Finance

When economists talk about bottlenecks, they typically refer to points in a supply chain that slow down production. The global economy is at present providing a rather literal example of the metaphor. It is as if someone has put a cork in the Suez and Panama canals.In normal times, the canals carry about 10% and 5% of maritime global trade respectively. Now the Panama Canal Authority has capped the number of ships that may traverse its channel, owing to low water levels. Attacks by Houthi militants on ships in the strait of Bab al-Mandab, part of the passage from the Indian Ocean to the Suez Canal, have prompted some of those travelling between Europe and Asia to take the longer route round Africa instead.Given that the rich world at last appears to be defeating inflation, this is making policymakers nervous. Rising shipping prices from mid-2020 to early 2022 coincided with the surge of inflation in the first place. Their subsequent fall coincided with its decline. Since the Houthi attacks on ships began in November, prices have once again jumped. According to the Freightos Baltic Index (fbx) the cost of shipping a standard container rose by 93% in the week to January 9th. Drewry, a consultancy, notes that for the Shanghai to Rotterdam route, which would usually pass through the Suez Canal, the cost jumped by 114% to $3,577 over a similar period.image: The EconomistBut a repeat of pandemic-era inflation is unlikely. The shipping snarl-up is not yet on the same scale as last time (see chart). Although the fbx is rising, it is only at a quarter of the peak reached in 2022. In September 2021 respondents to a survey of purchasing managers conducted by s&p Global Ratings, a data provider, were 17 times more likely than the long-run average to say that shipping costs were contributing to higher prices. In the latest survey they were only three times more likely.Future surveys may well indicate more concern. Annual shipping contracts are typically agreed in March, notes Chris Rogers of S&P, meaning that current rates do not reflect the true cost of transport. If disruption lasts until contracts are renegotiated this could swiftly change, he adds.Ultimately, though, the inflationary impact of bottlenecks reflects the degree of mismatch between supply and demand. Economists at the annual meeting of the American Economic Association, held from January 5th to 7th in San Antonio, Texas, discussed a number of papers on this topic. According to one, presented by Oleg Itskhoki of the University of California, Los Angeles, price growth as a result of bottlenecks during covid-19 was more persistent in America than elsewhere.Other papers suggest why this was the case. One, outlined by Ana Maria Santacreu of the St Louis branch of the Federal Reserve, found that in countries where governments provided more fiscal stimulus, such as America, the post-pandemic reopening did less to alleviate supply-chain bottlenecks than elsewhere. “Supply constraints bind during periods of high demand,” she concluded. Another paper, presented by Callum Jones, an economist on the Federal Reserve’s board, agreed with the conclusion. Bottlenecks explained about half the rise in inflation from 2021 to 2022, his work found, but that was because they exacerbated loose monetary policy.Although difficulties in the Suez and Panama canals echo recent history, the context is very different. Rich-world policymakers are no longer attempting to use fiscal and monetary policy to juice demand. The global economy is also not trying to adjust to a shift from services to goods, which economists considered another culprit for snarled supply chains.In the most recent S&P survey respondents were 50% less likely to point to higher demand as a reason for extra costs than the long-run average; two years ago they were 75% more likely to do so. As a consequence, business leaders are more relaxed about the current crunch. The world’s great shipping canals may be bottlenecks. Fortunately, however, there is not much pressure in the rest of the bottle. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

