several” more rate rises throughout the rest of 2022 and into next year.Elsewhere on Monday, the Bundesbank warned that the German growth is already falling and could contract further in the winter months. But Germany’s central bank said it does not see the largest European economy sliding by 3.2% in 2023 as it had predicted in June. More

I was discussing this question recently with a source, as part of a larger conversation about US-China decoupling. In some ways, it feels like we are on the brink of a hot conflict in the South China Sea, with ramifications we can only begin to imagine. As I explore in my column, the Senate has passed a bill offering $6.5bn in military aid to Taiwan and is threatening new sanctions on China. The president has also directed the Committee on Foreign Investment in the United States (rightly, I think) to more carefully scrutinise inbound high-tech deals from China.I think a certain amount of decoupling is not only warranted, but welcome. The US and China have fundamentally different political economies, and it’s folly to think that markets will continue to mesh seamlessly when the governments are going different ways geopolitically. The question is how the process will play out. Is there going to be a sharp, sudden break, perhaps provoked by the US getting involved, purposefully or not, in the Taiwan situation? Or will there simply be an understanding between the sides that they are going in different directions, but that there must be some way of communicating in order to avoid unexpected conflict? In other words, is it 1939, the year the second world war began in earnest for the west, or 1963, the year that the US and the Soviet Union set up a hotline so the White House and the Kremlin could reach each other immediately and communicate if there was trouble? Beijing and Washington don’t seem to have a strong system in place, even as the chances of war in the South China Sea grow. I’m sure the US military has contingency plans in place should this happen. But that doesn’t address the economic and market impact. In fact, the details of the entire US and China supply chain relationship have yet to be understood.Some would argue they can’t be. But that doesn’t mean we shouldn’t try to get as clear and complete a picture as possible. Certainly, a variety of federal agencies are struggling to create a road map for critical supply chains — what would happen if, say, semiconductor supply in Taiwan or drug inputs from China were abruptly cut off? How much production could be quickly sourced elsewhere? How long would it take to fill spare capacity and at what cost? But as the war in Ukraine has taught us, it’s difficult to predict the basics, let alone the second- and third-tier fallout. The fact is that the American government doesn’t yet have a 360-degree view of even the most crucial supply chains, such as electric vehicles.That’s not only because these are very complicated systems, but because the private sector itself doesn’t understand its own risk map. Indeed, “efficient” systems aren’t made to tally such risks, only to drive down costs (anyone interested in that topic should read Barry Lynn’s prescient book The End of the Line, which remains the gold standard in thinking about supply chain complexity and how it can go pear-shaped).The last time we had a bunch of “too big to fail” private sector entities that had no idea what kind of risks they were holding, we got the subprime crisis. Today, as Credit Suisse analyst Zoltan Pozsar (one of the seers of 2008) put it in a recent note to clients, “inventory for supply chains is what liquidity is for banks”. If it dries up quickly, the system will break.It’s high time for the White House to appoint a resiliency tsar to get a handle on all this and create a risk map — not in order to sound the drums of war, but to create a contingency plan should there be a conflict, and figure out how long and at what cost the system could be reconfigured. I’d love to hear Swampian suggestions for who should hold the job.We also need more robust communication between Beijing and DC to make sure the decoupling, which will happen slowly if not suddenly, doesn’t morph into something more disturbing.Ed, do you think it’s 1939? Or 1963? Or do you have another year in mind?Recommended readingThe always-wonderful Evan Osnos, on someone I’ve always admired for his low-key wisdom and “it’s not about me, it’s about the job” ethos, the retiring Tennessee representative Jim Cooper. The FT ran a very instructive two-page spread recently about which companies are at particular risk from rising interest rates. Check it out here.Also, have a listen to my colleague Jemima Kelly’s new podcast here, which looks at how crypto money flooded Washington, and how it’s changing our financial system.And finally, don’t miss Skandal! Bringing Down Wirecard, which is out on Netflix. The documentary tracks the major FT investigative report that eventually unmasked the fraudulent German online payments giant. The FT review is here.Edward Luce responds Rana, when I am feeling pessimistic, I compare the current US-China tensions to 1911, or somewhere not too distant from the outbreak of the Great War. The US, as with Britain then, is the dominant but weakening hegemon. Germany, resembling China today, had grown into a larger-scale manufacturer than the home of the industrial revolution. As with contemporary China, Germany had spent the previous 20 years amassing a formidable modern military and chafing at the century-old dominance of a waning Pax Britannica, which was belatedly modernising its navy.Thankfully, the analogy is not exact. Germany had in fact overtaken Britain 30 years earlier, whereas China’s economy is still about one-fifth smaller than America’s in dollar terms. Plus, I like to think we are not as naive as early 20th century Europeans who had no idea what modern mass warfare could wreak. Or rather, I pray that we are not as naive: in a nuclear age, we cannot afford to relearn the lessons of history. Perhaps the better comparison is 1961. I wouldn’t choose 1963, because the post-Cuban missile crisis safeguards put in place by the USSR and the US are almost completely absent between Beijing and Washington today. Communication between the Pentagon and its Chinese counterparts is ad hoc. China refuses to be part of any putative nuclear and missile reduction talks between Russia and the US (now in abeyance, of course) since it is embarking on an ambitious nuclear modernisation and expansion plan before it would even consider negotiations. In my view, therefore, today’s lack of safeguards is more akin to the eve of the Cuban missile crisis than its aftermath. The US should be mindful of the fact that Taiwan is as close to the Chinese mainland as it is to Cuba. Washington’s rhetorical drift away from a “one China” policy, to halfway towards a two China policy is high-risk and unwise. We should continue to provide Taiwan with the means of self-defence, but also be punctilious in adhering to the original formula of the 1972 Shanghai Communiqué and 1979 Taiwan Relations Act.As for economic decoupling, we should be careful what we wish for. If America’s ultimate aim is to ask its Asian partners to choose between China and the US, we might be shocked at the answer. Most of them export far more to China than the US. More