A new Communist Party slogan was born on January 9th. The phrase, which appeared on the front page of the People’s Daily, a party mouthpiece, defies easy interpretation. A loose translation might read “nine issues that must be grasped”. As is typical of party-speak, it has been abbreviated into a three-syllable catchphrase: jiu ge yi. The issues it refers to include other slogans, such as “breaking free from the historical cycle of rising and falling” and “taking the lead of the great social revolution as the fundamental purpose”. Only by fathoming such principles can one engage in “self-revolution”—yet another slogan, focused on combating corruption.These buzzwords do not roll off the tongue. They are oblique and often resistant to decryption. Normal folk frequently ignore them. They represent, however, the language of party power—”the very currency on which [the party] to a large extent depends”, says David Bandurski of China Media Project, a research group. The jargon sets the tone for economic campaigns. It even defines entire epochs of growth. At a time when China’s leaders are attempting to drag the economy from the doldrums, there is even more reason than normal to pay attention to party-speak.Apparatchiks reserve the right to define their buzzwords. But Xi Jinping, China’s supreme leader, has elevated the importance of ideology in everyday life and business, meaning that economists and industry analysts have spent more time poring over the language, often making interpretations of their own. “Common prosperity”, for example, became the most-discussed phrase of 2021. It was interpreted by some investors as a backlash against the wealthy. Then it seemed to fizzle out. To date, no official definition has been given.“High-quality development” courted similar controversy in the first week of 2024. Its mention in Mr Xi’s New Year’s address, and the fact that he uttered the phrase twice as often in 2023 as in the previous year, according to Bloomberg, a news service, has both pleased and perplexed economists. Some believe that it signals greater investment in advanced technology, which could help stimulate growth. Others think it might de-emphasise China’s traditional growth engines, such as low-end manufacturing, and indicate increased tolerance for slower growth.Such confusion is not enough to stop party-speak spreading. Since Mr Xi first used the words “profound changes unseen in a century” during a policy address in 2018, they have become common in local policy documents. Officials in Hong Kong have started using them. Chinese brokers drop the phrase into notes for clients. Although the term is often thought of as a political buzzword, some experts are now trying to fit it into economic policy. Analysts at CICC, an investment bank, have offered up a succinct definition. According to them the “changes unseen” include “competition among major countries, the outbreak of a once-in-a-century pandemic, climate change and green transformation, the wealth gap and ageing population”. Who knows whether they are right?Many of the party’s phrases have become sweeping ideologies that cover swathes of society and the economy. An increasingly popular one—“national rejuvenation under the new-era system”—is focused on restoring China’s economic and cultural place in the world. Despite this fearsome designation, it can nevertheless be used to explain many positive trends that have taken place under the leadership of Mr Xi, not least China’s rapid economic growth. The “Chinese path to modernisation” is similarly expansive and vague. At a state-organised salon in Shanghai on January 10th, a panel of experts talked at length about how foreign investment, private enterprise and even youth travel all fit into this Chinese path.For the moment, it is unclear what the party has planned for jiu ge yi. It may become part of the war on corruption, says Manoj Kewalramani, who publishes a newsletter interpreting the People’s Daily. If so, it will start appearing on banners across the country. Its omnipresence will not make it any easier to understand. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

Citigroup warned investors late Wednesday that charges tied to the decline of the Argentine peso as well as the bank’s reorganization came in far higher than recently disclosed.
The bank said its fourth-quarter results, scheduled to be released Friday morning, were impacted by $880 million in currency conversion losses from the peso and $780 million in restructuring charges tied to CEO Jane Fraser’s corporate simplification project.
Those charges are significantly larger than the “couple hundred million dollars” apiece that CFO Mark Mason told investors to expect at a Dec. 6 conference hosted by Goldman Sachs.

Jane Fraser CEO, Citi, speaks at the 2023 Milken Institute Global Conference in Beverly Hills, California, May 1, 2023.
Mike Blake | Reuters

Citigroup warned investors late Wednesday that charges tied to the decline of the Argentine peso as well as the bank’s reorganization came in far higher than disclosed by the company’s CFO just weeks ago.
The bank said its fourth-quarter results, scheduled to be released Friday morning, were impacted by $880 million in currency conversion losses from the peso and $780 million in restructuring charges tied to CEO Jane Fraser’s corporate simplification project.

Those charges are significantly higher than the “couple hundred million dollars” apiece that CFO Mark Mason told investors to expect at a Dec. 6 conference hosted by Goldman Sachs.
“They gave guidance just a month ago, and now its several hundred million dollars higher for two categories,” veteran banking analyst Mike Mayo of Wells Fargo said in a phone interview. “If your problem is credibility with investors, then you shouldn’t be doing this type of thing.”
Fraser faces a key moment this week as Citigroup reports fourth-quarter and full-year 2023 earnings in the middle of restructuring efforts aimed at making the bank into a leaner, more profitable company. Throughout the past two decades, Citigroup has been dogged by high expenses and eroding credibility after Fraser’s predecessors underdelivered on targets. That’s left Citigroup the lowest-valued among the six biggest U.S. banks.
Beyond the two charges, Citigroup disclosed Wednesday that it needed to build reserves by $1.3 billion because of its exposure to Argentina and Russia, and that it would post a $1.7 billion expense for a special FDIC assessment tied to the 2023 regional bank failures.
All told, the charges are likely to result in a $1 per share fourth-quarter loss, according to Mayo. Despite his own skepticism that the bank can achieve its targets, Mayo recommends Citigroup stock, saying it is so beaten down that it can double within three years.

Shares of the bank dipped about 1% in after hours trading Wednesday.
A Citigroup spokeswoman declined to comment on the bank’s shifting guidance, instead pointing to remarks from Mason published late Wednesday.
“While these items are meaningful for our 2023 results, we remain on track to meet the 2023 expense guidance (excluding FDIC and divestitures) and all of our medium-term targets,” Mason said. “The items we disclosed today do not change our strategy.” More

China’s Ministry of Commerce said Thursday the U.S. is weaponizing export controls and using them as a tool.
Spokesperson Shu Jueting was speaking at the ministry’s first press conference of 2024 in response to a question about ASML.
Chinese Commerce Minister Wang Wentao also raised concerns about U.S. chip export controls in a call Thursday with U.S. Commerce Secretary Gina Raimondo, according to the ministry.

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters

BEIJING — China’s Ministry of Commerce said Thursday the U.S. is weaponizing export controls and using them as a tool.
”We are highly concerned about the United States’ direct intervention and interference in the issue of high-tech exports by Dutch companies to China,” spokesperson Shu Jueting said at the ministry’s first press conference in 2024, according to a CNBC translation of her Mandarin-language remarks.

“The United States has instrumentalized and weaponized export control issues,” she said, calling for the Dutch side to “respect the spirit of the contract and support businesses in conducting compliant trade.”
She was responding to a question about ASML, the Netherlands-based company that makes lithography machines that are key to manufacturing advanced semiconductors.
ASML said in a Jan. 1 statement the Dutch government restricted it from exporting some lithography products to China.

The Dutch government last year announced new restrictions on exporting certain equipment for manufacturing advanced chips. The move followed U.S. export controls aimed at limiting the Chinese military’s access to high-end semiconductor technology.
ASML said in the statement that after discussions with the U.S. government, it found the latest U.S. export rules in October cover certain lithography tools.

China “firmly opposes” such moves and will take “necessary measures” to protect Chinese business interests, Shu said.
The ministry last year announced export controls on some metals used in chipmaking.

U.S.-China commerce talks focus on chips

Chinese Commerce Minister Wang Wentao also raised concerns about U.S. chip export controls in a call Thursday with U.S. Commerce Secretary Gina Raimondo, according to the ministry.
Wang “focused on expressing serious concern about U.S. restrictions on third-party exports of lithography machines to China, investigations into the supply chain of legacy chips and sanctions that suppress Chinese companies,” the ministry said in a Chinese-language readout translated by CNBC.
The U.S. Department of Commerce did not immediately respond to a request for comment outside of U.S. business hours. More

The meeting comes as foreign investors have largely taken a wait-and-see approach to China amid uncertainty about the country’s economic trajectory and tensions with the U.S.
“China will continue to deepen the reform and two-way opening-up of its capital market, facilitate cross-border investment and financing,” state media reported that He said.
Separately, President Emeritus of Harvard University Lawrence Summers met with People’s Bank of China Governor Pan Gongsheng on Wednesday, according to a news release on the central bank’s website.

SAN FRANCISCO, CALIFORNIA – NOVEMBER 10: U.S. Secretary of the Treasury Janet Yellen (R) greets People’s Republic of China (PRC) Vice Premier He Lifeng at the start of a bilateral meeting at the Ritz Carlton Hotel on November 10, 2023 in San Francisco, California. Secretary Yellen and Vice Premier Lifeng will hold meetings ahead of the APEC summit being held in San Francisco. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan | Getty Images News | Getty Images

BEIJING — Chinese Vice Premier He Lifeng met with global financial executives Wednesday and pledged to make it easier for foreign institutions to invest in the country, state media said.
The executives are part of the Chinese securities regulator’s international advisory committee. Vice Premier He is also director of the office of the Central Commission for Financial and Economic Affairs.