In the southern tech hub, a total of 604 units in a luxury development that has not yet been built have been presold for up to 162,000 yuan ($23,087) per square metre, it said.With the units ranging in size to up to 425 square meters, that suggests some could have reached values of $9.8 million. In May, units at a project going for at least 18 million yuan each were sold out on the first day they were launched, the newspaper said.China’s property market has slowed sharply in recent months, with prices and sales both falling after authorities stepped in to cut excessive debt held by property developers, triggering a liquidity crunch and hitting buyer sentiment.But new luxury homes are still popular with buyers, who see them as “hard currency” in a feeble property market, the newspaper cited industry insiders as saying.Demand has remained bleak despite a slew of stimulus measures imposed by over 200 cities to stoke buyers’ interest, with property sales by floor area falling 48% on year in August.In contrast, in the first half of this year, the average selling price of luxury properties valued at 10 million yuan and above rose 11% from a year earlier, according to China Real Estate Information Corp (CRIC), an independent property consultancy service.($1 = 7.0176 Chinese yuan renminbi) More

Brussels is seeking emergency powers to force member states to stockpile key products and break contracts during a crisis such as the war in Ukraine or the coronavirus pandemic, according to plans revealed by the European Commission on Monday.The legislation, which intends to facilitate public procurement of critical goods and services, would deter the world’s leading exporters, such as China, from initiating similar measures without first informing the commission.The “single market emergency instrument” would give the European Commission, the executive body of the EU, ample space to declare an emergency. Brussels would then be able trigger a number of interventionist measures to ensure the availability of goods, for example by facilitating the expansion or repurposing of production lines, the EU said.Thierry Breton, internal markets commissioner, said the new legal tool would “provide a structural answer to preserve the free movement of goods, people and services in adverse times”.“The best way to manage a crisis is to anticipate it, to reduce its impact or to prevent it from happening,” he said on Monday, adding that the new rules would allow Brussels to ask companies for information about their production capacity and inventory.The proposals, which now need to be debated with member states and the European parliament, are unlikely to become law for several months but could be in place before the current commission ends its mandate in 2024. They are likely to require the approval of a qualified majority of EU states. Breton said the new instrument would also allow regulators to prevent the fragmentation of the internal market. “We have clearly seen that in times of crisis, member states are tempted to introduce internal restrictions on the internal market (restrictions on exports of masks, cereals, border closures) and discriminatory measures (double fuel prices), aggravating the effect of the crisis.”Margrethe Vestager, the EU’s executive vice-president in charge of competition, said: “The Covid-19 crisis made it clear: we must make our single market operational at all times, including in times of crisis. We must make it stronger. We need new tools that allow us to react fast and collectively.”While member states agreed on the need to protect the single market in times of crisis, diplomats said many expressed concern when commission officials presented the plans last week, with some arguing that they would go too far in allowing Brussels to intervene in corporate operations. Others accused Brussels of seeking to boost its powers without carrying out proper impact assessments of the proposed measures.Former eastern bloc countries in particular were wary of a “command economy”, one EU diplomat said, adding: “It’s very sensitive. Member states have a lot of questions.”During the Covid crisis, regulators in Brussels passed legislation allowing export bans on vaccines as a response to the US blocking shipments of shots to Europe. Member states also forced businesses to shift production to ventilators and face masks as they faced supply bottlenecks.There are currently similar issues in the fertiliser market, said EU officials. High gas prices have driven up costs for producers and curbed production by 70 per cent across the EU. Officials said the bloc needed to be better prepared to react to the next supply chain crisis. Several other countries already have measures in place for strategic reserves and priority orders, such as the US Defense Production Act.Additional reporting by Andy Bounds in Brussels More