The meeting comes as foreign investors have largely taken a wait-and-see approach to China amid uncertainty about the country’s economic trajectory and tensions with the U.S.
The MSCI China stock index fell by 11% in 2023. It marked a third-straight year of annual declines, the first such losing streak in the last 20 years, according to Goldman Sachs.
“China will continue to deepen the reform and two-way opening-up of its capital market, facilitate cross-border investment and financing, and attract more foreign financial institutions and long-term capital to China,” He reportedly said at the meeting, according to state news agency Xinhua.
China has gradually allowed foreign financial institutions to take majority control of their local operations. Last year, the securities regulator also implemented new rules to clarify the process for domestic companies to list overseas.

Separately, President Emeritus of Harvard University Lawrence Summers met with People’s Bank of China Governor Pan Gongsheng on Wednesday, according to a news release on the central bank’s website.

Summers, formerly a U.S. Treasury Secretary, hosted a lecture on the global economy and stagflation, the PBOC said. In an email response to CNBC, Summers said the PBOC lecture “used the term secular stagnation rather than stagflation.” 
Earlier this week on Monday, he met with Shanghai Party Secretary Chen Jining, according to a government announcement.
In-person meetings between Chinese officials and U.S. officials, executives and academics have picked up since China ended Covid-19 travel restrictions more than a year ago.
China’s Premier Li Qiang is set to speak Tuesday at the World Economic Forum’s annual summit in Davos, Switzerland. More

In late 2021 Jerome Powell, chairman of the Federal Reserve, called for the retirement of “transitory” as a description for the inflation afflicting America. The word had become a bugbear, having been taken by many to mean that the inflation which had bubbled up early in the year would fade away as supply shortages improved. As the months went by, not only were price increases accelerating, they were broadening out—from used cars to air fares, clothing, home furnishing and more. The economists who had warned that excessive stimulus and overheating demand, rather than production snarls, would make inflation a more serious problem seemed prescient. In the shorthand of the day, it looked as if “Team Persistent” had defeated “Team Transitory”.Fast-forward to the present, and something strange has happened. The Fed, along with most other major central banks, has acted as if Team Persistent was right. It jacked up short-term interest rates from a floor of 0% to more than 5% in the space of 14 months. Sure enough, inflation has slowed sharply. But here is the odd thing: the opposite side of the debate is now celebrating. “We in Team Transitory can rightly claim victory,” declared Joseph Stiglitz, a Nobel laureate, in a recent essay.What is going on? For starters, the term “transitory” was long misunderstood. The narrowest definition, and the one that investors and politicians latched onto, was a temporal one—namely, that inflation would recede as swiftly as it had emerged. Yet another way of thinking about it was that inflation would come to heel as the post-pandemic economy got back to normal, a process that has played out over the course of years, not months.Moving beyond semantics, the nub of the debate today is whether recent disinflation is better explained by the tightening of monetary policy or the unsnarling of supply chains. If the former, that would reflect the vigilance of Team Persistent. If the latter, that would be a credit to the judgment of Team Transitory.There is much to be said for the supply-side narrative. The main economic model for thinking about how interest rates affect inflation is the Phillips curve, which in its simplest form shows that inflation falls as unemployment rises. In recent decades the Phillips curve has been a troubled predictive tool, as there has been little correlation between unemployment and inflation. But given the surge in inflation after covid-19 struck, many economists once again turned again to its insights. Most famously, Larry Summers, a former Treasury secretary, argued in mid-2022 that unemployment might have to reach 10% in order to curb inflation. Instead, inflation has dissipated even while America’s unemployment rate has remained below 4%. No mass unemployment was needed after all—just as Team Transitory predicted.Some have tried to rescue the Phillips curve by replacing unemployment with job vacancies. In this curve it was a decline in vacancies from record-high levels that delivered the labour-market cooling necessary for disinflation. Yet this explanation also comes up short, argues Mike Konczal of the Roosevelt Institute, a left-leaning think-tank. For inflation to have slowed as much as it has, the modified Phillips curve predicted an ultra-sharp decline in vacancies. But with 1.4 vacancies per unemployed worker, the American jobs market is still pretty tight. Again, this is closer to the immaculate disinflation of Team Transitory’s dreams.Moreover, Mr Konczal points to evidence of the supply-side response that enabled this. Looking at 123 items that are part of the Fed’s preferred “core” measure of inflation, he finds that nearly three-quarters have experienced both declining prices and increasing real consumption. This suggests that the most potent factor in bringing about disinflation was a resumption of full-throttled production, not a pull-back in demand.
Nevertheless, the notion that Team Transitory was right all along leads to a perverse conclusion: that inflation would have melted away even without the Fed’s actions. That might have seemed credible if the Fed had merely fiddled with rates. It is much harder to believe that the most aggressive tightening of monetary policy in four decades was a sideshow. Many rate-sensitive sectors have been hit hard, even if American growth has been resilient. To give some examples: a decade-long upward march in new housing starts came to a sudden halt in mid-2022; car sales remain well below their pre-covid levels; fundraising by venture-capital firms slumped to a six-year low in 2023.This leads to a counterfactual. If the Fed had not moved decisively, growth in America would have been even stronger and inflation even higher. One way to get at this is to craft a more elaborate Phillips curve, including the broader state of the economy and inflation expectations, and not just the labour market. This hardly settles the matter, since economists differ on what exactly should be included, but it does make for a more realistic model of the economy. Economists with Allianz, a German insurance giant, have done just this. They conclude that the Fed played a vital role. About 20% of the disinflation, in their analysis, can be chalked up to the power of monetary tightening in restraining demand. They attribute another 25% to anchored inflation expectations, or the belief that the Fed would not let inflation spiral out of control—a belief crucially reinforced by its tough tightening. The final 55%, they find, owes to the healing of supply chains.Tallying the scoresThe result is a draw between the teams when it comes to diagnosis: about half of inflation was indeed transitory. But what matters most is policy prescriptions. In the summer of 2021, believing inflation to be transitory, the Fed projected that interest rates would not need to rise until 2023, and even then to only 0.5-0.75%—a path that would have been disastrous. Boil the debate down to the question of how the Fed should have responded to the inflation outbreak, and Team Transitory lost fair and square. ■ More

Data from industry body Innovate Finance shows that global investment in fintechs sank to $51.2 billion in 2023, down 48% from 2022.
Despite that, the UAE saw total investment soar 92%, thanks in part to more fintech-friendly regulations and greater adoption of digital banking and fintech tools.
The U.K. was the second-biggest hub for fintech investment in 2023, with total funding for the country’s financial technology industry totaling $5.1 billion in 2023.

Europe’s fintech sector is fiercely competitive, with privately-held start-ups worth tens of billions of dollars vying to steal market share from incumbent banks.
Oscar Wong | Moment | Getty Images

The fintech industry saw more pain in 2023, with overall investment falling by half as higher interest rates and worsening macroeconomic conditions caused investors to tighten their belts, according to global investment figures shared exclusively with CNBC.
The data from Innovate Finance, a financial technology industry body, shows that investment in fintechs last year sank $51.2 billion, down 48% from 2022 when total investment in the sector totaled $99 billion. The total number of fintech fundraising deals also sank considerably, to 3,973 in 2023 from 6,397 in 2022 — a 61% drop.

Still, despite that drop, there was one standout performer on Innovate Finance’s list when it came to funding: the United Arab Emirates. According to Innovate Finance, the UAE saw total investment soar 92% in 2023, thanks in part to more fintech-friendly regulations, and as adoption of digital banking and other tools expanded in the region.
That marks the first time the UAE has made it to the top 10 list of most well-funded fintech hubs in 2023, according to Innovate Finance. There were more Asian and Middle East countries in the top 10 last year than there were European nations, the group noted, as some major European economies slipped down the table, such as France and Germany.
“Some of the markets now adopting this technology, we’re seeing that reflected in investment numbers,” Innovate Finance CEO Janine Hirt told CNBC earlier this week. Hirt noted that the momentum in Asia and the Middle East offered an opportunity for the U.K. to boost cooperation and partnerships with countries in those regions. “We are seeing appetite and real momentum coming from a lot of hubs in Asia,” she said.
On the slowdown, Hirt noted that growth-stage companies were the most likely to be affected by the downturn in funding in 2023, whereas seed-stage and early-stage firms were more immune to those pressures.