Good morning. It’s Fed week. I predict the Fed’s rhetoric will be very tough indeed, following the precedent set last month in Jackson Hole. I also predict the market will still not quite buy it. Have a different prediction? Email me: [email protected]. How much should China’s slowdown matter to global investors? The standard checklist of reasons to be bearish has, at present, three big items on it. One: to suffocate inflation, the Federal Reserve will tighten monetary policy until the US is in recession. Two: an energy shock will send Europe and the UK into recession, if it hasn’t already. Three: the zero-Covid policy and a slow-motion property crisis guarantee anaemic Chinese growth.China’s woes cemented their place in the top three last week, when key economic data for August came out. While the headline figures were not as bad as the outright scary July numbers, the underlying picture has not gotten better — especially as regards domestic demand. China’s manufacture-and-export machine is still humming along, though weaker global demand is starting to show. But domestically, things are ugly:The August retail sales number rose 5.4 per cent in August, a bounce from July’s 2.7 per cent. But analysts were quick to point out that the improvement was largely down to an easier comparison with last year and government subsidies for car purchases. Month-over-month and adjusted for seasonality, Capital Economics’ Julian Evans-Pritchard estimates that retail sales declined 0.8 per cent. His chart:

Youth unemployment remains close to 20 per cent, and rising.For global exporters of iron ore, copper and other commodities used in construction, there is no sign of a recovery in the housing market, and fixed real estate investment continues to fall.The government is pushing various forms of stimulus. Local government financing vehicles are borrowing to buy up land, supporting cities and provinces in the place of retreating real estate companies. The People’s Bank of China has cut a key lending rate. The government is encouraging banks to provide funds to restart stalled real estate projects. But given the scale of the problems, it looks like tinkering around the edges, with more rhetoric than substance. Here is Adam Wolfe of Absolute Strategy Research, writing last month:The government has so far failed to deliver its rumoured stimulus measures. Media reports that local governments will be allowed to tap rmb1.5tn from next year’s bond [issuance] quotas have yet to be confirmed. And the bailout fund for stalled housing projects that the State Council supposedly approved hasn’t been announced. The Politburo’s quarterly economic review last week didn’t mention either, nor did this week’s PBoC and NDRC planning meetings for the second half of the year. That’s likely made firms even more cautious about investing since they’re not sure when, or if, additional government support will be forthcoming.Monetary stimulus is ineffective because China is in a liquidity trap. “China’s private sector has little interest in further borrowing . . . ample funds exist for lending, but they are simply sitting in the banking system unused,” Craig Botham at Pantheon Macroeconomics sums up. So credit growth is slower than the growth in money supply. Here’s Botham’s chart (“M2” is the money supply, “ASF” stand for “all social financing” a broad measure of credit growth):

Not an encouraging picture. For investors who are not directly invested in China, though, should it be a major independent cause for worry? An institutional investor in New York, London, Tokyo, or Singapore, with a reasonably standard portfolio of equities and bonds, will have loads of direct exposure to the US and European economies. Their direct exposure to China is likely to be much lower, for several reasons. China’s financial system is relatively closed, and foreign ownership of its financial assets is low (and, in the case of corporate bonds, falling fast). And while China has an immense role in meeting demand for goods outside of China, its role as a source of demand for goods and services for other nations is much more limited, and concentrated to a few areas — most notably commodities and semiconductors (the top ten holdings in MSCI’s World China Exposure Index consist of 5 semiconductor companies, 4 commodities groups, and an electronics component manufacturer).But outside of huge commodities exporters such as Brazil and Australia, direct exposure to Chinese demand is not enormous:

The world makes, China takesCountryUSEUJapanBrazilAustraliaChina’s share of exports6%11%19%28%39%Exports’ share of GDP12%11%16%20%24%Source: World Bank, Eurostat

Joerg Wuttke, president of the European Chamber of Commerce in China, pointed out to me that European exports to China (€112bn) are well less than those to the UK (€161bn) and not much greater than those to Switzerland (€91bn).But while it is important not to exaggerate the contribution of China to global demand, it is equally important to acknowledge that the areas where China’s demand is most significant — commodities and semiconductors — are highly cyclical and visible. What China does contribute is highly volatile and could be both a leading indicator of global growth and a powerful driver of global sentiment. That helps to explain charts like this one, from Absolute Strategy Research, showing a significant if uneven correlation between Chinese economic and global stock performance:

I wonder if the correlation might be weaker this time around. Given that China’s two big problems (zero Covid and housing) are very much local, how much will China’s slowdown prove to be a global problem this cycle, outside of quite specific sectors like commodities? Will China lead the global economy — or just follow it?One good readAdam Tooze on the risks of coordinated global monetary tightening — a “Fed mistake” on a global scale. More

The drumbeat of decoupling between the US and China rose to a crescendo last week as President Joe Biden issued an executive order telling the Committee on Foreign Investment in the US to boost scrutiny of cross-border deals in sensitive areas such as artificial intelligence, quantum computing and biotechnology. The order didn’t specifically mention China but was clearly part of a growing effort by the White House to separate its supply chains and financial markets from Chinese influence.Whether or not you agree with the move, or decoupling in general, it’s high time America had a much more complete strategy for how to deal with the reality. US-China tensions have risen to worrisome levels, particularly around the issue of Taiwan. Last week, the Senate foreign relations committee approved a bill that would provide $6.5bn in direct military assistance to the country, as part of an effort to help the island nation — which produces 92 per cent of the world’s high-end semiconductors — defend its sovereignty.The path to actually passing the bill and pushing through aid money is unclear. But the move, along with talk of new sanctions against China to deter a potential attack on Taiwan, are pushing geopolitical hot buttons at a time when the US has yet to develop a detailed action plan for the economic fallout from such a conflict, or even the continued decoupling of the US and Chinese economies.

In Washington, fears that Beijing is planning a military invasion are growing, and America is in danger of becoming embroiled in sparring between Beijing and Taipei in the Taiwan Strait. But what would happen if supply chains and financial flows between the US and China were cut off tomorrow? What’s the day-one plan? Nobody I’ve spoken with in either the public or private sector has a clear and complete answer to that question. The government approach has so far fallen into two categories: a tit-for-tat response to China’s own moves, involving tariffs and sanctions, or a big-picture but still somewhat vague top-down approach about how to rebuild the industrial base at home.Donald Trump’s administration was mostly about the former. The Biden administration has made clear it wants to sharpen government focus on protecting national security and building more resilience and redundancy at home, and regionally with partners (“friend-shoring”), in strategic areas such as semiconductors, green batteries, key minerals and pharmaceuticals. That’s important, and needed. But now both policymakers and businesses need to really drill down to what that means in practice.What would it mean, for example, if China suddenly stopped shipping key drug ingredients to the US? Is there a full list of what the most important inputs are, which companies use them, where alternative supplies could be located quickly, what percentage of consumption needs they could meet, and how quickly (and at what cost) industry in either the US or allied nations could manufacture new supply?Likewise, how would the US (and the world) meet chip demand should China invade Taiwan? Would there be a military counterstrike? Is it conceivable that foundries on the island would be destroyed? Are there any plans for which parts of the public and private sector would be prioritised in the event of a major and immediate semiconductor supply shortage?These are terribly uncomfortable questions, and it’s no surprise that few want to raise them. But they are exactly the ones we need to be asking, particularly given that Chinese leader Xi Jinping — who is likely to be reappointed for a third term at the Communist party congress in mid-October — has made clear that national security, even more than Chinese economic growth, is his top priority.China would have much to lose if trade and capital flows decoupled quickly. But the US has just as much to lose, if not more, and is less prepared for the possibility. Beijing is already actively implementing a “Fortress China” strategy to become self-sufficient in the most essential goods and technologies. The US has said it wants the same. Yet one of the realities of America’s decentralised, privatised economy is that it is difficult to map risk. The Department of Defense may have a grasp on where all the parts of an F-35 fighter jet come from. But I doubt that policymakers understand the totality of the supply chain in even the most important non-defence areas, such as electric vehicles or electronic components.This is not to say the US should copy Beijing’s top-down approach to economic development — as I’ve argued in past columns, decentralisation is a strength for the US in terms of innovation. But in a decoupling world, it’s not a good idea to raise the security stakes without having a solid plan for what happens if there’s a war, real or economic.

The US should appoint a White House-level resilience tsar (a non-partisan figure with a logistics or business continuity background) — as I’ve also argued previously — to pose the right questions and ensure public and private sector preparedness. We need a far better understanding of the economic implications of decoupling, whether it happens slowly or suddenly. We must not sound the drums of war without understanding what they may [email protected] More