“If you’re a later-stage company, you might not be going out for a raise right now,” Innovate Finance’s CEO said, adding that early-stage fintechs had a better time in the market last year raising about $4 billion. “That’s a really positive sign,” she added.

“What is a testament to the strength of our sector is that deal sizes are very, very healthy,” Hirt said. “Globally, and in the U.K., investment in seed, Series A and B fintechs has normalized, which is a testament to the strength of investors,” she added.
Financial technology has had its share of gloom over the past 12 months, amid intensifying conflicts between Russia and Ukraine and Israel and Hamas, ongoing geopolitical tensions between the U.S. and China, and broader uncertainties affecting financial markets, such as higher interest rates.
According to the International Monetary Fund, global economic growth is expected to slow to 3% in 2023 from 3.5% in 2022.

UK comes second to U.S.

Innovate Finance also noted that the U.K. was the second-biggest hub for fintech investment in 2023, with total funding for the country’s financial technology industry totaling $5.1 billion in 2023, down 63% from $13.9 billion in 2022.
The U.K. received more investment in fintech than the next 28 European countries combined, according to Innovate Finance.

London fintechs pulled in $4.5 billion last year, with the city continuing to dominate when it comes to fintech funding in Europe more broadly.
However, the U.K.’s capital saw overall funding drop, too — down 56% from 2022.
Meanwhile, female-led fintechs in the U.K. bagged 59 deals year worth a combined $536 million, according to Innovate Finance, accounting for 10.5% of the U.K. total, which the organization called a “step forward” for women founders and leaders.
“I think, ultimately, the U.K. is still very much a global leader in fintech,” Hirt told CNBC. It’s the European leader.”
But, she added, “We can’t afford to rest on our laurels. It’s critical to build on the momentum we’ve had over the past few years. We need government support and regulation that is effective and efficient and proactive.”
“For us, a focus going forward is making sure we do have proper regulation in place that allows fintechs to thrive, and allows SMEs [small to medium-sized enterprises] across the country to benefit from these new innovations as well.”
“Cracking on with new regimes for stablecoins, regimes for crypto, open banking and finance — these are all areas we’re hopeful we’ll see progress in in 2024.”
The United States, unsurprisingly, was the biggest country for fintech investment, with total investment coming in at $24 billion, although funding levels remained down from 2022 as fintech firms raised 44% less in 2023 than they did a year ago.
India came in third after the U.K., with the country seeing fintech investment worth $2.5 billion last year, while Singapore was fourth with $2.2 billion of funding, and China was fifth on $1.8 billion.
The value of the top five biggest deals globally in 2023 was over $9 billion, or about 18% of total global investment in the space.
Stripe pulled in the most amount of cash raising $6.9 billion, according to the data, while Rapyd, Xpansiv, BharatPe, and Ledger won the second, third, fourth, and fifth-biggest investment deals, respectively. More

China’s leaders are obsessed with lithium-ion batteries, electric cars and solar panels. These sorts of technologies will, Xi Jinping has proclaimed, become “pillars of the economy”. His government is spending big to ensure this happens—meaning, in the years to come, that his ambitions will be felt across the world. A manufacturing export boom could very well lead to a trade war.image: The EconomistMr Xi’s manufacturing obsession is explained by the need to offset China’s property slump, which is dragging on economic growth. Sales by the country’s 100 largest real-estate developers fell by 17% in 2023, and overall investment in residential buildings dropped by 8%. After a decade in which capital spending in property outstripped economic growth, officials now hope that manufacturing can pick up the slack. State-owned banks—corporate China’s main source of financing—are funnelling cash to industrial firms. In return for an extension of pandemic-era tax breaks and carve-outs for green industries, exporters in powerhouse provinces have been told to expand production. During the first 11 months of 2023 capital spending on smelting metals, manufacturing vehicles and making electrical equipment rose by 10%, 18% and 34%, respectively.Such developments will be prompting flashbacks among veteran Western policymakers. China’s rise was accompanied by an epochal shift in global trade. In the decade that followed the country’s accession to the World Trade Organisation in 2001, its exports rose by more than 460%. China became the number-one target for accusations of dumping—selling goods abroad at lower prices than at home—in industries including chemicals, metals and textiles. Although low-cost goods were great news for consumers, they were less welcome for some rich-world industrial workers. It later became fashionable to blame the “China shock”, which led to lay-offs in affected industrial areas, for contributing to Donald Trump’s electoral victory in 2016.image: The EconomistThe coming manufacturing boom could be even larger, given the sheer scale of the Chinese economy, which has doubled in size over the past decade. Michael Pettis of Peking University notes that even if China simply were to maintain the current size of its manufacturing sector, which counts for 28% of GDP, and were to achieve its target of 4-5% gdp growth over the next decade, its share of global manufacturing output would rise from 31% to 36%. If Mr Xi’s ambitions are fulfilled, the rise will be even more significant.China’s capital investment, which is more than double America’s as a share of GDP, is funded by its thrifty households and their saving piles. During earlier manufacturing booms, some observers had expected the country’s domestic consumers to use these savings to splurge on goods, only to be proved wrong. Consumers are likely to continue to prefer saving to spending. In 2023 private consumption rose by 10%, rebounding from a grim 2022. But most analysts now expect markedly slower overall growth in the year to come, owing to tumult in the property market and the government’s wariness about borrowing to support household incomes. In the absence of higher private consumption, “policymakers would need to bring the economy down much faster to correct overcapacity”, says Alicia Garcia-Herrero of Natixis, a bank. “It would have to grow at 3-4%, not 5%”. Alternatively, if the higher rate of growth is to be sustained, more goods will have to be sold abroad.It will help that they are getting cheaper—as can be seen in the steel market, which is vital for China’s car and renewable industries. Early last year investors expected output to fall, as Chinese construction flagged. Instead, in a remarkable feat, the country’s steel giants produced more metal even as the property industry suffered. Steel mills, which have access to cheap capital, are willing to take considerable losses in order to preserve market share.As a result, industrial prices fell by 2% in the first 11 months of 2023, and profits by 4%. An employee at a supplier in Shanghai estimates that producers are losing about 350 yuan ($50) on each tonne of steel reinforcement they sell. In 2012, during a previous era of manufacturing stimulus, overcapacity meant that the profit on a couple of tonnes of steel “was just about enough to buy a lollipop”, according to Yu Yongding, an economist. Producers are now heading for a similar situation. Meanwhile, renewable firms, such as LONGi, the world’s largest solar-equipment manufacturer, and Goldwind, a wind-turbine maker, are also suffering. Both reported sharply lower profits in the third quarter of 2023.It is not only China’s industrial prices that are falling—the country’s currency is, too. The yuan is down by 9% on a trade-weighted basis since its peak in 2022, meaning that overseas competitors face a double whammy. At the same time, Western politicians are more willing to fight on behalf of domestic firms than during the last era of Chinese manufacturing stimulus. Attitudes towards Chinese exports have hardened. Western countries are both more protective of their domestic industrial bases and more sceptical that China will eventually become a market economy.Frictions are already starting to develop. In November Britain launched a probe into Chinese excavators, after JCB, a local firm, alleged that Chinese rivals were flooding the market with cut-price machines. The eu is conducting an anti-subsidy probe into Chinese electric vehicles and an anti-dumping probe into Chinese biodiesel. The Biden administration has asked the eu to tax Chinese goods, offering to drop American tariffs on European steel in return. On January 5th China decided to hit Europe where it hurts, announcing an anti-dumping investigation into brandy.And it is not just the rich world that is getting angry. In September India imposed fresh anti-dumping duties on Chinese steel; in December it introduced new duties on industrial laser machines. Indeed, almost all the anti-dumping investigations that India’s trade authorities are now conducting concern China. On the other side of the world, Mexico is in a tricky spot. It benefits from decisions by Chinese companies to move production in order to avoid American tariffs, but it also wants to avoid domestic markets being flooded by subsidised imports. It seems the latter desire is now taking precedence. In December the government announced an 80% tariff on some imports of Chinese steel.China’s leadership has little room for manoeuvre. In December officials issued a statement calling industrial overcapacity, exacerbated by weak domestic demand, one of the biggest challenges facing the economy. Given the numerous other challenges facing the economy, they can hardly afford to alienate more of China’s trading partners with fights over dumping and subsidies. Unfortunately, the alternative—a new year with nothing to offset the property mess and lacklustre consumer spending—may be even less attractive. ■ More